Earnings season even as Goldman Sachs warns of a 35 g. D. P. Slump. And jpmorgan is the first u. S. Bank to report. Wells fargo comes next. Dont miss our interview with the c. F. O. Later on today. Those earnings come out before the u. S. Bell this morning. And global coronavirus cases approach the 2 million mark with 119,000 people dead. France extends its lockdown. The u. K. Is expected to follow suit this week. Were just under an hour away from the start of cash equity trading in europe. Lets take a look at futures this morning. We had the u. S. Trade down yesterday. India is doing quite well or did quite well overnight. European futures up more than 1 across the board. Ftse and euro stocks, dak futures this morning. Dax futures this morning. Here h your top stories this morning. President trump says he has total authority to order states to relax social distancing and reopening their economies. A number of u. S. State governors say they will form regional alliances to coordinate the opening of schools and businesses when the coronavirus outbreak subsides. Californias gavin newsom said governors will be guided by facts and science but the president said he is pressing head with reopening plans. President trump consult with my team and top experts and were close to compleeth a plan to reopen our country, hopefully ahead of schedule. Matt macron said france was underprepared before the coronavirus pandemic hit. The country extended its lockdown with a gradual reopening now planned for may 11. The french president said by that date the country will be able to test all patients with symptoms. The vice chairman of the fed said the Central Banks can keep the u. S. Out of a deflationary trap. The Federal Reserve will use tools until it is confident the economy has recovered from the coronavirus shock. Almost 17 Million People have filed for Unemployment Benefits the u. S. In the last Ernie Sanders has endorsed joe biden for u. S. President and trying to get his supporters to back the nominee. He called on all political affiliations to work to defeat donald trump. The timing was less than a week after sanders dropped out of the race. Bloomberg powered by more than 2700 journalists and analysts in more than 120 countries. Global stocks pushed higher day ahead of one of the most unsettling Earnings Seasons of record. Lets get to the markets with our bloomberg managing et or the in singapore. Do you think the risk on optimism is all about investors who think they have an edge or people who think earnings season ill be as bad as expected . I think that earnings season will be highly uncertain. It will be very hard to take a clear signal away from it. It is a momentous earnings season as many people are talking about but that doesnt mean it will be easy to understand. I think there will be so little clarity. Several phases of evolution about how we interpret it. We got this incredible stimulus package. I think they have gone much further than many of us including myself absolutely thought they would do. I think there has been a fundamental improvement. I still dont think it is enough to have equities from having another severe down movement in the come month. They have already also limited the risk in terms of minimizing the risk of a complete financial meltdown on workers and companies. That hink they have does not mean it is starting in the next week or so, we might get part of the way through earnings season first. Matt is this still a bear market . Have we just seen bear market rally or is the worst behind us . Is the bottom behind us . I personally dont think that the bottom is in. But i guess it is very hard to be to have high conviction. Personally i think well go much lower again. I think it is easy to have conviction. Well at least have another severe down move and down towards that level again. I think it is absolutely a bear market rally. Not a particularly strong one. It is an exceptionally fast one. I will note in october 2008 in the spivers less than 48 hours there was a 24 rally in the s p 500 before stock markets collapsed much further again. This has been similarly powerful. However, it is quite normal tandard trade or benchmark the classic 6. 1 . 68. 1 . We felt we might get up to 2800, 2900, in the s p 500. We did not think we would get there that quickly. Matt you were questioned today on the blog. There was a real focus on the blog of emerging asia. Your question of the day surrounds that. You want a discussion on whether or not e. M. Assets can do better this time. What are you hearing . Dominated arch was by a lot of Development Market assets. Many were struggling with what was going to happen with oil, the dollar, the s p 500. We tried to do a lot of focus last week and this week. I think what is unique about emerging markets is that many merging markets will trade a little bit differently as we proceed through. In 2008, emerging markets was really just one trade. It was all just related to the credit super cycle and the china commodities super cycle. When that blew up, all merging markets sold off rapidly as one. After the initial shock of march, merging markets will differentiate much more about how their external balances look. Matt thanks very much. Great talking to you. Bloombergs managing editor coming to us out of singapore. Reach out toous with your take on merging markets today. Up next, well talk about inflation expectations. How rust u. S. Prices can avoid a vicious cycle of decline despite the economic wovers the coronavirus. Well bring you that interview next. This is bloomberg. Matt welcome back to bloomberg markets. This is the european open now. Markets ittle under 50 away from cash equity trading. Futures are up across the board in europe. The fed has launched a number of u. S. Programs to support the u. S. Economy during the pandemic which includes as much as 2. 3 trillion in loans and slashing Interest Rateses to nearly zero. Speaking to bloomberg, the Federal Reserves vice chairman said the central bank has the tools needed to keep the u. S. Out of deflationary trap even as the coronavirus deals a severe blow. Im very confident that as the economy recovers from this hit and begins to return and recover that we at the appropriate time will be able to unwind these programs. You know, tom, and mike, there is nothing fundamentally wrong with the u. S. Economy. It came into the year in a very strong position in terms of employment and growth and Financial Market and im confident we can get back there and at the appropriate time we can scale back these programs. Let me follow up on that and sk you this. Probably billions of loans out near zero for years, are you ever going to be able to raise Interest Rates again . Right now were not doing yield curve control but we indicated in our march statement a were going to keep rate where is they are which is basically very close to zero until the economy is on track to achieve the maximum employment and price stabilities. The path of the economy is going to dictate ultimately the path of rates. In terms of our programs, these facilities will be in place during the period when the economy is being impacted by the virus. And the term sheets for these programs, youll see that the facilities are due to stop lending in september of this year. Obviously we can extend that as needed. Those loans will be in place and have a term of several years and at the appropriate time, i do not think that