Transcripts For BLOOMBERG Bloomberg Markets European Close 2

Breakers were triggered first thing this morning across assets. 59 basis points on the 10 year yield. That is about a 10 basis point shop. A tiny bit of money coming out of u. S. Treasuries, maybe a little bit of stabilization. Crude oil down 17 . Did we think we were coming into this this morning . 34. 25 on a new front on a war between russia and saudi arabia on oil prices. The dollar index is weaker by the more than. 8 . The yen is the strongest currency versus the u. S. Dollar, trading at 1. 02. Euro and sterling stronger versus the u. S. Dollar. Some of the worst hit industries in the s p 500 are the Energy Industry and the bank industry. Energy down 16. 5 . No indication of what will happen with the debt outstanding of many of the companies. High yield is selling off as well as investmentgrade. It is across the board. The yen is trading at 102. 53 right now. U. S. 30 yeare, the is now only off 26 basis points, which is the benchmark we should be looking at. Brazil is up 8 , germany is down 6 , the ftse is down 6. 7 . Also a big move in the russian ruble, worth paying attention to considering the crude market. That will have an effect on russias view of the oil profit decline we are seeing at the moment. 17 . Is only down wti crude only down 16 . I say only good lets talk to some guest to get an idea of what is going on. Volatile, clearly it is hard to get a handle of. Elsa logneshis joining us as well as bloomberg editor. We are only down 27 basis points on the u. S. 30 year. Mark on any other date we would be headlining the fact. It is an incredible search. We are still down 27 basis points. On the weekend, there was a town that friday was a move in the u. S. Long end, it should never happen. We have gone more extreme today. This is a historic day in markets. I think this breaks to thousand eight and many Asset Classes, including treasuries. Definitely not in effect yet. In treasury, this is unprecedented. Elsa on the currency front, the moves we see now are relatively well contained given the size of the bonds. That is where i think we should be looking out for the most future potential movement. If you look at the likes of 104. Ryen, as audit what is it doing i saw it at 104. It is low but not low enough. There is no way the dollar yen will be trading above 100. Is the vonnie what correct level for dollaryen or the level you imagine will stabilize us . Elsa i think something closer to 90. It sounds extreme at the moment, but if we are going to see u. S. Yields moving toward the zero lower bound, than there is a huge wave of hedging to come out of the japanese investor base. A lot of dollaryen selling. Recall,e all, if you people try to sell dollaryen, but that was not the time for it. Let time is now. Down, the costs come seller are vonnie how correlated is that other trade in the markets. I can ask that question to both of you. Is that it idiosyncratic trait or is that related to Everything Else . Oil going lower, other currencies . Mark it is clearly the haven issue. As elsa says, 90 may seem extreme. But there is a lot of deleveraging to go and a lot of repatriation funds that needs to happen in japan. One of the things that complicates that is your end in japan. Overall, that trade is current what we are seeing in treasuries. And in gold. This is partially a bid for haven but yen is very much in unwinding of carrot in unwinding of carry. Anywhere we have seen carry trades in the past, they do not exist anymore. Guy lets talk about the policy response. We will probably see the fed cutting down toward zero. My question is what does that happen . Is the fed comfortable with not cutting as the market remains once the market starts to get more disorderly . Mark the worry is they are losing control of policy. It used to be dont fight the fed. Is the marketleading the fed question act . Is the marketleading the fed . Because we have such uncertainty around the virus, the fed is being put into a corner. They may not think the policy make sense, but they being forced to cut regardless because the market is saying if he did not, we will be more panicked. Guy if the fed cuts again and equity markets continue to fall, how bad does it get . At that point the fed put, the safety net does not exist anymore. Elsa we do seem to be rotating away from the Monetary Policy safety net toward expectation around fiscal policy. All we have heard has been relatively modest. There is lots more we need to see from governments if it is going to have some impact on markets. They are in mind equities are still trading above the lows of last year. When we were trading at these levels last year they were record highs. It seems like we have not actually corrected all that much fx is somewhere in the middle. How much cannie we expect liquidity in price gapping. We came in this morning it was almost a dramatic event in the market. Do we see more of that . Elsa that is to be expected when we get news like we did out of saudi over the weekend. I wouldve been surprised if it was not like that in asia. We saw a very large moves. Those are particularly worth watching closely because they reversed quite quickly and i have had a debate with clients about whether that was the right move. They are moving away from being the traditional risk proxies to being more positioned. They have little bit further to run. Vonnie mark, we ask the question, is the fed out of ammunition to reflate markets . Does the fed even want to reflate these asset markets . Was there a sense they were overvalued to some extent and this might be a good thing . Mark there is definitely a sense in the market there overvalued but im not sure that has shown any sign of deterring the fed. I think absolutely they would love they know the bigger threat in the shortterm is this deflationary scare. Not just seen by the fact we are headed into a recession, we have a massive Economic Impact we cannot price, and now and Oil Price War. We know one of the biggest cost influence for every company has come crashing down. We know the phillips curve has been broken. The low Unemployment Rate is not going to drive up wages. Theres been no hint of inflation. Now we have a deflationary shop. Policy would love to reinflate. The problem is, how they do that right now . Policy is not effective against the uncertainty of a pandemic scare. Guy there is said to be a meeting at the white house today. Icy advisors elsa we could just bounce in the shortterm. In the next couple of weeks, to turn the market around, for us not to see much lower lows than we saw, we need shock and awe. That has to come through a coordinated policy response. It needs the u. S. Alone to awe to some extent. They need to deliver something that is not expected by the market. That might come into regulatory changes. It might be through the Monetary Policy side. It needs to be everything. We are entering into crisis trading. That will not break until the coronavirus narrative changes. Unless they work on a wing and a prayer, they need to do shock and awe. Is europe capable of delivering shock and all . Elsa not on the monetary front. , we sawiscal front throughout these euro zone crisis they to be backed into a corner before they grudgingly deliver the goods. Vonnie elsa, what level are you looking for on oil . Is oil factoring into how you are watching currencies at all . Elsa what is interesting is the knock on effect of oil. If you look the moves we saw in crude at the open and throughout the day and compare that to the , the currency markets are not pricing in disaster scenarios. I would be looking for further weakness. A lot of people have the position on speculative terms. Is nowhere near this crowded. 