And 5g. A call between Boris Johnson and eu officials and is with the Prime Minister saying he sees no reason a brexit deal cant be reached by july. The eu councile president reiterates a level Playing Field is essential. 6 00 a. M. In london. Buying backe bond stock has been delivered. I like what john says on bloomberg. It reminds me of my mother. You will rue the day you executed this in the market to buy these individual bonds. There was ar, discussion. Essentially, the bond buying creates this real body of support to the equity market, going deeper into the capital structure, you extrapolate forward. This is the boost to equities. Do you think i will rue the day i said this . Nejra do you know what . I love that word. It is one of my favorites in the english dictionary. I noticed that in the journalistic column. Im glad we are on the same page. It is really interesting, because what we heard from the fed, the list given to markets, what it does is show that perhaps any concerns the market had about the fed implement and asideave been putting this corporate index so corporates are not going to have to show their eligibility, which was the concern before. When you talk about the second wave you have families talking about a vshaped recovery where Jp Morgan Says the debt burden countries are going to have mean perhaps further down the line, fiscal stimulus is going to have to be bought back and that is something the markets are not pricing in at the moment. It is the fed markets seem to be reacting to right now. Equities showing their biggest jump since march. Euro stoxx 50 futures up almost 3 . You are seeing this feedthrough into the equity market, adding to that of course the trumpa ministration considering the 1 trillion in Infrastructure Spending adding to the risk on sentiment. The aussie is stronger. We got the rba minutes talking about being prepared to scale up bond buying if needed. Packed but does increase the size of its lending support. The 10 year treasury higher in broad risk on moves as well. The Trump Administration is preparing a 1 trillion infrastructure proposal. And living a reversion of the plan would reserve most of the money for traditional infrastructure work like roads and bridges, but it would set aside funds for 5g wireless and google broadband. Comes as the current infrastructures funding law is set to expire on september 30. Buyingthe fed will begin individual Corporate Bonds on the secondary market, Corporate Credit facility. In a statement, the fed said it will base its strategy on a broad, diverse index it has created internally. Issuers will not need to certify their eligibility. Nejra joining for the hour is the head of Investment Strategy at rbc Wealth Management. Welcome to the show. We definitely see a strong reaction in equity markets today after what we heard from the fed on the Corporate Bond buying yesterday. Do you prefer to play the fed narrative by equities or credit . Good morning. We see the best adjusted returns from the fixed income asset can nowredit spreads further from here, they are very well supported by centralbank purchases and in particular there are two areas, the highyield corporates and also emerging markets. Highyield corporates, we have seen yields about 6. 5 . That was well above the 10 year average. There is a risk of default, of course. But there is good monetary support, good fiscal support, and companies have been able to serve up liquidity, so in our view, it is an attractive in a world we are which is starved for yield. Isour view, high yield saying investors appropriately for those risks. They like emerging markets very much. Theres a couple Different Directions to go. Lets look at the highyield discussion. We will come back to treasuries. Within highyield, how do you look at the default rates relative to those in asia . We have hadessure in corporate over treasuries and then asia highyield. I just wonder whether highyield in the u. S. Relative to asia, given all the considerations. They are bothy attractive and we would have both in our portfolios. Level in a corporate emerging markets were in high the market was discounting high singledigit levels of defaults back in march. Our view was it would be much lower than that. Probably in the order of 2 to years,use the last few corporate have managed their Balance Sheets well. They have delivered their Balance Sheets during the last cycle. In our view, while there could rescheduling of debt, default rate would be much lower. Emerging markets have had a much better crisis than what had been anticipated of them. In equities, you say remain invested, but modest underweight. Know youreto thinking given how much stimulus the u. S. Is throwing on the monetary and fiscal front. Why do you underway all regions except china . Aboutare still cautious the risks out there. When you look at potential returns it is important to look at them on a riskadjusted basis. We saw china being one of the first countries in terms of. Timulus coming out of lockdown we saw good opportunities there. In the nearterm, we continue to see at sized