will be a challenge to us when it is appropriate. But again, that is a long way down the road. We think where rates are now is where they need to be given where the economy is. Tom mentioned the notes he is getting from people asking questions and the one i get most often is why did you feel it necessary to go into buying junk . Well, we have put in place no fewer than nine facilities over the past several weeks and first and foremost, our focus on these facilities is making sure that credit is flowing to businesses and households and obviously were in the commercial paper auto , well be financing and loans and credit cards partnering with banks to provide financing to businesses. The vast bulk of these programs is really focused on new lending. There is an element of one of these programs that well be purchasing acassets in the secondary market. An important point for your listeners and viewers to recognize is that several Important Companies in the u. S. Were Investment Grade up until this crisis hit and what we said in our programs, if they have been downgraded after the date of the crisis, they will have access to these facilities but that really is our focus in these programs. Mr. Vice chairman, the elasticity, the outcomes of this pandemic are extraordinary. What i would suggest is we dont know the speed of outcome. What do you do if we get a more optimistic outcome . Institutiondo as an if there is a rapidity to our recovery . Obviously tom, we are looking at a very wide range of scenarios as im sure are other Central Banks and policy makers. And we have got an lot of bad news in the last several weeks in terms of the spread of the virus and the impact obviously in labor market with 16 million initial claims over the last several weeks so the economy is taking a hit. As i said, because there is nothing wrong the economy. We asked people to step back from economic activity. There are scenarios that are more optimistic and obviously we certainly hope and pray they material eistize. If they do, that will be a good situation to be in. Essentially tom what were doing is building a bridge until the economy can get to the other side and begin to recover. If that happens sooner, well certainly know what to do at that time. Matt that was Richard Clarida, the vice chairman of the fed speaking with bloombergs tom keene and mike mckee. R next guest is an economist at b. N. P. Paribas. Of course he has to say the fed has the tools to do this but do you think his confidence and optimism are deserved . Good morning. I would say yes. Ive been impressed by the speed and the reaction of the fed and you have the extending reach of the interventions. The most recent one on the high yield and buying paper of companies that have been victim of a downgrade because of the virus. I think once activity picks up again, because were in slowdown mode, it is going to be a very gradual process. The difference between saying that and saying that inflation s going to be problematic. I think for that to happen, it is going to be a considerable time. Matt how important is the Energy Market in the u. S. , william . I mean, it makes up a lot more jobs than i had previously realized and with prices this low, that is bad news. Indeed. Now it remains to be seen whether the agreements on the production cuts are going to have any significant Lasting Impact at all. I think at the end of the day, depends on demand and that i think the element which is important to keep in mind of lockdown ends, there is a prospect for higher demand of oil and also Risk Appetite comes back. Spreads are now on the high yield part. I think what is also going to happen now is it chris the possibility of hedging production given the still very steep curve. I think what is the the key test is is this sufficient of a cut considering the drop in the amount that we are experiencing well be seeing for weeks to come. Matt how would you compare the u. S. Experience versus the European Experience . Ok. They came on a little bit later with regards to the coronavirus peak and with regards to the shutdown. They have much more diverse reaction to it throughout the states but they also have less of a social safety net and they have this big energy problem. Indeed. I think it is on the one hand, on the other hand, if you look exposure, you have the to china which is considerable. The fact that so many countries have been ended up in lockdown, very severe lockdown with of course the very high degree of enter trade which is creating spill yoves within the European Union and the eurozone. That has been a big issue and a big on the other hand, the over net is i would say equality. In the u. S. , the concern i have is when you have fed officials, unemployment may spike to the low answer to and then move back toward the end of the year, 8 , that is still a very high number. That is a consequence of the hugse concern that is going to continue huge concern that it is going to be to continue to be a drag on the economy. What kind of impulse is going to come from the fiscal policy. It then circles back to the role f the fed in buying the paper. Matt well talk more about this. Were going to hold you over. The chief economist at b. N. P. Paribas. He stays with me this morning on the European Market open. Coming up, Oil Holds Gains. We were just talking about this with william a little bit. Well discuss the outlook for the commodity and the effects on the Global Economy next. This is bloomberg. Matt welcome back to bloomberg markets. This is the european open. We are about 35 minutes away from the start of cash trading and were looking at what could e the kickoff to a risk on holidayshortened week in europe. Il is Holding Gains today. Ill it be enough to offset the problems caused by the coronavirus . President trump said the cuts are going to be twice as much as experts are reporting. The chief economist at b. N. P. Paribas still with me. We talked about this already, william. There is on the one hand. Oil other hand too, prices are usually a stimulus for the consumer when they are cheaper. Is that the same in europe as it is in u. S. . It will be once people are allowed to drive around again. For the time being it is not a factor but eventually it will be a similar clearly i think this is something that of course made it more difficult to establish some degree of balancing the market. The market is reacting to decline in prices. Matt were going to talk in valerie t with dombrowski. Hat do you think about the european effort to save the economy . Well, it is an important step that was made last week. More needs to be done. Talking with the about the investment bank, the loans, that is good. It will be revealing to see that in some European Countries like the netherlands, that was the issue that we will never have. Matt chief economist at b. N. P. Paribas. Matt welcome back to the european open. We are 30 minutes from the start of cash equity trading. You can see we have 1 gains on ftse, character and dax futures. Over in the u. K. , the government is planning to extend its lockdown this week. More than 11,000 people with coronavirus have died in the country so far and the governments chief scientific advisor says he expects the daily rate of deaths to continue to rise. Meanwhile here in germany, a group of startups are working on an app that could help ease europe out of its lockdown state. He team behind pept, which stands for pan