1. 35. 32. E are at t about Commodity Prices the ruble and so on. Do we get some kind of an imbalance as we move forward with this Oil Price War as you like . Does not look like either side will back down until the next meeting. Elsa it is definitely a standoff at the moment that does not look likely to be resolved. On top of that, we have falling demand. It does not seem like we will have an extended period of low prices. We have had some Oil Producers hedging themselves and say they will have a 69 month grace period where they do not have to whereately come to terms the impact will be felt more acutely. Vonnie we are just getting started. Staying with this is elsa lignos and mark cudmore, bloomberg headlines managing editor. Lets check local markets with kailey leinz. Kailey the good news is we are well off the lows of the session. This morning the s p 500 opened lower by more than 7 , triggering the halt trading. Now we are seeing buying across the major averages. Only down between 4 and 5 . Those are still significant declines. A low bit more in the european session. The stoxx 600 down 6. 3 . The worst today since 2016. That index at its lowest level since january of 2019. We have ongoing concerns about the coronavirus economic implications. On top of that is the oil shock you are seeing with Oil Prices Dropping the most since 1991. It is creating a painful day for the equity market. I will take a longerterm look at the s p 500, specifically february 2019, which is when we had our most recent record high. Since that time, we are off just more than 16 , within 4 of entering a bear market. Granted, we do have some way to go. If we do see a 20 decline before april 1, that would be the fastest drop into a bear market in history. Remember it has only been 15 trading days we have seen this dramatic decline. Beneath the decline in the equity market, when we look under the surface, we have Energy Markets under the immense pressure. The financials are underperforming as well. Anyplace you look within the financials from the banks off by 11 , youve the likes of j. P. Morgan all down double digits. Also in the insurers, the diversified financials. Even homebuilding down 6. 3 . This is a rate story. If we hop into the terminal at g tv and look at the u. S. Treasury curve, we are below 1 . On the 30 year yield we are right at 1 . Yields moving ever lower puts pressure on Bank Profitability and even for homebuilders which should benefit for lower you thinkates when about the implication of u. S. Recession, which is what this market is increasingly pricing in. It is still looking bleak. Guy thank you very much. Andre back with elsa lignos mark cudmore, our managing editor for our live blog. Elsa, you listed three Asset Classes earlier and talked about the relationship between them. Is it possible one asset class is leading . Are we taking our cues from a particular asset class . The bond market seems to be the most obvious, but it seems like it might be like crude. Im curious about the different Asset Classes. Elsa there is also an argument that says if the fed is going to cut rates, some Equity Investors say if you use a lower discount rate, futures are not so bad. That is why it is interesting to see about what will be the asset reallocation implications of the moves we have seen in equities and bonds. That is where i think fx becomes the most interesting asset class. Traditionally people default thinking about the dollar. When times are bad, we go back to the dollar in the haven. I do not think that is the right framework. We are starting from a position where the dollar was one of the g10. St dealers in there a lot of hedging behavior that needs to adjust to the new reality. Guy mark, im g10. Curious how you think these relationship is working. Mark i hate it when i agree completely with the guest. A lot of investors are looking for the dollar to kick in. I have heard sony people thing went as the dollar smart taken . They look back at 2008. Eurodollar was trading at 1. 60. Everybody in the world was chasing yields. That meant selling the dollar back. The idea was diversifying away from dollars. China was reading leading this new emergingmarket boom. Now weve been treading american exceptionalism for years. The u. S. Has been the highest yielding asset. The market is structuring long dollars. It will gain against some of the em currencies, but dollar will continue to suffer against g10. Treasuries are the absolute most important ones. That is the one saint everyone we are going to a crisis. The one saying to everyone we are going into a crisis. It is interesting how oil trades. We are up more than 20 . We are still down 20 . I think obviously cash markets the trading Circuit Breakers were important. We are watching overnight the yield move is the most important. Oil is the background picture. We do not care where it is for next 5 or 10 . I think the cash markets are open. People are really wondering where that structural massive bond in u. S. Equities, and the money focused in tech etf, will this be the catalyst. Other it is a moment of companies. Investmentgrade and highyield is surging. In bloomberg we can see very vividly the chart. Is this the moment of truth for some of the oil companies, for some of the retailers, for some of the Tourism Companies and potentially the airlines, although united highyield bonds seem to be trading swiftly right now and that is better prices than you might anticipate . Mark it is the moment of truth for those Zombie Industries were a couple of companies were kept alive because they could borrow so cheaply. Now their earnings will be smashed so much people not want to get involved, even though yields are lower, the spread is getting wider. As for the Energy Sector, 1 trillion in u. S. Corporate debt. I had the head of trading at a major u. S. Bank is fine as long as wti does not stay below 40 a barrel, this before bloomberg broke the news saudi was plenty to enterprise war. At that stage it seemed unlikely it would fall below 40 a barrel. Now we are a new environment. This will be the moment of truth the Energy Sector, for those zombie companies. Airlines are different. For stable airlines not too leveraged, they are now getting there