associated in particular with the path of the several economies to unanticipated shocks. Infection,wave of fears are materializing in the u. S. , risking other countries. There is a second wave in china. Numbers are still small, and given with how they have dealt with the crisis in the past, it seems like it would not be an enduring problem. Outside risk in terms of ,nfection and also the economy it seems to be under control at the moment. Being tough on china is one area which has tended to be unpopular. What you have just summarized his the summation of what many tail risks. I want to get your understanding. The discussion i had is the measuring the size, the scale, and the quantum of volatility that comes from tail risks. My question to you as an Investment Strategy, how do you best prepare for that rising level of kurtosis at the tail . How do you act upon those incidences which are coming more often at a much bigger size . These are tail risks. To marketead volatility. That is why we tell our clients to remain invested. Prudent,er dry, remain we are likely to see volatility. Discuss how to take advantage of those volatility spikes in just a moment. Your first word news as we go on 6 10 a. M. In london. In the u. S. , some states are considering pausing plans to reopen over concerns of a second wave. Globally, more than 100,000 new infections every day. The vast majority in the americas and northeast asia. Closer toeems to step brexit. Brussels is confident Boris Johnson is willing to compromise. The Prime Minister says the chances of an agreement are very good. Johnson held a Virtual Summit with the Eu Commission president which sources say injected new momentum into the deadlock to negotiations. More staffill return to trading floors next week as the biggest u. S. Bank begins to formally reopen offices post lockdown. The company will start bringing itsnteers back in waves in madison avenue tower. It will start with 20 of its staff, 50 by the middle of july. Parts of the business are still formalizing their plans for bringing employees back. Ray dalios bridgewater suffers a drop in the wake of heavy losses at its flagship trading strategy. Fund giantthe hedge mostly reflect returns rather than client withdrawals. Firm got hitd the by coronavirus at the worst possible moment. Global news 24 hours a day global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Good morning. Nejra trillion dollar measures. The bank of japan increased its estimate of the size of its virus response. Manus this is bloomberg daybreak europe. Central banks have got swag today. The rba says the economy will likely need policy support for some time despite improving signs. The central Bank Released minutes of its june meeting when it left the benchmark rates bond yield target at 0. 25 . The boj revise the estimate for the size of its virus response measures to around 1 trillion. The central bank pledged to do more to help if needed. It left rates and asset purchases unchanged. The boe meets on thursday. It is expected to focus on its quantitative easing program. Manus the head of Investment Strategy at rbc Wealth Management is with us. If we look at the Central Banks, this week is about australia ready to do more. The bank of japan with a trillion dollars. Trillion seems to be the number of the day from the u. S. , boj, and the u. K. As you assess the fiscal responses from various portions the world, does that drive any of the apportionment of capital for rbc Wealth Management . We see it generally assets. Ve of risky in terms of fiscal response, we would look at what sort of response it is. U. S. , itcture in the is very large. No doubt very supportive. To gets a while for this through to the economy. Planningall sorts of permissions. There might be a number of ways immediatere mediumterm attention to the yesterday. The u. K. A decrease,alks of something germany will have as of july. The benefit of that is and we have used this in the u. K. In the 2009 crisis. It is timely. We dont need to wait until the next fiscal year to implement it. It can be temporary, just for a number of months. You dont need to leave it a full year. It is very targeted. Lower tax rates can mean higher can helpbut decreasing , which isonsumption what economies will need at the moment. The fiscal stimulus is good. Exactly what sort of stimulus is very important. That demandside needs to make a comeback. Can i put two views to you and you tell me which one you agree with more . You have Morgan Stanley saying we have greater confidence in our call for a vshaped recovery given recent upside surprises and growth data and policy action. Morgan stanley talks about vshaped recovery. Jp morgan says there is a risk of surging debt and deficit that may force governments to wind back their massive fiscal stimulus. With limited turn steps expected from Central Banks is an important factor underlying our forecast in complete recovery through 2021. Thats jp morgan. Are you more on the side of Morgan Stanley or jp morgan . We would side more with jp morgan. We do not see the economy returning to precrisis level until early 2022. We do not see full potential until late 2022. From the very depressed level, we can see for the next few months a vshaped recovery after we expect perhaps more of a grind back to a precrisis level. Makes sense. Thats two different outlooks. Up, the hedge fund giant founded by ray dalio suffers heavy losses at its flagship fund. We will discuss the 15 drop in bridgewaters assets. Nejra this is bloomberg daybreak europe. Lets look at the events we are watching. 