european privacy proximity. A method to keep track of who could have been exposed to the coronavirus. Who has it and that could help slow the spread. On the phone with us now is a member over the groups Leadership Team and a founder and c. E. O. Of the a. I. Firm. Am i pronouncing this right . Are you sure you have gone with the best possible name here . Good morning by the way. What you see is what happens when scientists create names. The Science Behind this was quite important which is why you ave a name like pepppt. Matt talk to me about why this tech is distinct i ever and why you distinctive and why you think it will help. It has been discussed a lot and done in prior pandemics and epidemics and worse. The problem with coronavirus is that people are contagious before they have any symptoms. So just going around and measuring fevers does not help. We need that look into the past and the only way to do that efficiently is through digital means. That has been shown in various countries in asia. The question that we had in europe is is it possible to do that without infringing privacy and how could we cross boards . This is why we created this at peptpt. It could build on one framework that for all would guarantee privacy and for all guarantee that you are part of if you are using that platform, then you would have intercountry nteroprability which i would say is the most important for trade and everything that happens economically. Matt i cant search the web without having to click every time i change a page. Something about privacy and data standards. My doctors cant really talk to each other unless i sign forms. With all of these issues, it seems like this kind of undertaking would be impossible. How do you deal with the privacy concerns . Sad that f all, it is the web has become a little bit unusable because of privacy implemented today. This is not necessary when youre looking at contact tracing. Up until the moment you want to get in touch with the healthcare authorities or someone wants to get in touch with you and will ask you directly, you dont really need to know the identity of a person and the whole principle behind it is to have a completely anonymous virtual identity of someone that gets installed into their phones. Not even their o. S. Provider will know. Then you have your proximity history. The phone will remember who you were close to. Only if youre marked as being infected will you be part of any process. Part of that process might be someone asking you for your identity, your phone number whenever you live. In most countries that would be part of a legal process. Chasing Infectious Diseases is typically put down in law. Only you can you can choose when to reveal your identity in that case. It is not like you have to click on every page and say ok, i want this, that and the other. That would make your telephone completely unusable. The way to preserve privacy is virtual anonymous identity that does all of the tracing. Only once you want to reveal your identity because someone asked you to, you choose to do so and thats the way you go forward. Matt the European Commission is coming up with an approach to stop the coronavirus. Have you received report from the e. U. . We had quite a few conversations in the European Parliament and the European Commission. If youre saying financial support, no. It is all probono and will be funded through donations. In order to make sure identity is safe, it should not be owned by the government or the o. S. Players. Matt thanks so much for joining us. Chris boos. I will be checking out more on that issue. Im sure well be talking more on that issue throughout the next days and weeks. I want to give your the french g. D. P. Numbers that are breaking. It is expected to contract by 8 in 2020. So you can see that the drops are more severe than previously predicted. I think 6 was the previous prediction. But now were seeing 8 . Full yearfull year, a forecast from the french finance minister for the 2020 contraction. Still not as bad as the 10 forecast in germany. Coming up, e. U. Finance chiefs agree on a 540 billion euro rescue package to combat the economic fallout of the coronavirus. Well speak to the European CommissionVice President next. This is bloomberg. Matt welcome back to bloomberg markets. Ns the european open. We are seeing continued positive futures even after we get france come out. The french finance minister come out saying he expects the french g. D. P. To contract by 8 this year. That may be a better forecast than some Market Participants had expected. The budget minister sees the deficit at 9 of g. D. P. This year. So that doesnt sound like a massive deficit compared to relative to what we have been seeing in other countries globally to fight this pandemic. On friday, e. U. Finance ministers agreed on a 540 billion euro package to combat the economic fallout of the coronavirus. But the measures fall short of what spain and italy, the hardest hit, have been demanding. Joining us now for an exclusive interview is valdis dombrovskis, the European CommissionVice President. I wonder valdis, what you think were going to see in addition to what we have seen already. We have already seen calls for more, most notably from italy. Conte has said he thinks every country is going to have to do this themselves if we dont get some kind of shared debt. Good morning. What was agreed last week by European Finance ministers was hat next steps in a Crisis Response measures. It was a package worth 540 billion euros. Different programs to support the countries so that they can help protect jobs, to support companies, to provide loans to countries themselves if necessary. And this comes on top of what was already done in europe in terms of crisis containment both by Member States and at the european level. This was already on top of the previous action. Especially highlighting european anks and the purchase program. The finance minister outlined the next steps for the recovery phase recognizing that the next e. U. Multiannual budget as of 2021 will play a central role in economic recovery and the European Commission is already preparing adjusted proposal for the next e. U. Multiannual budget which will be ambitious. It should be front loaded with a strong investment component so that they can indeed respond to he crisis now and have financing for the economic recovery stage. Matt were also hearing a lot of talk about this Recovery Fund that was agreed to help kick start the economy after the crisis. There is not a lot though about the financing other than it will be innovative. Do you think there is going to be some sort of shared debt come fonet that financing or should there be . Well, in any case, this is something which still will require further discussions from European Commission point of view what is important and it is recognized that the next e. U. Budget will be recovery. Were open to discuss other instruments and ideas, how they can complement the next budget how much lear stronger investment financing component and then we must see how other action or ideas can complement this. Matt do you agree though that a yiletted europe needs to have some kind of shared debt in order to fight this pandemic . Well, actually, if you look at the instruments which are already on the table for example, our program to protect employment, it will also be financing by European Commission going to the markets and providing