Being pushed between them and the u. S. With a new cold war. Wang yi, the foreign minister , warned the u. S. Not to cross beijings redline on taiwan. In the u. K. , Oxford University has reportedly run into a hurdle are developing a coronavirus vaccine. According to the telegraph, a decline in infection rates may make it difficult to prove whether the vaccine is indeed successful. A is said that there is only 50 chance of coming up with an effective vaccine. Japan is issuing a state of instituting masses massive testing, but its death toll is far below 1000. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in im than 120 countries, leighann gerrans. This is bloomberg. Nejra . Nejra leanne, thank you so much. We are seeing clear risk on an todays session. Bear in mind that the holiday in the u. K. Of the u. S. Will be thinner liquidity, but even with the emergence of geopolitical risks with regard to hong kong, euros on equities in the green. U. K. Markets are closed. We have no stock or bond cash trading in the u. S. Since it is memorial day, but u. S. Futures are on the front as well. The dollar is still in the green for a third day. Oil also higher by more than 1 . Though it stays anchored, near 33 a barrel. Onto the geopolitical risks. China has warned american leaders are potentially pushing toward a new cold war. Foreign minister wang yi said the u. S. Should give up its Wishful Thinking of changing china, adding that the situation is dangerous and could endanger global peace. Tensions have escalated over coronavirus, trade, and hong kong. Great to see you again. A lot has happened over the weekend. Lets start with the hong kong protests. How bad have they been, and where are we in the security debate . Dont actually know the devil in the details. That is the problem. What it is really essentially is a topdown approach. Be insertedectively into hong kongs basic law. It is a dramatically move. It has been seen as the end of prodemocracyome experts. The end of hong kong as we know it. Causeway based, major shopping area, we have seen clashes between police and protesters, had a gathering taking place. Police were waiting for them, by all accounts. Using Water Cannons and tear gas. We have got also the prospect of further battles perhaps later and a National Anthem bill that would punish people in any way for criticizing. Seen as the biggest erosion of the hong kong economy since china took control of this former british colony back in 1997. It is alarming, already heightening the sort tensions between beijing and washington. This is where we are at the moment. We dont know very much about what will actually be in it. It is said that nothing will change in terms of moving the dial over this economy, but experts are not so sure. You mentioned that we are likely to see more protests this week. How could this evolve in hong kong as the week goes on . It would show that this has to come in. This blame game where coronavirus started, where its human rights record is. On top of that, tensions that ignited between beijing and washington over taiwan come as secretary of state mike pompeo congratulated President Trump when he was inaugurated. Of course, china did not recognize taiwan as an independent state. As a result of all this, the Chinese Foreign minister, wang yi, warning u. S. Politicians that they were pushing relations to a new cold war. Itself, it hong kong is a wait and see attitude by the majority of people. Many see no alternative but to take to the streets. Nejra . Rish, view as you have alluded to, the impact on u. S. China relations, were seeing quite a bit of riskon today. In the european session we saw a fair amount in the Asian Session overnight as well. U. S. Chinarisk our relations from all this, particularly if we think about the prospect of further tariffs . At the moment, all we are seeing is a war of words. Theaad we have of course 33 entities are companies that have been highlighted by the United States now as potentially connected with the regime and potentially in league with the government, in doing something negative toward hong kong itself. We did have china refraining own intercepting its unreliable list. They announce in the middle part of last year, a trade war with the u. S. , but it was preparing its own. Still, when Companies Like huawei china is not retaliating with a list that we dont know about. But according to the global times newspaper, the mouthpiece of the communist party, they entreated that china would retire using that list in the middle of last year, a paper pointing to his source saying that apple and qualcomm could be targeted. That is kind of where we are. It goes much deeper than this. The administration has been move,ing things over this but they have to balance cash penalties aimed at beijing being limited to doing harm to china itself and certainly not to harm the interests of the United States, and of those in hong kong. Washington has to have a narrow approach. Other states could also do new their come if you would, that requires the secretary of state to certify whether hong kong still continues to warrant special treatment. It is employed, and it says it does not need that she does indeed warrant special render it it could the same as any other chinese territory. The wealthext, globalist management cio. Dont miss it. This is bloomberg. Nejra this is bloomberg surveillance. Journey is now is haefele. Irly mark i was looking at your letter from may, title second wave, second wind. This is what markets are grappling with in terms of the coronavirus risks. Talk about that in a moment. Over the weekend, we have had the reemergence of geopolitical risk with hong kong protests, were of words between the u. S. And china. How much do you expect risk assets to react to this reemergence of geopolitical risk . Climbed a in mind, we wall of worry last year with