9 00 a. M. U. K. Time, the assessment as oil prices face renewed pressure. The future of trade relations between the u. S. And the eu is in focus at 11 00 a. M. Phil hogan takes part in a debate about the blocks commercial policy. Manus 1 30 u. K. Time we will get the latest reading of u. S. Retail sales. Fedlly, jerome powell, the chairman, reports to the senate at 3 30 london time. What will he say . We mentioned ray dalio. He runs the Worlds Largest had fund. Assets plunged for the first four months of 2020. Bridgewater associates suffered a 50 drop in assets under management during march and april in the wake of a market gripped by coronavirus pandemic. She is back by popular technical demand. On your screen, dani burger. Bridgewater currently or at least the end of april, there fund sat at 138 billion dollars, down from a 163 billion. That is a 15 plunge. Most of the drop came from poor performance, not client withdrawals, though there were some, including the virginia retirement system. Their biggest fund. Alpha to dropped 20 in the month through april. Theyre all weather parity fund fared better. We knew asset returns were going to be bad. Considering ray dalio took to in sayingn linked coronavirus came at the worst possible time. There is exactly what he said. We had a long tilt in our positions. The good news for dalio and bridgewater is they have a long list of people who want dalio to manage their money. Now that their assets are lower they have more capacity to take on new money. They are also open to clients who currently invest with dalio. Nd want to put more cash in their assets are low, but it looks likely they are going to get more investors to pump up those again. You. thank dani thatard from ray dalios clients have their cash waiting ready to go. What about clients you speak to . Are they still willing to keep cash on the sidelines, or are they wanting you to deploy that in more risky parts of the arcade . Of the market . Be used for federal purposes. Many of our clients keep some ords for everyday expenses the like. Given how low Interest Rates are, we are looking at solutions to try and increase the return for the money which is not immediately required. There are a number of solutions in terms of money market funds through the risk curves. Probably looking more at fixed income for that cash than for equities depending on objectives, risk tolerance, people can find different solutions. Just talked about ray dalio having a crisis at the worst possible moment. A lot of that implosion was to do with risk parity. The faster markets fell, the faster markets had to liquidate. What did you learn . Whats the biggest outcome . We were positioned before the the cycle,rding to we were positioned defensively. We thought we were close to the end of the cycle, and really is toe have learned is invest for the long term, to maintain positions, and not panic, and try and look through problems, factors thrown at of market, but to be mindful the quality of assets in portfolios. While we would not have liquidated positions, we did tell clients to be aware of the quality of holdings in their portfolios. We think this served us well. Manus ok. We all had pretty big learning incomes the past three days with equity markets. At rbc wealthrier management. Politics, a little bit of cautious optimism from the to covid19 and the possibility of a vaccine. Manus good morning from bloombergs middle east headquarters in dubai. I am manus cranny. Nejra cehic alongside me bloomberg daybreak europe in london. It is bloomberg daybreak europe your top. Alongside me. Bloomberg daybreak europe. It launches its main Street Lending program and proposes expanding its two nonprofits. Equities extend gains as the Trump Administration said it will consider 1 trillion of Infrastructure Spending. A preliminary draft sees money flowing to roads, bridges, and 5g. A call between Boris Johnson and the e. U. Officials. The Prime Minister said he sees no reason why a brexit deal cannot be done and reached by july. The e. U. Council president reiterates a level Playing Field. Nejra japans nikkei extending gains to 5 . We are seeing a reaction in the equity market. The fact that it will look at individual Corporate Bonds. It has a custom index it has put together and what it seems to have done is can away of a potential hurdle of companies that would have had to certify they were in compliance with restrictions outlined for the program. Corporatehe feds bond buying easier. Manus that credit backstop was the flamethrower that reignited the s p 500. We have done a 5 roundtrip. Up 3 ond the board futures yesterday morning. Here we are, of 1. 