Bloomberg television and bloomberg radio. Morning across this nation. All of you working at home, and good morning around the world, particularly in liver, great written Great Britain in liverpool, Great Britain. I want to get to the pandemic in a moment, but in Francine Lacqua conversation, i dont know if they brought of negative rates. Do you see negative rates in the United Kingdom . Jonathan if they couldnt negative Interest Rates, it will be up to the bank, not rishi sunak. And i hope it does not happen. Some policymakers have flirted with the idea over the last liverpool,ks area on saymichele texted me to hes very happy that his dear livable that his dear liverpool are now the champions in the merely. Cash in the premier league. Tom that gets us to the story of the moment, which is the pandemic area i was fascinated by the images in the telegraph in the times. Explain to us the oddity of seeing absolutely packed beaches in the United Kingdom, much like what we saw in florida. Jonathan growing up in the u. K. , for most people come when the sun does finally come out, seeing the beaches packed like that is not get it just doesnt last very long because the weather itself does not last very long. It gets rainy and cold all over again. So i dont know if that will last the whole summer. But on a serious note, social distancing is going to be a huge issue. What we are learning in places like texas, if you dont handle the virus, you constrain the economy in a way because even if you mandate the reopening of the economy, as lisa has pointed out some any times, will consumers turn up to the stores . Will the businesses keep those stores open . They are making those decisions for themselves, never mind what the governor has to say. Tom this goes to the reading for the weekend. To me, there is no question that the key mystery for the weekend is the readjustment, the tweaking of economic earth in america given the medicine we have seen this week Economic Growth in america given the medicine we have seen this week. Lisa we see equities continue to trade up, although there is a bit of a misunderstanding, decided that markets are completely shaking off the broader economy area i am wondering how much that narrative is skewed by the faang stocks that have led the charge and are going to remain strong over the course of the pandemic area there is a disconnect between market activity that people to and the path of the pandemic. I keep going back to this get it is so hard to wrap your head around this time with such on clarity such unclarity. Tom we have a perfect guest for you to refrain for the second half of 2020. Theres not much of a data check because theres not much going on area i am going to point out the four decibel points the four decimal points on the twoyear yield. It will be amazing to see if the twoyear yield rates down with the stability we have seen. Brent schutte follows that with northwestern mutual. He looks at the placement of investment for northwestern clients nationwide. Thrilled to have you with us. Cfa 101. All it lets go to first principles. Why is watching the twoyear yield right now . Tont i would bring it back a lot of the comments on the disconnect between the market in the economy, and what that means. To me, as you think about the twoyear yield, i would also point out the 10 year yield 0. 7 . Why are equities still up . To me, relative valuation is more important than absolute valuation. Our advisors have to put their clients money somewhere. Me, the yields are going to stay low for some time, and i think Federal Reserve wants to keep in their and once you to buy stocks as a result area that is the difference as a result. I have seen a much more active Federal Reserve that cares about where markets are at mother once you take risk and will try to get you to take risk. Tom and jonathan and i am sure your clients want yield enhancing strategies. What do you suggest they should do in an environment of zero rates for the foreseeable future . Brent that is a difficult question. An overweight to equities. We have tilted towards that but we are making sure on the opposite side of the region that we are not taking too much risk. I think where people really get caught is where they are actually loaded up on risk on both sides. Right now, given where yields are, we arent stretching for yield, but we are overweight in equities because we do believe the path of least resistance, even with all of the virus conversations we just had, is still higher. Thoseis always playing risks off against each other. Overweighthat does in equities mean right now . Are you staying long the more defensive arts of this market, which some people now consider to be Software Stocks . What does that look like . Brent right now we have a foot in both camps. Early end of march and april, we did add more to cyclicality, but still had an overweight to large caps area i think if you look the next few years, you will see parts of the market that have underperformed will actually do better as the economy continues to climb out of this economic valley that covid created. I know theres parts of the economy that are closing, but theres other arts that are reopening we think a nationwide lot down is a slim possibility. You combine that with what the fed is doing, and lets not forget that each morning we wake up and find out we have better ideas of treatments, vaccines that are progressing. That would be the ultimate in game, where you see a pretty heavy market rally, and that is what is keeping stocks afloat. Lisa when you talk about betting on some of the less well loved stocks, like some of the smaller cap more be sectors, i am trying to pair that with the idea that the bankruptcy rate has risen to the has level since 2009, and is expected to continue to increase. Even though