heightened geopolitical risk. That is the first thing. And we think secondly that it is neither johnson nor the either in china or the u. S. Interesting bring you the economy back up to escalate an economic conflict at this time. That said, there are a lot of forces at work here. There are tech issues, there are trade issues. There are Financial Regulation issues, and maybe some National Security issues, so it could be volatile as the different sides sort through which bucket they are putting everything in. Did see a weekly gain for Global Equities last week, we are seeing green on the screen today, so took some extent equities are shrugging off this risk at the moment. Then of course the focus turns to the easing of lockdowns, and you have some really interesting observations in terms of the relationship between lockdown and virus transmission and whether we actually get a second wave. To that. Our assessment mark thank you so much, nejra. I think there is a lot about the virus that is not proven that learning we go, and what he did was we went through some of the mobility data, because you can track now with people, how much of a lockdown Different Countries have had through cell phone data. What we found is that there is little correlation between the mobility and the success in reducing the reproduction rate of the virus. So then we tried to fit that to the data, and it seems somewhat possible that in some cases, if you look at, say, london, the serology is showing that 17 of london has already been infected. That raises questions about, in some of these areas, do we have Something Like a modified herd immunity . It is a theory, but it might be one of the reasons why we should be less worried about a second wave that some of the historical examples going back to 1918, or the middle ages. Nejra interesting. So if the data in the coming weeks supports that scenario that you have outlined in terms of a diminished risk of a second wave, what does that mean in terms of further upside to equity markets, given the rich valuations we are already at daca we are already at . Mark i think there is some reason to believe, given the central bank and fiscal Bank Stimulus that multiples could go higher and markets are forwardlooking, so it is forward multiples, more on normalized earnings, that the broader indices could trade higher. However, we would look for a lot of the gains to come from the parts of the indices that have not rallied at all. So we would be looking more at the cyclicals and some of the value names to kind of catch up to where the broader indices are. That, you are looking, for example, at germany , i believe, and small caps as well in equities in terms of some of these cyclical and value sectors to outperform. But if you look at equity versus credit, which look more attractive as a risk opposition right now . Mark i think we do see these pathways to a much stronger upside, but i think you have to recognize that a lot of the policy is not being determined by the emerging science. Eventually it will be, but right now it is political. So the political outcomes about lockdowns and things can be very different. In the central scenario, we do see the riskreward for credit still more attractive, so kind of buy where the Federal Reserve is buying. We like investment grade, we like u. S. Highyield. We also like the emerging market , dollardenominated sovereign debt. Ok. A in terms of volatility go ahead, go ahead. Mark i was going to say, but one of the clear trends that is emerging from this is the success of sustainability, both on the equities inside and also on the green bond side. That is a trend that we see our clients really gravitating towards. Ish because the line it in line with their longterm view, but also because of the success of those assets through this crisis. Nejra got it. We have talked quite a bit about the potential for upside and where you would take those opportunities, mark. What about the Downside Risks . What would you put in the portfolio to deal with that . Mark well, one of the things that many of our clients are looking to his goal. Think, ourthere, i concerns about the growing pile that is being added globally by governments, and also the chance spikehe dollar has seen a in the kind of crisis stage, but the dollar could weaken given the fiscal and monetary stimulus being applied in the United States. So gold is one asset. Unfortunately, a role for bonds, as we all know, is going to be somewhat diminished going forward, and the role it can play as an Asset Allocation stabilizer, simply because yields are so low, and if you get it wrong, youre almost guaranteed to destroy value. So there, we have to look to alternatives. There still can be a role for hedge funds, which are not as correlated to either stocks or to bonds to provide some portfolio stability. Nejra it is interesting what you say on bonds, mark, because the volatility in treasuries particularly has been so subdued. If you live at if you look at the move index. We were talking about u. S. China relations more volatility ahead, and i believe you were referring mainly to equity markets. If you are expecting more volatility ahead, how should investors take advantage of that . Mark well, this high volatility has led a lot of clients to look for structures, right, where they can earn yield but then kind of benefiting from behavioral economics and kind of get say i am willing to buy into the market if we could volatility down to a certain point, but i will earn a yield in the meantime. We are seeing clients look for those to you structures, selling options to try to get a yield now, but also position themselves to get in or out of the market should we see a big volatile move. I finally get your assessment on u. S. Versus european equities, and where you would actually express a preference, given that we do have the prospect of this