Over the arrest and attainment of political opponents in venezuela. Speaking from geneva, he said one lawmaker and his assistant have been detained since the end , without the detention being known. Her office also documented recent attacks on clinical opposition, demonstrators, and journalists. The Venezuelan National security president juan guaido was backed by 60 nations who recognized him as the interim president since early last year. The Opposition Leader claimed president ial power, claiming Nicolas Maduro was elected in a fraudulent vote. The top u. S. Commander for the middle east is painting a grim picture for the Peace Process with the taliban in afghanistan. The general told the House Armed Services committee today that the current level of attacks is higher than what is allowed in the peace plan signed last month , and that he has no confidence the group will honor its commitments. Global news 24 hours a day, onair, and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Im mark crumpton. This is bloomberg. July from bloomberg World Headquarters in new york, im taylor riggs. Amanda live in toronto, im amanda lang. Welcome to bloomberg markets. We are joined by our bloomberg and Bnn Bloomberg audiences. Taylor here are the top stories we are following from around the world. U. S. Equities are the bulk of their gains. The s p 500 turning negative after gaining this morning. Now trying to stay in the green. Some signs of hope for the airlines. President trump thomases to help the industry as u. S. Carriers slash domestic and international service. Oil rebounding after its worst loss since 1991, even as saudi arabia escalates its price war with russia. Oil looking for a potential tax cut to shield the Economic Impact of the virus. Amanda lets get a quick check on the major averages. Its been a volatile session, of course. We opened up, and then we saw a big swing. Almost 3. 5 gains were lost. We can see the broad s p 500 off the lows of the session but certainly not at the highs either. We are seeing the biggest. Eakness in utilities tech is leading the gains. As you saw from taylor, we see pockets Like Airlines getting a bit of buyback. That and the price of crude must be kept in context. It is not back to where they were friday. Still seeing big declines in stocks, and the Energy Sector is one to watch. It makes you remember the kind of volatilitys that you see up and down in these markets, thinking back to 2008. Take a look at previous bear markets. You are looking at the range of to down days. 2008 on the left side of the screen. An awful lot of big moves higher in that long bear market. The thingility may be that we become most accustomed to hear. Taylor we are looking at volatility, the histogram chart, and its one of my favorites. Im looking at the underperformance of companies with the weakest Balance Sheets relative to the companies with the strongest Balance Sheets. We have heard these concerns are coming from the credit market. As you can see, a lot of underperformance by more than 3 from companies with some of the weakest Balance Sheets. Howpoke yesterday about scott minard at guggenheim security was saying that credit spreads could widen out even further. Really heightened attention on companies who are really levered up. Amanda definitely the focus and we exceeded have a major impact on the Energy Sector and canadian market, how much lever there is, and where are the weak points . For more, we have luke kawa. This seems to be the focus, and that may be why we are seeing such a strong reaction to the idea of support for airlines. When you see what is happening in the market, is it being accurately priced in, or is it a bit of a broad brush across sectors . Luke tough to say. We are in a market where correlations are trending to one. Whenever you see that, there has to be something wrong, but it may be a while before the dust settles. Realized correlations amongst s p 500 members, at its highest level since the aftermath of brexit. Approaching 80. You have to believe at some level there is some baby being thrown out with the bathwater. That will be the sorting process that we go through. Atlor we are taking a look the vix, still at 52. Coming off of the highs from yesterday but still near the highs of 2008. In some of your analysis, you say we are signaling a lack of fear here. What do you mean by that . The realizeds of correlation, fairly high, highest multiyear highs. If you look at recent days, implied correlation, which is what goes into the vix, those have come off the boil. Sayings if the market is we are going to see more dispersion in single names, even though that has not happened yet. That is a sign of the market is already looking to a calmer time. Moving as 500 keeps it has done, even the vix at 50 is not pushing you from that. Vol is well north of where the vix is trading right now. Even though it is high by historical standards, it doesnt mean it is expensive. Amanda we have also been watching the treasury yield curve. Taylor was alluding to the fact that we would see them widening, but where are you seeing trouble spots as far as where the market is pricing in . Luke its been interesting to see over the past week, as bad as things have been in stocks, the anomaly is still credit. Strong and aen fairly strong relationship with the movement in stocks, but you have the junk risk to zero embedded in it. In credit, the fact that you see in. Complexity kicking yesterday was probably the most anomalous day in the history of the index. It widen by even much more than you would think, given the damage in stocks, which was still fairly immense. Another area where we are may be starting to see signs of stress show up is in the most liquid and highly traded investment great products. You are starting to see a fairly sizable discount to its Net Asset Value open up. It appears to be getting wider today. That can mean one of two things. A better vehicle to raise liquidity in, and everyone is forcing these calls, or it could mean that it is signaling the price of those underlying bonds is slated to take another hit. Taylor take a look at this chart in my terminal. Looking at etf inflows yesterday on the day. Spy pulling in the most inflows. ,ou also saw gold and bonds treasuries coming in as a hedge. Is this signaling of a