this financing to the Member States which need it and it is done under the guarantee of all Member States. S it is already a form of shared financing and similarly there is a whole european stability mechanism. It already has guarantees by member state. When the market will go when it will go to market, if they decide to invest it once again, it is already a form of shared financing. Matt it is not enough to appease the italians and the spanish. Corona to be saying bonds are nothing. When i speak to economists on this program, almost all of them who are not german say this has to happen. Do you disagree . Well, from a Commission Point of view, we have said clearly that we are open to explore all options within the treaty. But it must be noted that the statement which was agreed by e. U. Finance ministers last week is jointly agreed statements of all minneapolis ministers including for italy, they agreed to this statement, to the steps which are already agreed and to the next steps to be taken. Matt lets get to the impact to have coronavirus. What is the commissions latest assessment . France expects an 8 hit to g. D. P. In 2020. What is the commissions assessment that the impact will be economically on the e. U. . Well, we will be coming with our spring Economic Forecast next month but it must be said right now any Economic Forecasting is very difficult because first and foremost, it is a Public Health crisis and so that measures of containment which we currently have which are affecting the economy will with how the ne situation with the pandemic is developing and how we are getting the pandemic under control. From that point of view, any forecast now is more or less a scenario that we have to depend on assumptions when restrictions on the economy will be lifted. From that point of view, any figure right now is to be taken with a pinch of salt. Matt one of the ways in order to fight this and to get banks to lend more, to get banks to continue to grease the wheels of the economy or to grease them even more than they have been. We have heard a lot of complaint about new accounting rules that banks have been required to apply. Tougher regulation. The committee on friday made a proposal and had to soften the blow by stretching out the implementation period. Are you in favor of implementing this measure, of stretching it out in the yields . Well, yes, indeed. And to that end, we are preparing interpretive communication which we will put forward on april 23. Well be explaining the already existing flexibility in the e. U. Which is being applied by supervisors and also will come with some targeted adjustments and some of them linked exactly with decision of the committee to delay by one year. Also it will concern also some International Financial reporting standards. Indeed, we are looking at this but that is not the only step because indeed what is important now is that banks provide lending to the economy. That companies have k ride this period and from that point of view, it was important that European Central bank decided the Program Providing liquidity o banks and from our side, allowing among other things Member States to provide guarantees to companies so the banks feel safe to lend to this economy during this time of stress. Matt how important or how focused are you and how focused should the government be on small and Medium Enterprises in this crisis . They seem to be hits the hardest and need the most help. Is that a big focus points for you . Well, absolutely. Supporting European Companies, especially is important focus. Already now we as i said, the rules allowing Member States to provide support to the companies. We have added additional flexibility on how Member States can use available e. U. Funds among other things to support also es as part of socalled european guarantee program which basically allows 200 billion lend euros to European Companies and once again the focus is on s. M. E. s. That is very much in our focus. Matt thanks so much for your time this morning. We really appreciate it. Valdis dombrovskis talking to us about the efforts to fight the coronavirus and the efforts to soften the economic blow. Were minutes away from the opening. The big banks are reporting today. Jpmorgan kicks off earnings season for the major u. S. Lenders. Well look at what you should expect from wall streets chaotic quarter. This is bloomberg. Matt welcome back to bloomberg markets. This is the european open. Right now we are seven minutes away from the start of cash trading. We see 1 gains across european futures. Investors are going to get their first look today at how the coronavirus epidemic is impacting americas largest lenders. Bank of america, Goldman Sachs and citigroup follow tomorrow. Morgan stanley results expected later this week. A ton of Bank Earnings at the beginning of earnings season. Joining us to discuss is bloombergs danny burger. First off, there is a very widespread of expectations here. What are the key metrics that we should be looking out for this season . I think because there is such a where he had the metrics we tend to use, e. P. S. , i dont think investors will be paying too much to those. It is going to be earnings, there are estimations the earnings could be off 20 or 30 . I think the real focus this quarter is all about quiet. Were hearing analysts come out and saying that it is a difficult murky quarter. It is the Loan Loss Provisions that were watch ought for. What are the amount of provisions set aside for credit losses that should give us a good sense of how severe the economic turmoil is impacting individuals. If the banks are geering up for a lot of bad debt that is obviously problematic, they wont have the cash to do that now. Matt trading results usually an intense focus of the quarterly report. It would seem that trading has picked up considerably. How is it likely to play out . Yeah, for those who have equity trading as a big part of their results, that is going to be a bright spot. Were likely to see this wide dichotomy. You have that on one hand. Banks with leveraged loans, those spreads widening out and likely to mean a big amount of pain in terms of trading revenue for some of these banks. Oppenheimer expects a 16. 45 drop in trading revenue. Many traders have been working from home. That is something we cant model and well have to wait to see how that aspect plays out. Matt . Matt thanks very much. Bloombergs dani burger talking to us about the bank roult results. Coming up, it is the market open, futures are pointing to gains this morning. Could be a riskon start to this holidayshortened trading week. This is bloomberg. We are a minute from the open of cash equity trading right now. We do see equity Index Futures pointing higher. Lets get your top headlines. Ultimate authority, President Trump says he has the final say on reopening the nation despite opposition from two broad alliances of regional governors. Global stocks push higher as investors are risk on head of earnings season, even as Goldman Sachs warns of a 35 gdp slump for advanced economies. Bankrgan is the first u. S. To report ahead of the bell this morning on wall street. Wells fargo comes next. Dont miss our interview with the cfo later on today. Global coronavirus cases approach the 2 million mark with 119,000 people dead. France extends its lockdown. The u. K. Is expected to follow suit this week. Are European Markets opening up across the board this morning. Lets see what we are getting out of the gate. Futures were higher and we are starting to see the ftse up 0. 