6 . In terms of the downside. We have done 5 , roundtrip. The question is, the Corporate Bond buying backstop that has been delivered, 1 trillion is what the japanese are promised in terms of pandemic doj response. 1 trillion in infrastructure is a booster to the story. 1 trillion in spending. They are coming back on. Running for like a herd of cows. Apparently, they are back. Bonds. 75 percent. The aussie dollar is flying because the rba gave their minutes. They are writing to do more. We are really trying to understand where we are with the oil market and compliance this week. Absolutely. For all those who said the fed was largely priced into equity markets, today tells a different story. It will begin buying individual Corporate Bonds into its market. Corporate credit facility. The emergency lending program. A broad diversified market index that it created internally so issuers will not need to certify their eligibility. In europe, germany will report the final reading of inflation at 7 00 a. M. Today. Forr on, we have the survey june. Government plans to raise a further 60 2. 5 billion euros in debt 62 point 5 billion euros in debt to pay for a massive stimulus program. Merkel is set to sign off on the budget before he goes to parliament for approval. How do you position around that . The head of Investment Strategy is our guest host this morning. Were you surprised about the delivery by Angela Merkel and does that skew you towards a dax position . How do you play that level of stimulus in germany in the first place . This announcement 10 days ago of the fiscal package took many by surprise. It simply was larger than we had expected. It brings total fiscal spending to 9 of gdp. It is a huge return from germany, which was very two germany, which will expand a lot. It is a massive shift. It is one of the reasons why we are turning more positive on europe. This is a positive development. The ecb has also increased the size of its Asset Purchase Program by more than expected. For aoposed plan response, all of that is a lot of support. Again, larger support than expected, and it really answers investors worries about the fiscal integration, about the ecb not doing enough so it is positioning the region really well. A would have more of stockpicking approach to this in terms of equities. The number of industrial companies, health care companies, in europe, which are looking particularly attractive in our view. Nejra that is interesting. Hsbc onavid bloom of the show yesterday. He said in terms of the euro reaction to the positive news on the fiscal and monetary front, that is done now. We cannot expect much more euro gains. You mentioned equities and you said you are turning more positive on europe. Talk to me exactly about how that more positive view on europe translates into your portfolio. In which assets and how . Frederique it will be more on we equity front and where are currently underway at, we would look to add to our position. Again, i think it is a stockpicking approach in europe which makes sense. If we pick up the top line, where we all started the urnversatio with you, yo underweight regions bar china. Can i tie your position to supply chain relationships poor exposure from maine europe into china . Is there a correlation i can look at . Frederique to the supply chains , they are changing. They have been damaged by this. Are they going to are we going to see a complete return to europe, a complete end . We doubt it. Supply chains have been established over many years because that is the most efficient way of doing things. It is a very complex and expands process to change everything. While there might be some modifications, we do not expect a wholesale repatriation of all supply chains. Nejra thank you so much for joining us, frederique carrier, head of Investment Strategy at rbc Wealth Management. Ceo said he is optimistic about a covid19 vaccine next year. He discussed where drug trials stand with david rubenstein. I think the chances are pretty high. I think where we got lucky, if anyone can use the word lucky for this pandemic, is that the virus is not too complicated. In the 1980sered and we still do not have a vaccine against hiv. The scientific and medical there is a high probability that several vaccines will make it to the finish line. It could be as early as the end of the year or early next year. David you are manufacturing this now. Lets suppose the fda says it is ok. You can distribute this to people. How many will you likely have by the end of the year if you get the approval . Stephane we have not committed a precise number but we think we are on the ramp. David will those go to the people in the United States first or will they go to people all over the world . Stephane that is a tricky one. What we have done is we set up a partnership with one of the biggest contract manufacturers of pharmaceutical products in the world, a swissbased company. In the u. S. , moderna has a factory. They have a factory that, as we speak, transferring the manufacturing