companies are able byaccess and are propped up the Federal Reserve, they still are failing even the lack of demand how are you avoiding these pitfalls Going Forward . Well small caps perform coming out of every recession, so i imagine that that would be the case during the same time period. Certainly we have active managers. We also use etfs. Theeneral, that is kind of detailed to the overall asset Class Performance yet berkeley, britain real rates are negative in the Federal Reserve is trying to keep in their, and when the economy begins to climb out of a hole, small tax small caps typically perform very well area i think that is kind of the detailed to the overall Asset Allocation climbing out of that valley. Optimism veryour much is reflected by a lot of individuals. I think youre not alone in feeling that ultimately, we will come to the other side, there will be a vaccine, we will reemerge on the others in some form in the nottoodistant future. What are you baking into that assumption . When do we get the vaccine . Do we get another fiscal rescue package and perhaps a reupping of the enhanced on and women benefit . Brent one, i look at the bank of america surveys, what hedge Funds PensionFund Managers are doing, and i am not sure i see the optimism that everyone thinks is out there. Survey. E parish i think people are waking up and realizing that you may actually get the vaccine which people were skeptical about area things have continued to stretch past next six to nine months area i think then my bullish optimism may be wrong. But im not so sure. I bring it back to common sense. If we dont go back to nationwide lockdown, with Central Banks doing what they are doing, i think the market is at least supported, and i get the benefit of a little bit or of immediate time horizon then perhaps other guests on your show get. Jonathan Brent Schutte of northwestern mutual, fantastic to catch up with you. You. Just outlining the upside risk, as well as the downside risk. For me, we have been talking since the end of february now about you bridged the other side , building a policy bridged to help people and Companies Get through this. We saw how they got to the other side, and that is why policy is still going to have to step up in the next 30 days. It is a huge issue. Tom the foundations of the bridge built on sand. Theres a lot of different opinions on this it would make jokes about it, but the reading this weekend into july 1, i cant believe i am saying this, into q3 really are going to be interesting to see how people shift on where are we on that bridge, and what is the stability on the bridge as we try to get to somewhere out there, i will say march of 2021. Jonathan we have had real evidence this week that we are going to be below capacity in this economy for an extended time, and maybe much longer than people anticipated a couple of months ago. I understand the market is trading on sequentially area the aggregate data will improve mechanically because new york go from shut down to opening, and more, and the next few weeks. The reopening process is constrained. If we are going to have doubledigit through the yearend, you have to imagine the bankruptcies you follow are going to carry on acting up carryon racking up. Lisa they already are, and they are expected to continue. Jonathan coming up on the program, Michael Purves will join us on this equity market in this worldwide economic situation. Equity futures down five, off by a little more than 0. 1 . This is bloomberg surveillance. Ritika with the first word news, im ritika gupta. The u. S. Hasnt seen a daily the coronavirus pandemic hit. The country registered its biggest jump in cases, leading some to reverse plans to reopen their states. Texas has suspended elective surgeries in big cities. Businesses that are already up and can operate, but only at reduced occupancy limits. The Trump Administration has asked the supreme to rule that obamacare is invalid. The administration filed a brief with the court last night, urging that the entire Affordable Care act must fall, including protections for people with existing conditions with preexisting condition. The court is set to hear the case around the time of the election. Germany threatening sanctions if the Trump Administration follows through with its threat to target the nord stream 2 pipeline. Credit suisse has frozen plans for a Wealth Management hub in miami. The goal was to attract billions from the rich in latin america, but costs outweighed expected returns. It would have been credit suisses return to Wealth Management after a four year absent. Four year absence. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. We are not really seeing a high degree of the impact yet. What will need to be determined is what it looks like when we get into the second half of the year, when deferrals begin to wear off, we find out and discover where the economy is in the second half of this year. I think a lot of that is still left to be determined. Thomas michaud of kbw. I think we have little visibility going into yearend, with this economy and depend to make situation will look like. Alongside tom keene, together with lisa abramowicz, im Jonathan Ferro. We are one hour and 12 minutes away from your opening bell. We rolled over just a bit, down six points on the s p 500, off by 0. 