That is what we saw with adp, not as bad as we initially thought. The banks talk about of canadas decision coming out as well. You could see that in the top righthand corner of your screen. Unsurprisingly, the bank of canada keeping rates on hold and the economy is starting to reopen. The bank of canada looking for more information, its a status quo decision with Interest Rates left at 25 basis points, at the bottom end of the range. They are unlikely to go any lower when we have a new governor coming in, macklin is coming in and is likely to resist negative rates. Scaling back some of the Market Operations at the bank of canada with covid19 impacts, it appears to have peaked. Interesting, could you imagine . The dollar cap is down two point 1 2. 1 . A twomonth high as what we are dealing with and also oil prices are vacillating everywhere, but the spread continues to widen and we are now at the widest is this manufactured by the fed or is it a comment on longerterm growth . We are going to dive into the data, Michael Mckee is joining us. It is less bad thing that we are going to keep talking about . Michael it looks that way, this is a good report given everything. The Service Sector is the u. S. Economy and Consumer Spending is 69 of u. S. Gdp. So what happens here is arguably more important than the manufacturing index. If you look at the numbers which are under the headline, better than active, Business Activity is version of duction you get going up to 41 version of production you get going from 41 to 26. Employment does not improve all that much, but we know that, and when you look at the numbers underneath the hood it looks like things are starting to get better. This could reflect two things. There is a sentiment index, it could reflect that we have reached the bottom and that purchasing managers might think that things are starting to look up. The other is that they reflect a little bit that some states have opened and the anecdotal report is that people are not going out and spending money but they could, may be influencing these numbers. Is interesting sub number that prices paid went up. Its one of the few numbers thats over 50. We dont have time to really play again here play a game here, but i would say guess what went up in price . Disinfectants, hand sanitizer, ppe coveralls, and gloves made the list. No surprises there. Guy unsurprising in all of that. Forward, ishis there anything i can extrapolate out of what i have in terms of the totality of the package that will tell me about the payrolls on friday . Michael not really. The ismhe problem, in report theres no real significant route approved improvement. And the adp has some significant methodological differences. We get a report on friday, remember how many people said they were furloughed and expect to go back to work, adp counts all of them. If you are on a payroll you are in the adp report. If you are not getting paid on a payroll, you are not in the nonfarm report. So the number could be significantly higher. This could be a case where they dont compare. I would not put too much into the idea that adp is telling us things are better. Mike, as ever, thank you for running us through the data. Lets carry on the conversation and figure our we are going next. Governments are taking fiscal and monetary action to combat the economic, impact of the pandemic. Joining us now is peter fishel peter fisher. Previously served as the undersecretary of the u. S. Treasury for domestic finance. Is it your sense that the u. S. Economy is bottoming out . Peter it maybe, i am always expecting a fishhook covering, we hit the bottom end bounce a little and then i dont know what happens. There might be a steep decline but i think whats important is that we understand that we did not dart at equilibrium did not start at equilibrium. We have historic highs and importantly,most historic nonfinancial debt to gdp. I never expected us to bounce back to where we started, but the question is where do we find an engine of growth once we bounce off the floor. Its a little hard to find that. Alix weve been talking a lot about the disconnect between markets and the Economic Data. Theres a vshaped recovery in a lot of different Asset Classes but not with the headlines about the riots, or the u. S. And china, what your best interpretation of that . Your best interpretation of that question mark peter ive that . Peter the markets can have a short horizon because the future is uncertain and hard to predict. And theres also recency bias. The most recent past is what we think is the right Reference Point and i dont think thats the case. Lets talk about where the engine of growth might come from, Government Spending has provided a floor to stabilize the economy. That will not be the engine of growth, its unlikely that congress will spend enough to do that. Global trade has been slowing down for two years, you have a trade war thats looking worse. Its hard to see how for the u. S. Economy in particular, that global trade is the engine. That leaves us with investment and consumption. With consumption i think we want to focus on the savings rate. Over the last 10 years it was a sufficient explanation for the slow recovery to see that the 8 . Ngs rate went from 3 to the fed could not get it down by lowering rates. Rate backed up with that big share of consumption. We never got it going as fast as we would like. And with half of Discretionary Spending as people over the age of 55, these are the slowest to come out, its hard to see how consumption will be the driver leaving us higher. That leaves us with corporate investment, but we just taken corporate debt to gdp at a historic high. Its hard to see how corporate borrowing will stimulate investment. Its going to be hard to find the driver and i have a hard time seeing where it is. I think thats why we have a lot of