process. They should be up and running in july, making their own products. In the u. S. , we should have enough capacity to cover. What we will do out of europe and out of the swiss plant is to make products for people outside the u. S. David what is it going to cost people . Who decides the pricing . Is it going to be very complicated and controversial no matter the price . Stephane the price, we are working on it as we speak. We are getting the drug moving as fast as we could safely into the manufacturing scale up. We are now going to get onto pricing. In thisoducts before pandemic, diagnostics, ppe, those need to be sold at a fair price. The manufacturer cannot give them away in the street. Business does not work like that. The manufacturers need to commit to not charge a price that is not fair. A government, federal or state, or to the payor of the big insurers at typical products they will sell for the virus but we need to make sure the vaccine is affordable. Comparable to the commercial vaccine. David the government has provided you with lots of money to move this forward. Getwill the government compensated for what they have done to help you . Stephane it is difficult for me to comment. Be very fair. The taxpayer money. We are thankful and appreciative for the help we got. We will be happy to do that. David let me ask you a final question that now. Are you optimistic, reasonably optimistic, that sometime next year, you are one of the other companies that are working under Government Support is likely to have a vaccine that can be distributed to people for covid19 . Stephane i am cautiously optimistic. I think one of several vaccines will make it to the finish line. The virus is not too complicated. The partnership with the government is exemplary between tony faucis team and the end of the year. 24 7. Are working we get emails from the government at 2 00 in the morning. We talk toion the agency tour three times per day. Everybody wants to help. Everybody is pulling in the same direction. I am cautiously optimistic and i hope more than one vaccine will make it because not one company in the world has enough capacity for the planet so the world vaccines to make it to the finish line. Stephane bancel, speaking to bloomberg. Boris johnson says the prospects for agreement with brussels are very good. We will get a view of the Foreign Affairs committee. This is bloomberg. Nejra this is bloomberg daybreak europe. Manus cranny is in dubai. Lets focus on the future relationship with the e. U. , an hourlong video call has injected fresh momentum into negotiations according to people on both sides of the conversation. Worse johnson described the prospects for a deal as very good, saying he sees no reason it should not get done in july. Lets discuss this with a conservative mp and chair of the u. K. Parliaments Foreign Affairs committee. Rate too heavy with us on the show. Thank you so much for joining us. Do you think that it is likely that we could get some sort of a deal by july if Boris Johnson the government has been extremely clear that they want ideal and this is really a statement. The country needs an agreement and we need to make sure that partners continue, particularly at a time like this, when we know what the impact of interruption can be. Manus given the dislocation have seen because of cobit and what we are all going through, should a transition period be something that really is on the table and might be beneficial given the huge global dislocation that we have seen . Know, we are in a transition period. That is exactly what we are in. What we need is we need an agreement. Businesses have been coping with uncertainty for very many years now. Manus the question was should it be extended . Tom ok. I think deadlines matter in know, thoseand you who said brexit would be easily deliverable have now had the best part of 3. 5 years to deliver the deal they promised all those years ago. Now, they must deliver and that is where we are. Tom, you said that state owned enterprises are going to go into this recession as to be are talking about the covid situation now with deeper pockets than freemarket companies. You have also said that that is leaving the u. K. One of the few places naked while everyone else is wearing armor. Where do you stand therefore on the situation of whether there needs to be a recalibration in the way the government handles china . China is the most obvious example of a country that has state owned enterprises and extremely deep pockets. There are Many Companies that draw on effectively state that, below market rate of state debt in order to expand and develop near monopolistic positions. Is used to acquire Innovative Technology but we know that this is one of the things that is going on. Indeed, in that article for the Financial Times and many other papers, people have spoken about it. This is not news. The real challenge is how do we deal with it . Given the European Union is tightening up, france is tightening up, australia, canada, the United States, and various other regimes tightening up, even japan