biggest cost input. , imany of them, i am told not an equities expert, in terms of evaluating individual companies, they are so discounted they can afford to fly their planes still be profitable. Vonnie how about the idea that cheaper oil is good for consumers . Why is that not proving to be any consolation . Mark because it is a secondary impact. At the moment we are trading the coronavirus story. First of all, for the consumer side, the consumers are saying i am getting more disposable income,keep a hold of that unless the coronavirus gets worse. Maybe this is 2008. Even though they have more disposable income, they do not spend it correctly. For what it means for the economy, we know the u. S. Has gone from a massive oil importer to a massive oil producer and an oil exporter. For economy as a whole, it is a worry. Particularly so because the Energy Sector is particularly minus sectore bbb in the corporate market. The Energy Sector is bad for the financial markets. It is less clear what it means for the financial industry overall in terms of spending on capex. For the consumer is it a positive. An unmitigated negative right now. Guy which currencies benefit from a cheaper oil price . One that may stand out to south africa . Elsa south africa is a good chart because that is one where the market has been short. A lot of people may have hit profit levels in the overnight move. We have seen outperformance this morning in europe good it is also high leveraged to gold, which is rapidly becoming a market favorite. A highyielding em currency on the others. You can look at turkey, there is much other stuff in turkey. Ecb guy what is the ecb tolerance for a stronger euro . Elsa we have seen this before. All the euro has done is erase the Dollar Strength of january and february. It is not move that far. Guy is europe capable of sustaining a 1. 30 . Elsa if this is driven by hedging flows it is driven by the fact that u. S. Yields have come down. There is not much the ecb can do. Im at the limits they are at the limits of conventional Monetary Policy. If they do credit easing measures and further asset purchases, i do not think that will have an impact on the euro itself. Vonnie lets bring in it gina martin adams. She joins from bloomberg intelligence. We had a massive market event this morning with Circuit Breakers triggering across the board. Put it into context for us in terms of what you look at. 1987, theig as financial crisis . Gina so far, no. A massive decline in oil prices, but peaks and troughs were still down under 15 . We have had a big corrections even greater than 15 several times since 2009. We are not there yet. Certainly there are a lot of panicked signals being set by the market good oil prices down even 20 have a fairly minimal impact on a fundamental outlook for the s p 500. It is clear markets are pricing much bigger risks related to across asset relationships and correlations as opposed to fundamental concerns. Oil prices sell well, and that generally suggests you have a period of weakness and a period volatility. We are not in a 40 correction yet. We are not even in a 20 correction yet. I think you want to put it into perspective. Vonnie the phrase price discovery was being thrown around. Are we still discovering prices or are we waiting for some kind of authority to step in and say we will save the day. Is that wise . Gina it is a good question and we will continue to ask ourselves that. I think naturally what you see are liquid assets experiencing significant pressures as investors are selling everything and waiting for things to stabilize. That creates a lot of complicated analysis with respect to where market prices are going. I do think markets would love to see a greater coordinated fiscal policy response of some sort. Certainly, what happened over the weekend was not as much about coronavirus, which is what weve been talking about over the last two weeks, and more about what is going on in the oil complex, with ads which adds more fuel to the fire of the coronavirus concerns. You have to consider not only demand, but the likelihood of a slowdown in demand growth broadly, but also what will happen with his overhead supply of commodities which is not going to fall anytime soon according to the saudis. There are a lot of moving parts. I think should Energy Industry<\/a> and the bank industry. Energy down 16. 5 . No indication of what will happen with the debt outstanding of many of the companies. High yield is selling off as well as investmentgrade. It is across the board. The yen is trading at 102. 53 right now. U. S. 30 yeare, the is now only off 26 basis points, which is the benchmark we should be looking at. Brazil is up 8 , germany is down 6 , the ftse is down 6. 7 . Also a big move in the russian ruble, worth paying attention to considering the crude market. That will have an effect on russias view of the oil profit decline we are seeing at the moment. 17 . Is only down wti crude only down 16 . I say only good lets talk to some guest to get an idea of what is going on. Volatile, clearly it is hard to get a handle of. Elsa logneshis joining us as well as bloomberg editor. We are only down 27 basis points on the u. S. 30 year. Mark on any other date we would be headlining the fact. It is an incredible search. We are still down 27 basis points. On the weekend, there was a town that friday was a move in the u. S. Long end, it should never happen. We have gone more extreme today. This is a historic day in markets. I think this breaks to thousand eight and many Asset Classes<\/a>, including treasuries. Definitely not in effect yet. In treasury, this is unprecedented. Elsa on the currency front, the moves we see now are relatively well contained given the size of the bonds. That is where i think we should be looking out for the most future potential movement. If you look at the likes of 104. Ryen, as audit what is it doing i saw it at 104. It is low but not low enough. There is no way the dollar yen will be trading above 100. Is the vonnie what correct level for dollaryen or the level you imagine will stabilize us . Elsa i think something closer to 90. It sounds extreme at the moment, but if we are going to see u. S. Yields moving toward the zero lower bound, than there is a huge wave of hedging to come out of the japanese investor base. A lot of dollaryen selling. Recall,e all, if you people try to sell dollaryen, but that was not the time for it. Let time is now. Down, the costs come seller are vonnie how correlated is that other trade in the markets. I can ask that question to both of you. Is that it idiosyncratic trait or is that related to Everything Else<\/a> . Oil going lower, other currencies . Mark it is clearly the haven issue. As elsa says, 90 may seem extreme. But there is a lot of deleveraging to go and a lot of repatriation funds that needs to happen in japan. One of the things that complicates that is your end in japan. Overall, that trade is current what we are seeing in