3 now. The ibex. Spain up 1. 8 . Up 0. 7 . Stoxx 50 index we are getting gains in we are seeing the gains increase in the first few seconds of trading. Todo see a risk on start this holiday shortened weekend as earnings season gets underway. It will be interesting to see what kind of volatility we have this week. European markets higher across the board. Even as Goldman Sachs sees advanced economies shrinking about 35 this quarter from the prior three months amid the coronavirus pandemic. That is four times as much as the previous record set in 2008 during the financial crisis. In wall street, earnings are very diverse. Hopelessly scattered is another way to put it. The gap between the highest and the lowest pershare prediction varies on the average stock has soared to near record levels, according to bankamerica data. That makes judging a company prospect a huge challenge. Joining us now is the director of Model Portfolio Services for invesco em ea. Of thisyou think mornings optimism . Ahead of this earnings season, which could seemingly go either way. There is a bitan of relative optimism in markets at the moment. It actually bounced quite meaningfully from the recent bit and it doesnt still a of caution in my mind, particularly with earnings season upon us. I think as we all know, it was the tail end of q1 where lockdowns really gripped the Global Economy, certainly the major economies. Q1 earnings are not going to be great. Ory are still a bit stale analyst expectations are a bit stale, so there will be disappointment. Guidance around q2 is going to be severe. It is difficult in that environment for stocks to move to far too fast with such a deteriorating earnings communication. In the 12month basis. It is difficult with the challenging earnings season upon us. What do you expect from the banks specifically . They are so important right now. Are they going to do well and maintain their fortress Balance Sheets, as jamie dimon likes to say . Ben well, it is difficult. Picture earnings the q1 performance is a little misleading because it is the tail end of q1 where banks would really be checking the quality of their credits more thoroughly to determine what is the hit they are going to have to take. At the same time, you have companies drawing down on every facility they have to improve their own cash position. You had that interesting spike in loan growth for the back of q1. It is quite a murky picture. Be a veryg to difficult period for them. Loan loss provisions are likely to drop markedly higher. While they go into this crisis in much better shape than they did during the financial crisis, Balance Sheets are more secure, the earnings so far moving forward, the Interest Rate outlook is flat. So it is not a particularly exciting place to invest. There is something in the short term in sentiment. Is note medium term, it a particularly inspiring place. Matt what are you going to be watching for when we get results out of the u. S. That translate well into European Companies . , they are twonks very different animals. European banks and u. S. Banks. Ben yes, quite. Sheets werebalance in much better condition. I would not have said the european Banking Sector was on the precipice. It had worked hard to get Balance Sheets into better shape, but there is more capitalization programs that needed to be executed. So, we have seen it to a degree in share prices. European banks have really felt it. , the u. S. Banking sector has that higherquality feel. The observation and the Balance Sheets are in better shape. Of course, we believe that you should have some exposure to these european names, these more cyclical elements on the basis that you do get Better Outcomes than you are expecting in terms of economic performance. But in the core view, we wouldnt be leaning heavily into that because there is such an uncertainty around growth and a vshaped recovery doesnt look like it is the base case. Ben, you are going to stick with us. We get more from our guest cohost for the hour. Coming up, we hear from the Oaktree Capital cofounder howard marks about his risk reward calculation. That exclusive conversation next. This is bloomberg. Welcome back to the european open. We are almost 10 minutes into the session and still looking at gains. Not the strength we saw at the very start of trading. For example, the ftse 100 is now up less than 10 points. The dax index in frankfurt is still trading up more than 1 . Was ae Capital Management strong buyer of corporate debt last month during the virusinduced selloff. However, the cofounder, howard marks, says he tried to be disciplined enough to have money left for the next day. He spoke to bloomberg exclusively about his riskreward calculation. I thought that the lows, which were reached on march 23, riskreward ratio had become significantly in favor of reward. The lower prices go. The more the potential from a rebound. The less the potential for further declines. Point thatht at that the ratio had become very favorable. Today, obviously less so. About half ofed, the 34 that the market had declined between february 19 and march 23 has been made up, so by definition, have to potential is gone roughly. And the risk has returned. Is it possible that the very best buying opportunities of this crisis are behind us . It is possible. It would defy comparisons to the past. Havehe most part, all we our comparisons to the past. We dont have knowledge of the future. By the way, knowledge of the future is the current working title for the memo i hope to get out today or tomorrow. We dont know what is going to happen tomorrow. If we work off analogies to the past and compared to the past, this is a rally of record speed and proportion. And if you look at the past, most rallies in the middle of bear markets have been followed by subsequent declines. Usually, markets dont rally straight up. Me it sounds to dont want to put words in your mouth it sounds to me as if you wouldnt be surprised if these levels didnt hold and markets were to if not necessarily retest those march 23 lows, sell off from where we are right now. Well, i mean, i wouldnt be surprised. Having said that, i do believe that we should be we need be less defensive than we were six months ago or so. Rallies have past always been interrupted by pastor treats, then i dont then i past retreats, dont think you can say i would be surprised this time. You werer latest memo, talking about how aggressively oaktree bought in the first months of the financial crisis before 2008 before the oldman lows were reached in march of 2009. How much is oaktree put to work since this crisis began . I cant give you a number. As part of a publicas part of ai dont want to disclose information that hasnt been generally disclosed, but i will say that we were strong buyer is in the month of march. Panic for the motivated selling that accompanied the virus, there were good buys to be had. Do know whether your cochairman, the ceo, everyone else back in los angeles were able to buy as much as they wanted . There was a lot of forced selling and many securities, as you pointed out, were selling at deep discounts to where they had been only weeks earlier. Thats right. Job. Now, bruce did a great he was a substantial buyer. The way,me and by back in 2008, bruce and i were going at it all