bottom . Luke tough to say, i will let you know three months after the fact. In terms of what flows have shown, especially on the retail side, i believe there was a good track this morning, fidelity showing they have been buyers of all the stocks they have loved throughout this, and that continues. When you look at nasdaq continuing to hold up a little bit better than you might expect in the face of all of this, that story is still at play. Amanda great to have your thoughts, luke ellis. Stocks rebounding but across the world, including here in canada, after the benchmark plunged by the most since 1987 crash yesterday, but energy is still a standout to the downside. That sector falling more than 2 . Kevin portland is with us now. We are beginning to hear a real reckoning coming from individual energy companies. Cutting dividends, cap explants. The risks are there, so give me your overall picture of how big of a risk of a default you feel there is in the Energy Sector at the moment . It is a mixed bag. A lot of these Canadian Energy companies have been in retrenchment mode even before the oil crash in 2014. A lot of them never got back to the good times. Have are companies that high debt load for the past two years, their focus has been too paid on those debt loads. Some of them are still coming into this crisis with higher debt loads and investors would prefer. In some ways, some of these companies are better prepared than they would have been otherwise. Other companies have fewer levers and u. S. Oil companies can pull. Oilsands companies cannot really dialed back reduction. There is a certain level of spending the need to keep going into their reservoirs so that they do not get impaired. There is a mixed bag in terms of how well they are equipped to cope with this. Down theirthey spent debt load in the past six years, does this mean they are in the u. S. Counterparts . That is true for a lot of them. Earlier this year, there was a 55 billion acquisition in the u. S. Shale patch. A lot of companies have spent money trying to increase output. The story has been the opposite in canada. These companies have been raising production a little bit, but on the cheap. They have been focusing their Capital Spending on ways to get more efficient, resilient, rather than having big output gains. A lot of it comes to this pipeline shortage the companies have. There is not enough i find space coming out of alberta. They have been constrained in what they can do, and in a way, that has been a saving grace in this crisis. Amanda great to have your thoughts, kevin. Airlines are cutting their operations and abandoning forecast for 2020 as the covid19 crisis upends economies and prompts travelers to stay home. We get an Industry Outlook from Jonathan Root of moodys investors service. This is bloomberg. Amanda this is bloomberg markets. Im amanda lang in toronto. Taylor im taylor riggs in new york. Delta airlines, American Airlines are the two most recent american carriers to cut flights and abandoning forecast for 2020 , this as the coronavirus outbreak spreads. Joining us for an Industry Outlook is Jonathan Root. He has covered the Airline Sector for over a decade. Friday, just a few days ago, downgraded the Industry Outlook to a negative from a stable. Why . Of course, the virus and the uncertainty. U. S. And global airlines, we have had a stable outlook for some time. This event is too great to maintain that position. Theres a lot of concern at this time. The key factor is the uncertainty of the duration of this is with us and the effect on demand and cash flow. Taylor the last time you downgraded this sector i shouldnt say downgrade, revised the outlook was in november 2018. What are the parallels from that time to now . Jonathan im sorry, 2008 or 18 . Taylor 18 come the last time you revise the sector was 18. Apologize, that was some that information. It was actually 2008. It was around the financial crisis. The industry has had a solid front coming out of the financial crisis. Back then, the great concern was the liquidity, the companys liquidity profile. Our median rating going into the crisis was b1. Today it is ba1. So there is a much Stronger Foundation to manage the crisis. The changes today indicate we have concerns that focus the foundation may weaken a bit, so that is why we made the change. , you ares you note focused on the operating margin, they are coming down, still within a band that would point to stable. How much risk is in the forecast . Could we see operating margins dip below 4 , 5 . Jonathan there is a lot of uncertainty at this time. Companies are sprinkling out information about the ways they are reducing their capacity, they have a lot of levers to pull, but right now we are making our own assumptions about of impacted demand and how companies will react. That is a bottomup forecast. 9 coming into the year, we kept at stable. That was bottomup for the 20some companies we rate. This is an ongoing process, each day there is more news. There is definitely risk in that forecast. Amanda the airlines, north americawide, seem to have found themselves in a more stable place. If you look at the universe of airlines, are there any that you would say are at risk from a cash low point of view, overleveraged, investing in capex, that you would flag as particularly sensitive . Jonathan for north america, we are not there at this time. When we look around the world, there are smaller, younger airlines, lowcost business models, very competitive markets. Some companies that have been in business for a while and are lowly rated. Whatever lowest rated airline today is b1 or b2. Depending on the market, there are a lot of idiosyncratic factors. E of the smaller names Norwegian Air shuttle will come up in many conversations. It is a wait and see. They were successful raising capital over the past 12 months and taking action by significantly reducing capacity. And duration of the virus and where it spreads will be the determinant of what companies do in the upcoming months. Taylor a lot of these airlines dont hedge their oil prices. Is the drop in consumer demand, i guess, not enough to offset savings from potentially lower fuel prices . Jonathan great question. Fuel is a big benefit to lower oil prices, but in our models, we assume deep cuts in demand for