treasuries. And in gold. This is partially a bid for haven but yen is very much in unwinding of carrot in unwinding of carry. Anywhere we have seen carry trades in the past, they do not exist anymore. Guy lets talk about the policy response. We will probably see the fed cutting down toward zero. My question is what does that happen . Is the fed comfortable with not cutting as the market remains once the market starts to get more disorderly . Mark the worry is they are losing control of policy. It used to be dont fight the fed. Is the marketleading the fed question act . Is the marketleading the fed . Because we have such uncertainty around the virus, the fed is being put into a corner. They may not think the policy make sense, but they being forced to cut regardless because the market is saying if he did not, we will be more panicked. Guy if the fed cuts again and equity markets continue to fall, how bad does it get . At that point the fed put, the safety net does not exist anymore. Elsa we do seem to be rotating away from the Monetary Policy<\/a> safety net toward expectation around fiscal policy. All we have heard has been relatively modest. There is lots more we need to see from governments if it is going to have some impact on markets. They are in mind equities are still trading above the lows of last year. When we were trading at these levels last year they were record highs. It seems like we have not actually corrected all that much fx is somewhere in the middle. How much cannie we expect liquidity in price gapping. We came in this morning it was almost a dramatic event in the market. Do we see more of that . Elsa that is to be expected when we get news like we did out of saudi over the weekend. I wouldve been surprised if it was not like that in asia. We saw a very large moves. Those are particularly worth watching closely because they reversed quite quickly and i have had a debate with clients about whether that was the right move. They are moving away from being the traditional risk proxies to being more positioned. They have little bit further to run. Vonnie mark, we ask the question, is the fed out of ammunition to reflate markets . Does the fed even want to reflate these asset markets . Was there a sense they were overvalued to some extent and this might be a good thing . Mark there is definitely a sense in the market there overvalued but im not sure that has shown any sign of deterring the fed. I think absolutely they would love they know the bigger threat in the shortterm is this deflationary scare. Not just seen by the fact we are headed into a recession, we have a massive Economic Impact<\/a> we cannot price, and now and Oil Price War<\/a>. We know one of the biggest cost influence for every company has come crashing down. We know the phillips curve has been broken. The low Unemployment Rate<\/a> is not going to drive up wages. Theres been no hint of inflation. Now we have a deflationary shop. Policy would love to reinflate. The problem is, how they do that right now . Policy is not effective against the uncertainty of a pandemic scare. Guy there is said to be a meeting at the white house today. Icy advisors elsa we could just bounce in the shortterm. In the next couple of weeks, to turn the market around, for us not to see much lower lows than we saw, we need shock and awe. That has to come through a coordinated policy response. It needs the u. S. Alone to awe to some extent. They need to deliver something that is not expected by the market. That might come into regulatory changes. It might be through the Monetary Policy<\/a> side. It needs to be everything. We are entering into crisis trading. That will not break until the coronavirus narrative changes. Unless they work on a wing and a prayer, they need to do shock and awe. Is europe capable of delivering shock and all . Elsa not on the monetary front. , we sawiscal front throughout these euro zone crisis they to be backed into a corner before they grudgingly deliver the goods. Vonnie elsa, what level are you looking for on oil . Is oil factoring into how you are watching currencies at all . Elsa what is interesting is the knock on effect of oil. If you look the moves we saw in crude at the open and throughout the day and compare that to the , the currency markets are not pricing in disaster scenarios. I would be looking for further weakness. A lot of people have the position on speculative terms. Is nowhere near this crowded. 1. 35. 32. E are at t about Commodity Prices<\/a> the ruble and so on. Do we get some kind of an imbalance as we move forward with this Oil Price War<\/a> as you like . Does not look like either side will back down until the next meeting. Elsa it is definitely a standoff at the moment that does not look likely to be resolved. On top of that, we have falling demand. It does not seem like we will have an extended period of low prices. We have had some Oil Producers<\/a> hedging themselves and say they will have a 69 month grace period where they do not have to whereately come to terms the impact will be felt more acutely. Vonnie we are just getting started. Staying with this is elsa lignos and mark cudmore, bloomberg headlines managing editor. Lets check local markets with kailey leinz. Kailey the good news is we are well off the lows of the session. This morning the s p 500 opened lower by more than 7 , triggering the halt trading. Now we are seeing buying across the major averages. Only down between 4 and 5 . Those are still significant declines. A low bit more in the european session. The stoxx 600 down 6. 3 . The worst today since 2016. That index at its lowest level since january of 2019. We have ongoing concerns about the coronavirus economic implications. On top of that is the oil shock you are seeing with Oil Prices Dropping<\/a> the most since 1991. It is creating a painful day for the equity market. I will take a longerterm look at the s p 500, specifically february 2019, which is when we had our most recent record high. Since that time, we are off just more than 16 , within 4 of entering a bear market. Granted, we do have some way to go. If we do see a 20 decline before april 1, that would be the fastest drop into a bear market in history. Remember it has only been 15 trading days we have seen this dramatic decline. Beneath the decline in the equity market, when we look under the surface, we have Energy Markets<\/a> under the immense pressure. The financials are underperforming as well. Anyplace you look within the financials from the banks off by 11 , youve the likes of j. P. Morgan all down double digits. Also in the insurers, the diversified financials. Even homebuilding down 6. 