the time. I think we are going to fast, i think we are going to slow and you vacillate. Buying in the midst of a cascade downward is always challenging and always introduces mixed emotions. So, we bought. We tried to calibrate. We tried to buy a lot. But be disciplined so as to have money left for the next day. Oaktree capitals cofounder howard marks speaking with erik schatzker. Ben got trench is with us right now. Is always fascinating to listen to howard marks. Do you think hes in too soon . Do you think what we saw in terms of a rally was just a bear market rally . A little bit of a head fake and markets have further to fall . Ben no, i dont think he is into soon. I would never question the great man anyway. But i think of course we could thosee the markets test lows, but it still would be appropriate to be adding on weakness on sort of a 12month view, given that we believe we can emerge from this Health Crisis and emerge with economies in reasonable shape, given all the efforts that Central Banks and governments have gone to that weakness represents an opportunity and the equity market. Likewise, we have seen this considerable rally and i would caution against using all of our dry powder at this very moment. Buckman, who works at citigroup as an equity strategist, says that a decent rule of thumb is that stock markets should fall generally as much as corporate earnings do. We are expecting global earnings to be cut in half by this pandemic. And yet markets are still within 20 of their alltime highs. Thatt it make sense markets would need to at some point sort of make good to what earnings have done . Or do not expect earnings to fall that much . Can expectwe earnings to fall in that realm on a quarterly annualized adjustment. I think we can expect earnings more quickly than after Something Like a financial crisis, where those imbalances take such a financial period to work their way through the system. With this sort of exalting a shock that we have seen, corporate will have moved fast. To remove workers from their payroll. Obviously, the numbers read terribly. Companies feel better about doing that. Consumers actually wont feel the brunt of this quite to the extent that we saw during the financial crisis. They went into it with Balance Sheets in much better shape as well. When we get past this Health Crisis, corporations will feel their Balance Sheets better prepared to rehire quite quickly and consumers, although some have felt a visceral experience, but by and large, it wouldnt have been as severe as postfinancial crisis. We are not talking about a vshaped recovery, but we are guessing there is the platform therefore a reasonable recovery, which means earnings can recover at a quicker pace then we have isn in past crises, which why the rule of thumb may not hold so tight this time around. Matt interesting stuff. We will keep you with us a little longer. Our guest stays with us. Coming up, Oil Holds Gains as markets mole opecs historic output cuts. We will discuss the outlook for the Energy Sector next. This is bloomberg. Back to thee european open. 22 minutes into the session. We are seeing gains dissipate in london. The ftse right now basically unchanged as the pound begins a little bit of ground against the dollar. For 1. 2567. Ding the dax up now. Lets get to the Bloomberg Business flash. Here are todays top corporate stories from the terminal. China is said to have started the process of merging ands biggest brokerage firms. Started duecently diligence and a Feasibility Study on how to structure the deal. A merger would create an Investment Banking giant valued at 67 billion. That is more than Goldman Sachs. Softbank is now forecasting a loss of 12. 5 billion for the year ending in march. The Japanese Company has written down the value of investments in companies, including the Office Rental startup wework and oneweb, which filed bankruptcy last month. Apollos Global Management flagship Credit Hedge Fund is scoring gains this year. They profited from welltimed shorts and purchases of highgrade debt during the panic. It had been quickly amassing holdings in investment read paper in march before the market rallied after the fed intervened. That is your Bloomberg Business flash. Royal is Holding Gains today. Oil was Holding Gains today. Bloomberg opinion editor robert berg us says even a big deal in production curves can only do so much in the face of the demand shock. He argues there is unlikely to be a Market Recovery without an oil rally, writing the Energy Industry is a bond the biggest employer among the biggest employers in the u. S. Economy. It is going to be hard for equities to sustain any sort of rally as long as Oil Prices Remain depressed and the threat of mass bankruptcies continues to loom. Ben guttridge this to with us. Do you agree we need to have oil come back to some extent before we can reliably before we can rely on markets to hold their gains . A timethink there is horizon conflict here. Clearly there are Energy Businesses and those involved with capex related sector are prominent in our indices globally. Doesnd Oil Price Recovery tarnish that shortterm demand for that part of the market. Oil, the consumption part of the economy, the biggest part of the economy is the consumer of the oil. Weaker oil prices are a very income tot to personal income statements. It is something of a tax cut. Time totake a bit of feed through into the system. There are many offsets at the moment given the Global Economic contraction. In Oil Price Recovery will be helpful for the stock markets. In the mediumterm, it is not something necessarily we need to see. Matt what do you like right now . If you could only buy one thing right now, what would it be . Ben u. S. Equities at this moment. We are not expecting a vshaped recovery. We are expecting governments to tentatively remove restrictions and that means that the growth recovery is going to be more modest. You have a lower for longer Interest Rate environment. We have seen those conditions in the past and u. S. Equities tend to lead the way in that environment area environment. Matt thanks for joining us. N will be continuing the conversation with me on Bloomberg Radio 9 00 a. M. U. K. Time. If you want to tune in, go to bloomberg. Com radio. If you are in london, tune in on dab digital radio. Up next, and rbs exclusive. The bank is among u. K. Lenders helping businesses through the coronavirus, but our Companies Getting what they need . We will speak with the chairman. This is bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Bloombergme back to markets, this is the European Market open. We saw gains dissipate on the ftse, but we are Still Holding on to more than 1 gains on the dax this morning. The stocks europe 600, the broader european benchmark index , and you can see it reflected in this, what we see in most other equity indexes across individual european nations. We had a big jump at the open and that has trailed off to some extent. We dont have all Industry Groups rising. Health care, basic resources, and tech are doing the best. Drops and travel stock, is whether the as well as real estate and banks, which is interesting as we prepare for the biggest u. S. Banks coming out with earnings today and kicking off her earnings season all week long. Lets get the bloomberg first word news from the terminal. Trump says he has total authority to order states relax social distance distancing