economic recovery deal in the e. U. Inching along, but still a lot of question marks and stumbling blocks . That thel, i think geopolitical risk background is harder to predict, perhaps than where the sectors have really been, who could benefit coming out of this . As you have highlighted earlier, in a more favorable economic environment, germany can do well, or European Industrial can do well, and u. S. Midcaps, which have not risen as much, can do well. In asia, you can look because the consumer is coming out asia, so you can look at u. S. Auto and transportation. This is a time to focus a little bit more at the sector level rather than just the macro situation, which is so complex. Of Ubsmark Haefele wealth management. We really appreciate your time. Hour, ap in the next fixedincome strategist, at 6 30 am in new york, 11 30 a. M. In london. This is bloomberg. Nejra leighann gerrans, lets get the Bloomberg Business flash. A shakeup is on the way at aston martin. Bloomberg learned that the british sports carmaker is set to replace the ceo. The new chief executive will be the head of the mercedes amg performance division. Aston martin is struggling with debt. Ass than two months ago, billionaire investor became the company chairman. Reacheds bayer has an agreement surrounding the we kill around. Estimated 85,000 of the 101 if i thousand cases. As far as a 10 billion plan to end the legal problem it inherited when it bought monsanto back in 2018. And bain capital is preparing its secondround bid to buy virgin australia. The alternative asset manager is four in place to buy the airline. In globalthe plunge travel. That is your Bloomberg Business flash. Nejra . Nejra thank you so much. Despite the escalating tensions between the u. S. And china, the war of words, we are seeing some risk on in european equities today. The u. S. And u. K. Markets closed for holidays, but u. S. Futures on the front. The dollar giving up some gains after two days of strength, and oil on the front. Next, the img chief economist joins us on the show. This is bloomberg. Nejra this is bloomberg surveillance. I am nejra cehic. We have seen risk on. It is a bank holiday in the u. K. Memorial day in the u. S. There is liquidity but green on the scene on the screen despite the war of words between the u. S. And china. A lot of news coming through on europe. Today, at least the survey showing german businesses are counting on an improvement in the economy in the second half, this after the coronavirus pandemic pressed private spending and investment in plunged the economy. Joining me now is Carsten Brzeski. Great to have you on the show. I did speak to Clemens Fuest ,arlier and he said, businesses they are still pessimistic but they are less pessimistic than before. Does that fit with your assessment of germanys economy . Carsten nejra weve got a little bit of an issue with carsten on the phone. Lets get first word news. Good morning. In hong kong, protesters demonstrations this week. They have their biggest rally in months after chinas plans to area. Shopping at least 180 people were arrested. The u. S. Will prohibit the entry of noncitizens. The country now has the second number second highest number of coronavirus in the world. Boston fed president expects companies to start receiving money through essential Bank Programs within a few weeks. The main Street Lending program is keeping credit flowing. It is designed for 600 billion in credit. Lawmakerse u. K. , attacking Boris Johnsons top aide. That happened at a time when he was isolating with coronavirus symptoms. Johnson calls his eight actions sensible. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Nejra. Nejra thank you so much. Lets get back to Carsten Brzeski. Really great to have you with us. Earlier. E ecodata german businesses counting on an improvement in the second half after coronavirus depressed spending and plans to the economy. I did speak with Clemens Fuest earlier and he said, there are still pessimism. Business is just lest less pessimistic than before. Does that fit with your assessment . Carsten yes, it does fit. Level at the ifo index. I think this coincides with Realtime Data that activity in germany has picked up again, but we are 20 off the levels we have been generating. Nejra ok, and if you look at the eurozone more broadly, you have signals in one of your latest notes that the is already behind us. This was sort of midmay that you are making that assessment. Do you feel the same . Coincidest really with the lockdown measures. I look back in austria, there been lockdown ushers in april. The other countries are following. ,e have probably seen the worst even though the incoming data, the traditional macro but i think we will see this rebound in the Second Quarter which then leads to a pickup and growth. What is hard to really assess is how big and how deep will the permanent damage be. Nejra on how deep and how permanent the permanent damage will be, what do you think if you look at manufacturing versus services. One interesting thing that Clemens Fuest said that and manufacturing there was a lot of pessimism but there was less pessimism starting to emerge in some of the retail sectors, which i thought interesting given theres some sort of lockdown in place in europe, even if it is easing, and given theres fears of a second wave. Carsten true, but the single this a perfect is the lockdown already shows that services can become more optimistic. The problem for manufacturing is there will be higher demands for german for manufacturing products. See a strongon we increase in china and asia. This is a global shock, i think there is a sense that the German Economy demanding growth therefore, germany will have to see services improving. It makes sense given that the lockdown edges are lifted. Nejra given that demand will remain sluggish, if you look at germany, we k