3 . This is a rate story. If we hop into the terminal at g tv and look at the u. S. Treasury curve, we are below 1 . On the 30 year yield we are right at 1 . Yields moving ever lower puts pressure on Bank Profitability<\/a> and even for homebuilders which should benefit for lower you thinkates when about the implication of u. S. Recession, which is what this market is increasingly pricing in. It is still looking bleak. Guy thank you very much. Andre back with elsa lignos mark cudmore, our managing editor for our live blog. Elsa, you listed three Asset Classes<\/a> earlier and talked about the relationship between them. Is it possible one asset class is leading . Are we taking our cues from a particular asset class . The bond market seems to be the most obvious, but it seems like it might be like crude. Im curious about the different Asset Classes<\/a>. Elsa there is also an argument that says if the fed is going to cut rates, some Equity Investors<\/a> say if you use a lower discount rate, futures are not so bad. That is why it is interesting to see about what will be the asset reallocation implications of the moves we have seen in equities and bonds. That is where i think fx becomes the most interesting asset class. Traditionally people default thinking about the dollar. When times are bad, we go back to the dollar in the haven. I do not think that is the right framework. We are starting from a position where the dollar was one of the g10. St dealers in there a lot of hedging behavior that needs to adjust to the new reality. Guy mark, im g10. Curious how you think these relationship is working. Mark i hate it when i agree completely with the guest. A lot of investors are looking for the dollar to kick in. I have heard sony people thing went as the dollar smart taken . They look back at 2008. Eurodollar was trading at 1. 60. Everybody in the world was chasing yields. That meant selling the dollar back. The idea was diversifying away from dollars. China was reading leading this new emergingmarket boom. Now weve been treading american exceptionalism for years. The u. S. Has been the highest yielding asset. The market is structuring long dollars. It will gain against some of the em currencies, but dollar will continue to suffer against g10. Treasuries are the absolute most important ones. That is the one saint everyone we are going to a crisis. The one saying to everyone we are going into a crisis. It is interesting how oil trades. We are up more than 20 . We are still down 20 . I think obviously cash markets the trading Circuit Breakers<\/a> were important. We are watching overnight the yield move is the most important. Oil is the background picture. We do not care where it is for next 5 or 10 . I think the cash markets are open. People are really wondering where that structural massive bond in u. S. Equities, and the money focused in tech etf, will this be the catalyst. Other it is a moment of companies. Investmentgrade and highyield is surging. In bloomberg we can see very vividly the chart. Is this the moment of truth for some of the oil companies, for some of the retailers, for some of the Tourism Companies<\/a> and potentially the airlines, although united highyield bonds seem to be trading swiftly right now and that is better prices than you might anticipate . Mark it is the moment of truth for those Zombie Industries<\/a> were a couple of companies were kept alive because they could borrow so cheaply. Now their earnings will be smashed so much people not want to get involved, even though yields are lower, the spread is getting wider. As for the Energy Sector<\/a>, 1 trillion in u. S. Corporate debt. I had the head of trading at a major u. S. Bank is fine as long as wti does not stay below 40 a barrel, this before bloomberg broke the news saudi was plenty to enterprise war. At that stage it seemed unlikely it would fall below 40 a barrel. Now we are a new environment. This will be the moment of truth the Energy Sector<\/a>, for those zombie companies. Airlines are different. For stable airlines not too leveraged, they are now getting there biggest cost input. , imany of them, i am told not an equities expert, in terms of evaluating individual companies, they are so discounted they can afford to fly their planes still be profitable. Vonnie how about the idea that cheaper oil is good for consumers . Why is that not proving to be any consolation . Mark because it is a secondary impact. At the moment we are trading the coronavirus story. First of all, for the consumer side, the consumers are saying i am getting more disposable income,keep a hold of that unless the coronavirus gets worse. Maybe this is 2008. Even though they have more disposable income, they do not spend it correctly. For what it means for the economy, we know the u. S. Has gone from a massive oil importer to a massive oil producer and an oil exporter. For economy as a whole, it is a worry. Particularly so because the Energy Sector<\/a> is particularly minus sectore bbb in the corporate market. The Energy Sector<\/a> is bad for the financial markets. It is less clear what it means for the financial industry overall in terms of spending on capex. For the consumer is it a positive. An unmitigated negative right now. Guy which currencies benefit from a cheaper oil price . One that may stand out to south africa . Elsa south africa is a good chart because that is one where the market has been short. A lot of people may have hit profit levels in the overnight move. We have seen outperformance this morning in europe good it is also high leveraged to gold, which is rapidly becoming a market favorite. A highyielding em currency on the others. You can look at turkey, there is much other stuff in turkey. Ecb guy what is the ecb tolerance for a stronger euro . Elsa we have seen this before. All the euro has done is erase the Dollar Strength<\/a> of january and february. It is not move that far. Guy is europe capable of sustaining a 1. 30 . Elsa if this is driven by hedging flows it is driven by the fact that u. S. Yields have come down. There is not much the ecb can do. Im at the limits they are at the limits of conventional Monetary Policy<\/a>. If they do credit easing measures and further asset purchases, i do not think that will have an impact on the euro itself. Vonnie lets bring in it gina martin adams. She joins from bloomberg intelligence. We had a massive market event this morning with Circuit Breakers<\/a> triggering across the board. Put it into context for us in terms of what you look at. 1987, theig as financial crisis . Gina so far, no. A massive decline in oil prices, but peaks and troughs were still down under 15 . We have had a big corrections even greater than 15 several times since 2009. We are not there yet. Certainly there are a lot of panicked signals being set by the market good oil prices down even 20 have a fairly minimal impact on a fundamental outlook for the s p 500. It is clear markets are pricing much bigger risks related to across asset relationships and correlations as opposed to fundamental concerns. Oil prices sell well, and that generally suggests you have a period of weakness and a period volatility. We are not in a 40 correction yet. We are not even in a 20 correction yet. I think you want to put it into perspective. Vonnie the phrase price discovery