every open their economies as the number of u. S. State governor say they will form regional alliances to coordinate the reopening of schools and businesses when the coronavirus outbreak subsides. Californias gavin newsom says governors will be guided by facts and science while the president says he is pressing ahead with reopening plans. President Emmanuel Macron said france was underprepared when the coronavirus hit. Saidtelevised address, he that by that date, france will be able to test all the patients with symptoms. The finance minister said the crisis will see the French Economy contract by 8 in the fiscal year. During this period, the only way is to act efficiently to halt the spread of the virus. May 11 will only be possible if we continue to do our civic duty , act responsibly, and respect the rules. Matt by the way, the vice chairman of the fed says the central bank can keep the u. S. Ut of the deflationary trap in an exclusive interview, Richard Clarida said the Federal Reserve will use tools until it is confident the economy has recovered from the coronavirus shock. Almost 17 Million People have filed for Unemployment Benefits in the last three weeks. Global news 24 hours per day on air and on quick take powered by more than 2700 journalists and analysts in over 120 countries. U. K. Will probably extend its lockdown this week. Thats according to the foreign secretary. So far, the government has paid out more than one billion pounds to small businesses, but are all Companies Getting what they need . ,oining us now is Howard Davies the chairman of rbs. Howard, thanks very much for your time. Let me ask how important do you think the focus on smes is . How important all these small and Mediumsized Enterprises and how hard are they getting hit by the pandemic . Howard it is very important because they do create a huge amount of employment in the country. For many of them, there has been a complete stop on their business. The most obvious ones being restaurants and hotels. But a lot more who are in the supply chain. It is absolutely crucial. I think the really key thing is that we need to ensure that there is productive capacity in the economy for when the opening up and the upturn eventually comes. Because if weve lost Production Capacity because firms have just given up during the crisis, then we will have a constrained uptick. So, it is important in the downside, but it is also very important to position the economy better for the upturn. Matt how difficult is it going to be for these businesses . You mentioned, for example, servicents or merchants businesses collecting zero revenue right now, but getting loaded up with debt, some of it with very high Interest Rates. Relatively high Interest Rates. Forhard is it going to be them on the other side when they come out of this pandemic loaded up with debt . Howard im not sure about that in all cases at all. They canall, it means recover most of their employment cost and many are. Scheme does not have an Interest Rate in it for the first year. So most people whose businesses clearly has been interrupted and are eligible for this scheme will be taking on additional debt, but it will not be at an interest cost. At least for the first year. The question is whether in the long run those will be viable, with a larger amount of debt on the Balance Sheet. The answer is some will be in some wont be, which is why the government and others are now looking at whether in some cases there is a need for an equity instrument at the end of all of entity, somesome governmentbacked entity takes an equity stake in businesses where they can survive with that huge amount of debt. That is a problem in a way that we hope we will have. That is more of a problem with the reopening than it is at the close down. At the moment, the loans available are in zero interest for the first year under the government scheme. Some kind ofexpect Debt Forgiveness . Theres been a lot of talk about a jubilee. As a banker, im not sure if that rubs you the wrong way. Is that a possibility in the other of this, howard . Howard well, i guess that is a possibility. It is not something which would be at all easy for the banks themselves to do because of course our money is all somebody elses money. So, if im forgiving a debt to a borrower, im also spending your deposit, which is not something i guess you would appreciate. If that is going to happen, there is going to have to be some Public Sector involvement in it somewhere. I dont think the banks would be sensibly advised to do that, but if a bank creates a big hole in its Balance Sheet, credit is going to be constrained when we eventually do reopen the economy and that is actually we dont need. ,n the last financial crisis could not extend credit on the scale they have before. It is a Health Crisis, not a financial crisis, but what way must avoid doing his drink it into a financial crisis and getting into a situation where we cannot turn up in terms of a credit crunch. That is the calculation the government has to think very hard about. Matt you mentioned the fact that bank Balance Sheets are much stronger now than they were in the last crisis, so they are able to do the lending that is necessary to avoid a credit crunch. Are you doing that . Are you able to get all the companies that need money lines of credit . Howard well, in principle, yes. I would acknowledge that the original start, the start of the scheme did get off in a slightly hesitant way and i think that was partly because of the way it was designed, which the government then changed last week. Originally, you had to prove that a business was not damaged by the crisis, not eligible for financing on commercial terms. And that was of course a hoop that you had to go through, which now you dont any longer have to go through it. The money is flowing out much more quickly over this last weekend than it did in the first 10 days of the scheme. And it is not a problem of capacity in the big banks anyway. We certainly have money available. We have a very Strong Capital ratio. Our Balance Sheet is healthy. We can lend. The only holdups have been in the nature of the scheme. We have to go through a credit appraisal because the government is only guaranteeing 100 . In switzerland, the garin tea was just the guarantee was 100 . There was no credit appraisal carried out by the banks on the way through. That inevitably produces a slight delay. There is no issue about credit availability. Overall. So, the scheme is now working quickly. We have approved 2500 loans with another 700 which we effectively approved, but we are waiting for signoff by the client themselves. The scheme is now working pretty rapidly. It isnt constrained by the financial position of the banks. Matt i would, let me finally ask you about the changes. Im sure a huge amount of your staff is working from home. I wonder how that experiment is going. And how this pandemic is going to change things permanently, do you expect permanent changes . Howard it is going quite well, actually. There have been some difficulties for us because we have quite a lot of our support staff in india and india had to close down in a rather dramatic kind. In india, working at home is more difficult because the wifi where people live is not necessarily so great. These are practical problems, but it is important for us. Overall, the process of getting people to work at home has worked pretty well. , guess