the second quarter, upwards of 35 international for the Large Companies in the u. S. , upwards of 25 for domestic operations. Those assumptions are steeper than what the airlines published this morning. But we are trying to be conservative and thoughtful about it. Totally variable for the u. S. Players, even southwest. They are a large hedger but only uses long calls. Big difference from 2008. There will not be a call to post cash collateral. That is very important. Order of magnitude in our models, a Large Companies, revenue could fall 7 billion for the year. Fuel savings will be upwards of 3 billion for americans, mid twos for delta and united. There are other variable costs in the cost structure which will help to mitigate some of the risks, but profits, cash flow will go down, no doubt. Amanda great perspective, jonathan. Appreciate it. Of those costs, we are seeing a small rebound in the price of oil today after its worst day since 1991. A little rally after possible stimulus from the u. S. We will discuss the latest with the president of the American Petroleum institute, mike sommers. This is bloomberg. Taylor this is bloomberg markets. Im taylor riggs in new york. Amanda im amanda lang in toronto. We have seen oil rebound a little from its worst loss since 1991 on speculation of potential u. S. Tax cuts that could shield the market against the coronavirus and also this price feud between saudi arabia and russia. American Petroleum Institute president mike sommers has called for calm in the face of these massive price swings. Mike joins us now from washington. Great to have you here. I want to clarify because there are still talks out there this afternoon about a white house intervention for shale producers , should some of them hit the skids. Many of them are heavily levered. You are on the record saying that is unnecessary. When would it be necessary . Of course we are concerned about the ongoing instability within oil markets. But we have here is a demand shock because of coronavirus, and a supply shock because of the decision by russia and saudi to flood the market with oil. We are concerned about these geopolitical factors that are feeding into some downturn within the industry. We are looking at this right now, trying to make sure that our policy makers are responding in the right way. Ultimately, the solution is to work in a diplomatic way, to make sure the oil markets are wellbalanced. We want to make sure that our colleagues in other parts of the world are looking at the markets, not looking at what governments are doing in the space. Taylor at what price per barrel are saudi and russia successful and what they say they want to take market share from u. S. Shale . Mike what we know is that they are plotting the markets now in an un economic way. But the american production has meant to these markets is incredible stability over the past five years. 50 of saudi oil coming off line as a result of the iranian attack, and almost no Market Reaction as a consequence of that. There have been a lot of other shocks. T the real reason for that is because of american production that has come online in the last 10 years. What these countries are actually aiming at is eliminating American Energy independence, eliminating American Energy leadership. This has been the stated goal of russia for many years, eliminate these shale producers, particularly in the permian. We want to make sure the market is working. We are focused on making sure the free market works, not on some government in front intervention that would go in front of the markets. Amanda how much can the industry due to reduce its cost footprint in order to weather the storms . Mike you have seen many producers just today talk about downsizing in response to the market. That is what we would really prefer, that producers and countries look to what the supply outlook is, what the supply needs are in the free market, not looking to government at this point to make up some of that demand. Today thatouraged the department of energy decided they were not going to put another 12 Million Barrels on the market because of a sale from the Strategic Petroleum reserve. That was good news. We want to make sure our governments continue to make these kinds of decisions that are good for the oil industry. Theor thank you to American Petroleum Institute President and ceo mike sommers. Much more next. This is bloomberg. Pres. Trump i dont think its a big deal. I wouldnt do it could i feel extremely good. I guess its not a big deal to get tested, and it something i would do, but again, spoke to the white house doctor, terrific guy, talented guy. He says he sees no reason to do it. No symptoms, know anything. You know what, if there were, you people would be the first to know what and you would maybe tell me about it. [indiscernible] briefedump i have been on every contingency you could possibly imagine, many contingencies. A lot of positive different numbers, all different numbers, very large numbers. And some strong numbers, too, by the way. Right now i guess were at 26 deaths. If you look at the flu for this year, we are at were looking at 8,000 deaths. Hundreds of thousands of cases, we have 8000 deaths. Deaths at000 vs. 26 this time. With all of that being said, we are taking this unbelievably seriously, and i think we are doing a really good job. Again, the task force headed up by the Vice President has been fantastic. [indiscernible] no, i think the u. S. Has done a very good job on testing. We had to change things that were done, and nobodys fault. Perhaps they wanted to do something a different way, but it was a much lower process from a previous administration. We change that come with me to changes. The testing has gone very well. When people need a testament they can get a test. When professionals need a test, they can do the test. Look, the biggest thing we did was stopping the inflow of people early on, and that was weeks ahead of schedule, weeks ahead of what other people would have done. Most people would not have done anything until now, and that has made a big difference. [indiscernible] the what . P no, i think that people are doing a fantastic job. Hadact, just today, i Governor Newsom of california, there is an article that came out, showed it to the senators, and i showed them other