2 . The curve has been flatter through much of the morning so far. Your thirtyyear down almost three. In foreignexchange, muted price action in g10 for much of this morning. Eurodollar going absolutely nowhere. Pound sterling just a little bit weaker. The pound just a little bit lower. Tom maybe francine the quad driving the pound weaker with her conversation with the chancellor of the exchequer earlier today. To have you reset for the second half of 2020, a guy who writes an incredibly interesting Short Research note. Michael purves is great because it is six or seven or eight pages, instead of the three pages of boilerplate. In that, he always tries to get out in front of the trend. With theat to a t issue currency dynamics a year ago. We are thrilled he could join us this morning. Really simply, where is the opportunity right now . What are you writing about as the true alpha generating opportunity for the second half . Michael it is a tough question. I think it is tough for any of us. I would start by answering that question, saying that if the first half was very binary, almost in a risk on risk off, the second half is going to be much more nuanced, less binary set of analyses. Theres a lot of things coming to the foreground after we tear the fourth of july holiday, which is right around the corner. I think the framework shifts. In terms of how i am positioned for the second half, i am looking opportunistically to sell volatility. I did that a couple of weeks ago when we had that vix spike after the fomc. Long equity on my portfolio to have a core islands of what most other people have, a core cap to have reliance on what most other people have, the big cap techs. I think the second half is looking at this potential pivot where the european condition may be moving into a more interesting place with the stimulus slowly coming together, and at the same time, rising Political Risk in the United States and a whole bunch of uncertainties about what kind of policy we will get out of the in 2021. Spx to be mostly range bound. Committed. Hard to be not to add too much into that answer, but i would also suggest arguably a consensus trade right now, but ive been very constructive on Precious Metals for some time, and continue to be so. I think you see a lot of pickup there, particularly in the in the miners and silver. Jonathan do you think we could see real outperformance on the continent . Michael weve all been there. Hope inl had slivers of 2017. That lasted about six or nine months area but i do think there is something that investors have to keep their eye on, which is perhaps covid as a catalyst has brought together a new sense of european cohesion, and you are large that with this very 750 billion euros stimulus panel stimulus plan that france and germany are anchoring , getting countries on board with it. It underscores declining, if it happens, it will harmonize Interest Rates across the euro zone. The spread of btps to bunds will come down, and arguably bund yields will come higher as well, but the risk premium that has always existed in the euro should come down. Theres a lot that can happen between now and whatever that might become a reality, but it represents a very important shift. In terms of trading it, it may be the long euro trade is easier then long equities right now, or the widow maker of shorting the bunds, but over the long term, it can attract very substantial flows that are very u. S. Focused back into the euro zone, and that has implications that will work or cross the investment landscape. Thereis momentum building that we have not seen before. Purves ofael tallbacken capital, thank you for joining us. I am just struck by a question you raised this week. Is this capitalism . What is price discovery at a time when you have Central Banks leading the zone with, and you have all of these fiscal rescue packages . How do you discuss what price discovery is or what is baked into markets at this went . I hear this struggle with every Investment Management that comes on, and i feel it. It is a struggle on how to get upside in a market so dominated by these external factors. Jonathan it is all about policy. It is bid really difficult for a lot of people because it has been really difficult for a lot of people because you can get the market call really wrong. I think we not just sit here and think whether capitalism has been killed. I think what weve got to work out is what is it what does it mean, what are the consequences. We are sacrificing higher per activity higher productivity and higher growth in the future for stability now. Arguably in financial markets, that is what they have achieved. But they have sacrificed in the future, that is going to be an ongoing debate, and i think it is going to be a debate we will continue having on this program. Tom we have only been doing it for 10 years. I will go back to financial repression, and that we are pricing in finance without question the austrian 100 piece 97 inre right now is up the last three years. That is a gain, but that doesnt help savers. That doesnt help retirees. It doesnt help society. Jonathan it does not help tom keene, either. From new york city, good morning. Down, 0. 2 . E are this is bloomberg surveillance. Jonathan from new york city, this is bloomberg surveillance. ,rom audience worldwide alongside tom keene and lisa abramowicz, im Jonathan Ferro. Awaiting the Economic Data in the United States. We can cross over to Michael Mckee. Personal income and personal spending. Michael we are still waiting for it and it has just crossed. ,t comes out less than expected but in the direction we expected. Incomes had risen and spending have fallen. There reversed. Personal income down after rising 10. 5 last month. Falling up 8. 2 after 13. 6 in april. Those are both lower than anticipated. We are looking at the pce deflator. Everybody is wondering if we are going into deflation. On a yearoveryear basis, up. 5 . We are holding in on that. The court on a yearoveryear basis rises to 1 . Maybe a little bit less concern than we have in the past. If i caning to see find the breakdown. It happened last month and im not seeing it. What happened last month was personal incomes rose because transfer payments, the Unemployment Insurance everybody got rose so