was being thrown around. Are we still discovering prices or are we waiting for some kind of authority to step in and say we will save the day. Is that wise . Gina it is a good question and we will continue to ask ourselves that. I think naturally what you see are liquid assets experiencing significant pressures as investors are selling everything and waiting for things to stabilize. That creates a lot of complicated analysis with respect to where market prices are going. I do think markets would love to see a greater coordinated fiscal policy response of some sort. Certainly, what happened over the weekend was not as much about coronavirus, which is what weve been talking about over the last two weeks, and more about what is going on in the oil complex, with ads which adds more fuel to the fire of the coronavirus concerns. You have to consider not only demand, but the likelihood of a slowdown in demand growth broadly, but also what will happen with his overhead supply of commodities which is not going to fall anytime soon according to the saudis. There are a lot of moving parts. I think should Central Banks<\/a> start to coordinate on some sort of massive Balance Sheet<\/a> related easing as well as fiscal policy makers ported eight with strong physical packages, it could create coordinate with strong al packages, it could create stability. My with u. S. Banks, where seeing the maximum exposure to u. S. Shale, the maximum exposure to u. S. Energy. Clearly there will be pain. Gina most of it is in the regional banks. The smaller regional banks. Acknowledge that the banks just went through an Energy Crisis<\/a> in 2015 to 2016 and have reduced risk related to energy as a result of that. We want to consider, we are in 2020 now, where we have had five years to absorb the likelihood for overhead supply to continually deteriorate the credit quality of some of these names. You do find that incrementally, the large banks have less and less exposure to energy, even highgrade credit markets have less exposure to energy. High yields have less exposure to energy. A lot of those names have fallen out, a lot of risk has fallen out of the popular indices and gone to off bank credit to sustain itself. I think you want to be selective. It is not the story we had in 20152016, when Oil Prices Crashed<\/a> 75 and we were worried about widespread credit risk dampening the outlook for energy. , think it is more selective considering oil prices are down 50 . It is a different kind of crisis. Vonnie i want to thank gina martin adams, chief equity strategist for bloomberg. Is and markng kudlow. We are down on the dow. The areas worst hit, the Energy Sector<\/a>. Banks down 11. 5. Insurance and transportation, all lower. Oil down 17. 5 . 34. 03 a barrel. Guy in terms of where we are heading in europe, going into , thelose, the stoxx 600 levels 341. 96. Below that we are in a bear market. European close is next. This is bloomberg. Guy 30 seconds to go until he and the regular trading in europe. What a monday its been. That is what the picture looks like from space. Europe, a sea of red, from one end of the market to the other. This is what the stoxx 600 looks like. The u. S. Coming off of its lows, not the case in europe. We have pretty much been in a tight range since then. 6 is the level we need to close out for the option for us to not be in a bear market in europe. Nevertheless, we are off hard. Ftse 100 below the 6000 level, down 7 . The ftse in italy down by 10 . The italian market is certainly taking it on the chin. Btps spreads also blowing out. From a sector point of view, a similar story. Energy taking it on the chin. Even the best performing sector in europe, retail, down 4. 5 . Health care, food and beverage, real estate, down hard. Lets take a look at the bottom end of the market. Energy,seeing banks, miners, all under pressure. We have a u. K. Budget on wednesday. His are down, insurance sector is down. The insurance sector, big portfolio story there. You what isld show happening with the big integrated sing europe. Taking the most points off of the stoxx 600. Down by 20 . Total in france down by 15 . Shell ad the yield on few moments ago, 10. Do you want to hold it, given what is happening with oil prices . These names are kicking out big chunky dividend yields at the moment. The market, shrugging its shoulders. We are waiting for Boris Johnson<\/a> to speak in about 15 minutes. Seeill bring your comments, what he has to say about the situation. The dollar index has reached 95. We also have strength from the british pound and also the euro. Maybe not as big of a move you would anticipate given the 19 drop in oil right now. That is not having a big impact on the s p 500 that you might expect to see because it is not as impactful as you might think on those companies. Said, looking inside the s p to see what is moving. The 10year, 56 basis points. We are only at 56 basis points, incredible the moves we have seen today. The entire curve right out to the 30year below zero when we walked in this morning. Lets take a look at the sectors on the move. Stocksre the individual in the stoxx 600. It is energy, insurance companies, banks, all of those companies that you talked about, airlines. It is across the board. You can look at your terminal. Grr is that particular command. Lets talk about the oil market. It seems to be the center of the action today. And all of price war between the russians and the saudis. Addition, the International Energy<\/a> agency is forecasting demand will drop for the First Time Since<\/a> 2009. Joining us now from paris is fat to be rolled. Fatih birol. Lets talk about the markets. Are we in a price war between the saudis and the russians . I think this is one part of the equation. They are two legs of the challenge we are facing now. The first one is major decline in oil demand. Imagine, at the center of the coronavirus in china, and number one trading partner of more than 100 countries around the world. Oil,d, china, in terms of is responsible for more than 80 of the Global Oil Demand<\/a> growth. What happens in china, what happens in global economics, we see oil Global Demand<\/a> is declining for the First Time Since<\/a> 2009. This is our expectation. Number two, even before the socalled price war has started 72 hours ago, we had foreseen year, 3. 5quarter this Million Barrels<\/a> a day of surplus oil, capacity in the markets. Together, low demand, and an overhang of 3. 