uncertainty. Markets the equity dont see that. They see a bright upland approaching, i would be suggested by the pricing that we are seeing, is that being driven more by expectation of the fed then what we will see from the real economy . You just laid out a bunch of things that dont sound good. I guess it boils down to a simple thing, is the fed encouraging investors to take overly risky positions . Should be doing so . Peter i think the fed is doing that. In two different ways. Its growing the Balance Sheet quickly. Last fall we had to blow up in the repo market and the fed responded by growing its Balance Sheet. They said it was not qe, but to address the strains in the repo market. And now the fed is growing its Balance Sheet and has doubled excess reserves in two months. Thats one thing they are doing, pavlovian, but but the market thinks everything is good for us. Im not sure thats healthy. The other with the fed is affecting this is by intervening in the highyield market. History wenk, with look back in five to 10 years, i dont think thats the smartest thing the fed ever did. I think they are fixing prices of those markets, and that means the information content that we normally attribute to the markets is less than we think it is. Monetarism died when Charles Goodhart explained when you take a measure and turn it into a target it loses its information content. That is what the fed has done to Investment Grade and highyield credit. It took the information content out. And they made equities more volatile. If you think of the capital structure of the whole country, the fed is providing a floor for the credit side of the capital structure, that means equity is more volatile. If people think happy days are here again because the fed is growing its Balance Sheet, it does feel like that that is pushing up asset values. That thoughtold and stick with us. We will carry on this conversation. Us,r fisher is staying with more coming up, thousands taking to the street for an eighth night of protest. Is the market largely shrugging off the unrest in the United States. That conversation coming up. This is bloomberg. I this is bloomberg markets, have your first word news, another sign of how relations between the u. S. And china are getting worse as the Trump Administration suspends chinese allies from applying to the u. S. Refused when were it comes to extending service in china. President trump is doubling down on the use of force to put down protests, he urged police to get tough and the president also warned that the National Guard is ready. Protest last night were peaceful for the most part after several days of violence. And the pentagon is distancing itself from president trumps warning that he could use active the military active duty military to clamp down on protest. The Justice Department said it would be better to rely on the National Guard. Activeduty troops have been put on alert for possible deployment, most likely in washington. Opec and itsetween allies are now in doubt as saudi arabia and russia draw a hard line. The meeting is to discuss extending output curves as rices and russia sayi that it may not happen if other countries do not commit to implementing supply curves. 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. Alix thank you. And to update you on what is happening with oil, there may be delays to the opec meeting to about mid june, allowing the time to review the may data. The big confusion in the market is how quickly production will ,ome back and how low it is which then informs opec plus on how to cut. Andeems that for once saudi russia are on the same page. We will discuss that later on. Guy . Guy lets get back to one of the big stories we have been ,overing over the past few days the prices impacting the u. S. Economy. Peter fisher is with us. From a market perspective, we are looking at a situation where this is surging higher despite whats happening in the United States. What do you make of the disconnect . Peter there are two parts. Explicitlyicitly and how energetically the fed is targeting Financial Conditions and trying to influence them. Its been part of their response to the covid prices crisis to try to pump up asset prices and they are having success with that. They should call it what it is, but i think thats part of the disconnect. Another part of the disconnect is that wall street does not look at what is happening in a lot of neighborhoods. Thats a shame but also a fact. I think over the coming months, the anxiety of the rioting in the social tensions are creating and reflecting are going to end up getting embedded in household confidence. We have the shock to consumption from my covid lockdown, the cessation of economic activity. Thats another reason that people hold onto their savings a little longer and save a little spend a little less. There may be a jump in consumption and it could come down with the massive savings rate. But i think it will still way on path of weigh on the consumption. And wall street will have to pick up on that. Alix the longer this goes on for the fed, does it make everything worse . If the policies are lifting asset prices that benefit one portion of the community, because the fed cant really affect or look at areas that are theseimpart leading to rights and protest, is this a vicious circle . And how does the fed get out . Peter chairman powell has been careful in repeating over and over that its really up to congress now and fiscal policy. I think hes been wise to do that. Getting people to borrow more money in the peak of a recession doesnt make sense. Thats not our way out of this. Stabilizes tried to and put a floor on the asset price s which is driven them higher, but now we need something more profound. I think the fed has done what it can and it may create a problem here, pushing prices up to historic highs and