one has to ask oneself that is based on a lot of social capital built up in institutions, not just ours, where people know each other, they trust each other, they work with each other for a while, they can operate remotely for quite some time. You have to ask yourself, is that something that could continue in the long run . You bring in new people, they would never have met the people. I dont think it is a tenable model in the long run. That said, i think we are going to learn some lessons and probably we will have more Remote Working then we have had in the past, but a wholesale, lets never get back to the office i dont think is realistic. Right, thanks so much for joining us. We appreciate your time this morning. Howard davies, chairman of rbs. Coming up, speaking of banks, the u. S. Majors reporting. Jp morgan kicks off earnings season for the u. S. Lenders. We are going to look at what you should expect from wall streets chaotic coder next this is bloomberg. Welcome back to bloomberg markets, this is the european open. We are seeing the ftse fall as the pound strengthens against the dollar. At their equity indexes across europe are still maintaining gains, including the dax, which is up more than 1 right now. Investors today will get their first look at how the coronavirus pandemic is impacting americas largest lenders. Jp morgan and wells fargo kick off earnings season today. Bank of america, Goldman Sachs, and city follow tomorrow and Morgan Stanley will round out the week later on. We are going to get dani burger in right now to discuss exactly what to expect and what we should be watching. What are the key metrics we should be looking at for this season . Dani so, it is really going to be all about credit this earnings season. Not really useful here because the forecasts are likely to be so wildly off. The picture has been really murky. The real meaningful metric here is going to be if there is a miss on the bottom line because inthe significant increase the win loss provision. What is the amount of provision set aside for credit losses . Not only does this give a sense of what the pain the banks are likely to see, but also in general the economic turmoil impacting individuals. Banks are gearing up for bad debt, certainly problematic. There is a Balance Sheet issue. That money set aside also means that there is going to be lots of dividends and buybacks, not to mention the political pressure already produced. Trading results, i that did very well in terms of the increased volatility in volume, or they were stuck with highyield bonds and as spreads were widening, that hit them hard. See very wided deviation from bank to bank. A lot of these traders were working from home. Information flow , that is something we cant model out. It is something we will have to wait and see how it plays out in the earning. Matt thanks very much, dani burger, talking to us about what to expect. Fargogan and wells kicking it off before the bell in new york. Inant to point out quickly the german stock market, it says it is investigating technical problems involved in trading. A quick mention of a technical issue. Up next, trump clashes with governors and says he has total authority to reopen the economy. We are live from new york. This is bloomberg. Matt welcome back to bloomberg markets, this is the European Market open. We are 50 minutes into the session. The ftse trading, what we have gains elsewhere in europe with the dax index up more than 1 . Saudi arabia has cut most of its crude pricing in a clear sign that the kingdom is trying to maintain competitiveness. The Nations Energy mr. Dutch minister said it would be mitigated in the next couple months. We are keeping all options open. I think the new spirit and the new light and the new arrangement, including cooperation with the other producer mindful of their circumstances, including the renewed spirit of the topic, what else to demonstrate as a way to show the whole world that we are here up and running and acting responsibly, without in mind, it doesnt take a hero to predict that this whole created as a result of this external situation would anyalso be attentive to further requirement. Or less uncertainty will prevail as opposed to more uncertainty. I hope that once we turn that curve away from the descending curve, things will be a lot better, i believe i can speak of saudi arabia that as long as all are ready to do anything necessary, we will be lastirst to commit in the to abandon our commitment. Ago, youst five weeks and russia were headed toward a quite nasty divorce. Where does this leave the relationship now. They were set and done in two years, could we see another price war potentially come back . I will carry on with your metaphor. I wont call it a nasty divorce. Family, they go through differences. The keep it to the inner circle. Depends on the bond of the family. The bond of the family is strong. Go throughmily, they tough times, but it actually improves the resilience once they go through troubling times. Say andectly happy to that the family is much more resilient and much more strong to weather any potential crisis that may emerge. States now part of this family . To disappoint. We dont need any divorce lawyers. Most important people in the deal . Weve seen President Trump tweet a lot about it. Are you surprised that an american president is pushing for Higher Oil Prices . Certainly, it is not my job to defend the president. But i would have to be fair to him and speak up the truth. Is he is a responsible president. Truth, he is to create jobs, communities, creating growth, creating income, creating prosperity big contributor to gdp. Sector, it isce to be protected and its wellbeing is being looked after. I have not seen any country any president of any country that would not do that job. Matt that was the saudi arabia and energy minister. Talking with our very own intrepid oil reporter annmarie hordern. Recommend listening to that back on bloomberg. Com with any of our interviews. Bloomberg radio or bloomberg television. Lets take a look at how european equities are trading right now. We had the ftse drop after opening up. It is now down 0. 2 . All likelihood, it is the strength we are seeing in the sterling. The dax on the other hand is gaining. We did hear it said that there were technical issues with trading and they are investigating the technical problem, but we do have the dax index up 111 points. Pointc only up zero three. That is it for the european open. Stay with bloomberg television. Up next, it is surveillance. This is bloomberg. Awesome internet. Its more than just fast. It keeps all your devices running smoothly. With builtin security that protects your kids. No matter what theyre up to. It protects your info. And gives you 24 7 peace of mind. That if its connected, its protected. Even that that petcamera thingy. [ whines ] can your internet do that . Xfinity xfi can because its. Simple, easy, awesome. [ barking ] francine President Trump declares he has total authority to reopen states amid the pandemic, setting the stage for a clash with governors. More than 10,000 are dead from the virus in new york alone. Global stocks rising as Goldman Sachs warns of a 35 percent gdp slump for advanced economies. Jp morgan reports earnings this morning. Global coronavirus cases approach the 2 million mark. France and india extend lockdowns. The u. K. Expected to follow suit. Good morning, good