5 Million Barrels<\/a> a day of oil in the markets, and on top of that, cheap producers say they are tong to open up the taps, push prices downward, and today we have 30 plus in the markets. When you read the press, one of maybe more than 1 they are doing is to kill shale in the united states. At these prices, the expectation wille growth in u. S. Shale slow, and maybe decline, but this may be temporary. Again and again, the shale industry has proven it can scale up as part of the process. Number two, we also have to think about what will happen in producinge while economies such as in algeria, nigeria. This may lead to other things today. Guy correct me if im wrong, but what you are saying is, you cannot kill shale. Any attempt will prove fruitless. Is that what you are saying . Fatih i think it will have a staysdent if the process like this for a while, but we will see efficiency gains, innovation with a price going up. We will see shale come back. In the meantime, we will cause a major problem with these prices in many of the oilproducing nations who have fragile financial and still show social stations. Let me take iraq. , we would haves the lowest revenues almost in history. Pay for services, private sector, education, and it may lead to unrest in the political life and destabilization from a social point of view. Iraq is not the only one. Algeria, nigeria, other oilproducing nations who rely on oil. Vonnie explain to us why russia should care about those economies . Is the International Community<\/a> underestimating the will of russia to carry out this war . It has a lot of ammunition, it can wait out some of the countries on the list. Fatih i think some of the countries who have stronger reserves may weather the storm longer than others. But as i said before, when should not estimate, a, the itsience ofshale, and, b, impact on the world. In my view, this is more than a New Discovery<\/a> of a new oil policy. It may prove to be russian roulette, which will have grave consequences beyond oil. Vonnie what consequences would those be . It seems like a terrifying scenario you are painting. It may have serious implications for many of the Oil Producers<\/a> in the world. Implications for the Global Economy<\/a>. Happens when the world is facing a major challenge. Coronavirus. Instead of all countries coming together and showing solidarity to fight coronavirus, if everybody tries to look after himself or herself, i think this ita good way to go, and cannot be measured on wti prices or this new policy. Can i return back to where we started the conversation, the relationship between saudi arabia and russia, the opec us agreement . Can you put that back together again . If the russians and the saudis decide this was a mistake and they are going back, that the market would believe that that arrangement had credibility, is there a chance that they do that . Fatih i really dont know, and it is up to them to decide whether they come back together. I believe those countries will policies,hat their stationent oil market is not sustainable on many fronts. I believe many of the countries may review their policies sooner rather than later. In terms of what you think the longterm trajectory is in terms of demand, how does this affect the longevity of the story . High prices tend to reduce demand. Low prices tend to increase it. What does this do mediumterm if prices stay down . Fatih the main determinant here is how the world deals with coronavirus, whether we will be coronavirus, beat and the Global Economy<\/a> will start to recover. See growtho, we will in oil demand, or at least this time it will not be as steep as we expect. The nerve center of all of these things is the economy. Today,nomy is, as of linked to what happens in the coronavirus. Vonnie thank you for joining us, dr. Fatih birol. Guy european markets are shot and settled. Sub 6000. 00 finishing these are i watering numbers. The dax down nearly 8 . Down. C 40 you can find this on your bloomberg. Europe is officially entering a bear market today. Stoxx 600 going back to 2008. That is a 20 move we have seen off the top. You have me for the next three weeks because of the time change. Nevertheless, we have some great guests lined up. Is knownur next guest for calling the 1987 market crash to the day. He is counsel to some of wall streets biggest names, milton berg. Milton, what happened this morning . We had news coming out of the weekend, and it is not strictly because of the news. The declines we had off of january and february were unprecedented. Fiveday volume, the highest in a number of years. It definitely was an avalanche that began. The question is when will it end . Friday, a possibility that it was testing the previous friday low. Earlier in the week, the market went down. The high rate of change was not able to continue things lower. Vonnie you are talking about a waterfall pattern. What signals should we look for to see where we may bottom . Milton in order to bottom, the waterfall must end. We have had more than four days in the last two weeks were downside volume was greater than upside volume 201. The waterfall is continuing today. We try to find places in history where you have a waterfall that failed. Intense selling pressure but the market did not bottom. Crash, the market went down another 13 . The market was down a total of nearly 40 . Andly i think of september october 2008. Ralliesd very sharp those days. Last monday, the dow had its greatest oneday gain in five years. It turned people bullish. In reality, we saw the same pattern in september and october 2008. October, it took another two months for the nasdaq to bottom, another four months for the s p. It is possible that the waterfall has not ended despite the fact that we saw such intense selling up to now. Guy what policy action can be taken to change hearts and minds in the market . All policies and actions that have been taken can be taken have been taken. It has kept the market up. We are at a point when the ammunition doesnt work any longer. On the rate of change on a 30year bond. You have never had a 10 correction where the 30year a change like it has now. There is Something Different<\/a> this time. A largeely, we had such influx of liquidity, nobody needs it. Anyone that wanted to borrow could borrow. The next action may be down. Stock when i value a i have no idea what the p is, and given how much guidance has been withdrawn, i have no idea what the e is . Milton we never know what future earnings will be. It is a best guess. Now we cannot even make a best guess. We dont try to value stocks , but based on the general direction of the company as well as general direction of the market. In that sense, the general direction is clearly down. Vonnie how are you positioned right now . Knowing that we were likely to see some further down days, and today we are down more than 6 on the major indices. Milton my position is flat right now. I wish i could say that we were short. We were flat during the decline, but we were fooled as other people were fooled. Highest volume in nine years. Then you check history. 2009rash of 1987 and didnt end with the highest volume in history. We are a little bit lost here, trying to play it cautious. But we see the potential for a strong downside. 