getting corporate debt to gdp even higher in the peak of a recession does not make sense. But im not really expecting the fed to get takeout on all 4 trillion but they are offering. Thats like 20 of gdp, we and it wouldthat be massive and put push corporate debt to gdp even higher. Thats a risky gambit. I think its likely that we see the fed backstopping bank lending and thats a wash and the fed takes income from the banking system. Im not sure thats a great thing either. Can i nail this down . Does the accusation leveled by some of the fed, that it rescued the rich by stabilizing the Financial Market stick . Peter i dont think they get up in the morning thinking thats their goal, but they have adopted a view that they will influence the real economy by stabilizing financial editions. All of the Financial Condition indexes that have been built over the 20 years are proxies for volatility. When volatility goes up, the fed jumps in and tries to suppress volatility. I dont think they have a theory of the optimal level, but they have acted themselves into targeting it. They dont get up trying to make up rich richer, they get trying to stabilize Financial Conditions thinking that is the means to stabilizing the real economy. I think its better to think that the fed could have a choice, they could stabilize the real economy or financial assets, you cannot stabilize both. Theres been a model and how the fed has been approaching it, but it is the view they have adopted. Alix peter, its great to talk to you, really well broken down. Thank you very much. Still ahead, we get the latest u. S. Inventory numbers, we are going to go super nerdy with oil , you knew that was coming. We will look at whats happening on the ground with Scott Chatfield, one of the biggest players in the u. S. This is bloomberg. Alix its time for its time for the Bloomberg Business flash. One of the biggest bond issuers is saying that the costs will be high after the pandemic ebbs, that is despite the central blank bank mopping up assets. Supply willbond keep it up. Illinois will be the first state to borrow from the feds 500 billion lifeline for local governments. Theyre planning to borrow 1. 2 billion to cope with revenue losses. Illinois has been hurt by the coronavirus pandemic and the delay of the tax filing deadline. Alex . Alix . X wisch alix the Illinois News is interesting, there has been so pushback about bailing out particularly blue states which tap the fed. To i wonder how that plays out as we see the further divide between the blue and the red states between those who need more money and those who dont. Out the wholelays conversation that we have been talking about. Market thatother the fed is getting involved with, reaching deeper and deeper on a daily basis. In this coming from a european perspective, it feels a little bit like individual states like individual parts of europe, is illinois greece and it did not control its numbers . For in the states shortterm have to run balanced budgets but there are similarities. Alix i actually made that point saying that, and when we see Strings Attached to money being given to states and what does that do you . We know austerity does not wind up working. And to your point about where the fed is act, they are in almost every asset class, doesnt matter if they buy anything . Is the idea that its an option enough to move the market . Once the announcement effect is there theres an effect. Ifwill be interesting to see the strings get attached. That was the story in europe. About the broken seal and whether other states will follow. And here in new york, people are moving now, nobody wants to live here so theres a lack of tax revenue and that is not something you could easily make up. This is all exacerbating the protests that we are seeing and its interesting to see illinois go that route. Guy absolutely. Still ahead we are talking about your favorite subject and whats happening with the recovering oil story. We will speak to one of the gest players, scotia field Scott Chatfield will be joining us. This is bloomberg. We have alixork steel, im guy johnson, lets turn to the oil market. Are waiting for the numbers to cross now, the dynamics of the oil market is interesting, where they are building and where they are not is interesting and will say something. Wind up will opec sustaining the cuts that russias looking at . A drop of 2saw Million Barrels of oil. It would be interesting to see what draws here. Inventories are in the gasoline level and i did see an increase refinery elevation down attached. It could be turning more oil into product or a case of a lack of imports from overseas. Been there, done that, we dont have to import more. But what you do if you are a producer. Scotts, a ceoy of Pioneer National resources, he was called to make a joint curve on oil production. Its always good to chat with you. If im looking at oil at 40 you have to be hiring that crew, are you . 40 is a blessing in the skies in disguise. Nobodys going to add rigs or fleets. Concerns, they are adding back the horizontal production in the Permian Basin and im sure that will have some kind of effect. Russia has not liked u. S. Shale growth, the industry has changed, its all about less to theand returning cash shareholders. But i see no change at 40 and we need to get to 45 and if d before you see people adding rigs and flat frack fleets. Alix how long can you sustain that view when you look at the and how long until your shareholders are like stop, lets go in make the cash flow . Push is tothe big slow your growth down, i think the days are gone of double companiesth, most have too much leverage and i think the first dollars are coming back for a lot of companies, not pioneer because of our great Balance Sheet but most of the companies will use the cash flow to repair Balance Sheets because the equity marke