has been tightening up its policies and various other areas. I think it is important that the u. K. Also has the ability to. Rotect businesses the committee on force investments in the United States various other jurisdictions have similar legislation. When it comes to corporates, huawei is at the center of the 5g rollout. The question for many people is is there a chance . Whether they would reverse the decision to allow huawei to be involved in the 5g rollout. What would it take to do that . Well, huawei is already involved in the 5g rollout. Huawei is providing quite a lot bethe that is going to the backbone to the rollout. A lot of work on that or indeed vodafone or the others, you will find there is already a significant huawei presence up to 65 and a few examples, a few providers. So thats how it is at the moment. For those of us who challenge the strategic benefit of being dependent on a single provider, and indeed, benefit for the entire world of having so much dependency on a single space, no matter which state that happens to be, this is problematic and that is why many of us are ashing for britain to have better balance of opportunity from other countries and other providers and indeed many others are doing the same. Huawei in 2009 so this is not exactly an outlandish position. This is something many European Partners who have much closer relationships with china than we do have done for a number of years. Nejra i know that the next thing i am going to ask you about is not exactly something your committee looks at what it does matter for the way that britain will be looked at by the rest of the world and i am talking about the black lives matter protest and the approach that the government has taken so far. Do you think it has been the right approach and what should . It do from here particularly what should he do from here . Toticularly with regard historic statues being pulled down at the moment. Tom well, i think that this is something that its time has really come. You dont need me to tell you that black lives matter. Its perfectly obvious. And it is completely obvious. I was working in your newsroom 20 years ago. The disparity the differences you see around the newsroom in the faces arey, different. Theres a helluva lot further to go. And there is a lot further to go around the u. K. And indeed around the world. I do think that it is wrong to simply say everything is bad in the u. K. That is clearly not true. Much progress has been made. They have made real change. There is still further to go. The important thing is not to focus on the past. Seriously calling for the churchill statute to be pulled down. The important thing to focus on is making sure opportunities are real and it is not just here about minorities or black and minority, ethnic communities, but actually, the disparities of privilege that are even within the united kingdom. We know for example that white workingclass kids have huge manycles and indeed, things people might not be aware of. It can make a huge difference to. Pportunities the National Security council. They spoke about it in the United States. Diversity is top of the agenda here at bloomberg and across many corporates. Tom, thank you very much for joining us this morning. Chair of the u. K. Parliamentary Foreign Affairs committee. Thank you for your time. A little bit let around today, we get the view from brussels. We will be speaking with the e. U. s ambassador to the u. K. That is at 9 30 u. K. Time. Coming up, trump and his team set out 1 trillion Infrastructure Program to revitalize the economy, but will it face a roadblock after the democrats unveil their very own plan. That is the conversation, next. This is bloomberg. Manus it is bloomberg daybreak europe. Nejra cehic alongside me in london. We go transatlantic to the Trump Administration story, ready to spend 1 trillion. Annmarie hordern has been tracking the infrastructure story. Up to road from new york greenwich. Annmarie i am sure a lot of people are going to smile but this is something that periodically, donald trump is pushing for more Infrastructure Spending. It is how are we going to pay for it . That is what ends up stopping it. We know that the pandemic has brutalized the u. S. Economy. Second, the election is in november. President donald trump had the economy as his number one target in terms of why he should be reelected. An existingave infrastructure funding law in the United States. Potentially, this broader plan can be pushed through through this vehicle. It is something we are going to watch. The devil in the details. So much. Ank you that news on stimulus out of the u. S. Plus the fed corporate backstop equals futures powering higher in the u. S. And europe. This is bloomberg. Good morning. Welcome to Bloomberg Markets european open. I am anna edwards in london alongside matt miller in berlin. Matt good morning. Today, markets say what second wave . Stimulus plans from washington shift the narrative. The cash trade is one hour away. Here are your top headlines
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