1987, no one knew what the market was declining, but it declined 30 . The, they didnt know why session was declining. Now we know why the markets were declining. You can use your imagination to give us reasons why it is declining further. Coronavirus has not taken hold in the u. S. Yet, but if it does, you could see more panic. Positioned are neutral right now, a little bit flat. What is the smart money doing . Clients who of our deal with some of the best strategist and wall street found that most strategists missed the decline, myself included. This is very different than usual declines. Now we are down 15 . It looks oversold. Highest volume in nine years, maybe in history, before this is over. Guy united states, you dont have enough testing kits yet. Getting data on the coronavirus you say we have a reason for the decline but we cannot get our arms around it. Do we have to wait until we get a better idea what is happening with the virus spread before the markets say the health care is over, we can start to get our toes back into the water . Milton it is a good background for the market decline. We dont look for the Headline News<\/a> to suggest the market is at the bottom. Testing market stops its lows, you know that it is at bottom. The market doesnt follow the news the way that we follow the news. Once we state ultimate panic, the market will bottom rather than continue lower. At the market itself rather than the headlines to determine whether the low is in or not. Has protectedut the market for a long time. We are probably heading down to zero rates for the fed, in line with other banks around the world. What will the market look to for protection once that fed put has disappeared . Milton some people are hoping it does not disappear. 19 , and thenct you have mass liquidity that has built up over the last three months, and the markets take off. The last bull run in 1929 was but may to september, 35 , it was preceded by a record decline. It is possible this decline ends, and the markets shoot up because of all of the liquidity. However, most likely, what we see now is change in the nature of the markets. A bull market lasting quite a number of years, the fed providing liquidity, and it comes to a point where the economy has over in. They dont have to borrow anymore. Vonnie there is one variable we have not solved for yet. President trump. He doesnt like to see asset prices go down, socalled wealth destroyed, but is there anything he can do . He is doing the right thing when it comes to regulation. He is not doing the right thing and try to pressure the fed. Most of the problems are ultimately caused by the fed. They loosen more than they should and then tighten more than they should. Maybe they have loosen more than they should, but there was such speculative mania. We saw the tesla bubble. These things take place when there is so much liquidity in the system, nobody cares whether they can pay back the loans that they borrow. Wework is a good example. I dont think the president should pressure the fed. Guy we have to leave it there. Milton berg. Boris johnson is speaking. Lets take a listen. The first ministers of scotland and wales, minister of attendn ireland, and we continue to work closely in the weeks and months ahead. We received a detailed briefing from the chief medical officer and achieve scientific advisor. Again, i repeat my gratitude to both. Deathsave now been four from coronavirus in the u. K. Our deepest sympathies are obviously with their friends and families. Our action plan, as you know, sets up four phases of our approach to attacking the virus. Contain, mitigate. Watching what is happening around the world, our scientists think containment is extremely unlikely to work on its own, and that is why we are making extensive preparations for a move to the delay phase. We are preparing various actions to slow the spread of this disease in order to reduce the strain it places on nhs. The more we can delay the peak of the spread to the summer the better the nhs will be able to manage. Patrick and chris will give you more detailed information on the latest advice we are giving the public today, and how we expect that advice to change as the outbreak of the lips. As things stand, im afraid it bears repeating, the best thing we can all do is wash our hands for 20 seconds with soap and water. We will also take questions. I know there are lots of things the public wants to hear from our advisors about. Before that, i want to stress the following things. First, we are doing everything we can to combat this outbreak. Based on the latest scientific and medical advice. Second, we have a truly brilliant nhs, where staff has responded with all the determination, compassion, and skill that makes her service so revered across the world. They will continue to have this governments. Part in tackling this virus on the front line. Third, we will set up further steps in the days and weeks ahead to help people protect themselves, their family, and in particular, the elderly and vulnerable. Finally, while it is absolutely in managing the spread of this virus that we take the right decisions at the right time based on the latest and best evidence. Havestnt do things that no or limited medical benefit, nor things that could turn out to be counterproductive. There is no hiding from the fact that the coronavirus outbreak will present significant challenges for the u. K. , just as it does in other countries. Guy the british Prime Minister<\/a> Boris Johnson<\/a> speaking. Addressing the issue of the coronavirus, suggesting the british strategy is increasingly moving to find ways of delaying the spread of the virus, so that the arrival of spring and into summer ultimately allows the nhs to get control of the situation. It seems as if the situation, according to the Prime Minister<\/a>, moving fairly fast onto the next phase. Vonnie lets check u. S. Markets. The Dow Jones Industrial<\/a> average, only one stock higher, and that was walmart. The dow is down 19 . Chevron is down. J. P. Morgan chase and some of the banks are suffering, as our airlines. That was another black swan event, that the economy had to deal with in recent weeks and months. More markets, next. Zulauf is coming up. This is bloomberg. Mark im Mark Crumpton<\/a> with bloomberg first word news. White house advisers plan to meet with President Trump<\/a> this afternoon when he returns from florida. Theyre expected to present him with a list of potential fiscal policy responses to combat the spread of coronavirus. Meantime, the president is trying to downplay virus fears. On twitter today he said the number of flu cases are outnumber the number of coronavirus infections. He says nothing is shut down, life and the economy will go on. In new york, Governor Andrew Cuomo<\/a> says the director of the Port Authority<\/a> has been confirmed to have coronavirus. He is on home quarantine. American troops have begun leaving afghanistan. Officials tell the Associated Press<\/a> it is part of the troop withdrawal required in the u. S. Telegram peace agreement. The u. S. Plans to cut the number of forces in the country from 13,000 to 8600. 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