Coronavirus cases and political tensions. The Trump Administration rejects beijings claims in the South China Sea, accusing it of bullying. The u. K. Is set to ban huawei from its 5g mobile network. The plan would mean British Companies need to remove huawei infrastructure by 2027. Welcome to the program, everybody. Lets check out the futures. Lots of moving parts in terms of the market action. Lots of geopolitics to talk about as well. We have futures pointing to the downside in europe. We have to play a little bit of catchup with the united states. Lets get to some of the breaking news out of the u. K. That is certainly going to be one of the focuses in our program. The u. K. Economy shrank by 19. 1 in the three months ending in may. Getting a three month figure. Main manufacturing production rising by 8. 4 . Somecoming out manufacturing facilities coming out of the Strict Lockdown measures, working out how to manufacture in the current environment with covid safe practices. Mayeconomy grew by 1. 8 in month on month. I imagine there was quite a wide range around the estimate. Quite difficult to get a clear idea of bounce in the u. K. Economy in may. Also getting industrial output figures. That rising by 6 month on month. The estimate was 6. 5 . We are getting a take on the Services Sector as well. The threemonth index of Services Following 18. 9 . Investment was for a drop of 17 or so. The u. K. Economy shrank by 19. 1 in the three months ending in may. Lets get a broader picture. We will come back to that u. K. Data in a moment. Lets get a broader picture of what is going on in the markets internationally. We have the gmm screen for you. You can see the chinese equity markets on the back foot today, down by 2. 3 , hong kong down by 1. 7 . I mentioned the futures picture. It is what happened at the end of the u. S. Trading session that is impacting the european futures and asian trading session. We started to be more nervous about california, about some of the lockdown measures that have been reintroduced in california. Also nervous about geopolitics, the tensions in the South China Sea between the u. S. And china. All of that weighing on sentiment. That is really clear to see on these equity markets. I should mention what is going on with oil prices, down by 1. 8 on wti crude as we approach the opecplus meeting. That is a look at some of the breaking news from the u. K. , predominantly, and a look at what is going on in the markets internationally. Lets get into that conversation on u. K. Data with laura cooper, who joins us now. The headline across the bloomberg picking up on the most recent move, the newest information. The u. K. Economy grew by 1. 8 in may. That almost sounds like normal times, doesnt it . This is anything but normal times. Incredible to see a positive number. What a relief. It is true that it is encouraging to see a positive figure. I think the business kind of coming off the back of these exceptionally depressed levels of activity. It is likely to be the case with the 20 decline we saw an april, that will likely be the peak of the economic contraction. Inays data actually came weaker than markets had expected. I think that this does point to potentially more of a sluggish recovery ahead, as it does suggest a weaker handoff into those june figures. Manufacturing, construction were really the only sectors that began to turn back on their engine in the month with most shops and consumers remaining on lockdown. This does highlight that this will be quite a potentially sluggish recovery ahead. Anna laura, if we jump to the global story, we are talking about a couple of factors that knocked markets off their stride yesterday in the u. S. Session. One is the geopolitics, the other is the virus in california. Give us your thoughts on where risk assets go from here. The california virus may become the new swing factor for the markets. Interesting, just the fact that we did see a sudden retreat in stocks on this whether it wass, sparked by the california headline or geopolitical angst. It shows brewing market jitters that can be sparked by negative headlines. Futures today are flirting around that zero mark. There will be quite a lot from markets today. We had earnings kicking off in earnest with major banks today. Backwards looking data, highfrequency gauges on data. I think really what this tells us is that markets are going to be entering into this prolonged period of significant volatility. The volatility index yesterday sparked back to june levels. I think this does portend to maybe markets lacking a nearterm catalyst and kind of just continuing in these ebbs and flows within this titrating range tight trading range. Fed speakers could come out and continue this whatever it takes mantra. It will be quite a choppy session ahead. Anna that could be increasingly important as we continue to watch the virus count edging upwards. Let me ask you about these tensions geopolitically between the u. S. And china. In the session yesterday in the u. S. , it was interesting to see what was happening to the nasdaq Golden Dragon index. This, of course, a nasdaq listing, but companies that do a lot of their business in china. That was quite substantially pooled down by some of these headlines. Geopolitics seem to be gaining momentum in the mind of the market. Absolutely. This shows how sensitive markets are at this stage to these bouts of geopolitical tensions as we continue to approach the election season. Theh sector was underperformance was not just confined to those particular chinese stocks. We saw this broadbase. The new york index letter to clients. Led declines. Going forward, these geopolitical tensions will continue to be a source of ebbs and flows. At the same time, overnight, we had reports that the u. S. Is going to dismiss any kind of targeting of the hong kong dollar, which if you recall last week, was that Pressure Point for markets. I think this does just highlight the geopolitical tensions will be a source of ebbs and flows. It adds to this narrative of market volatility ahead. Anna thanks very much. Our markets live cali joining us with the latest strategic thoughts on the markets. Lets get a bloomberg first word news update for you. Back to the virus. The World Health Organization says covid19 probably will not disappear in the coming months and it is unrealistic to predict that a perfect vaccine will become available for everyone immediately. California declared a sweeping rollback of newly reopened businesses, closing restaurants, bars, and theaters. Hong kong tight and restrictions to contain a resurgence in coronavirus cases. Face coverings are to be made compulsory in shops in england from july 24. The move comes after pressure from unions, business groups, and opposition politicians, who have accused the government of lacking clarity in its guidance for defeating the pandemic. England has mandated face coverings on public transport last month. But made them optional for shoppers. Joe biden is calling for the setting of a 100 Clean Energy Standard for the u. S. By 2035. The democratic nominee will also commit to investing 2 trillion on clean energy over four years. The proposals mark a strengthening of the plan he proposed while fighting for the nomination. Global news 24 hours a day, onair and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Up next on the program, finding common ground. Angela merkel and Giuseppe Conte present a united front ahead of this weeks meeting on eu emergency stimulus. Will an agreement be reached . We will discuss next with axa ofestment managers head microeconomics. This is bloomberg. Anna welcome back to Bloomberg Markets european open. The cash equity trading day. Futures do suggest we will be considerably weaker at the start of trade. U. S. Futures are fairly flat, suggesting we are playing a bit of catchup. Angela merkel showed a united front with italys Giuseppe Conte ahead of a crucial eu summit this friday. They warned that the bloc needs to deliver a massive response to the pandemics economic fallout. We spoke to mario santino. He told us the European Council has enough Bargaining Power to appease all sides. It is a muchneeded deal. Closely hope leaders can into a deal as soon as this week , or at the latest, at the end of the month. The euro group, back in april, set the stage for a fast response. Thisok the first steps of response into the crisis and we to need to close this deal strengthen the confidence of investors, of citizens in the recovery phase of this crisis. Will a deal eventually come with any type of strings in order to get the frugal four on board with this . Mario i think we have enough bargaining room. This gives margin for maneuver at the negotiation table to find an agreement that fits everyone in europe. Process whenical we negotiate in europe. We have different views over the time agreement, this around but this time around, enough soere will be as to bargain and find a deal that suits not only the frugal, but the anna that was out mowing euro Group President that was the outgoing euro Group President , Mario Centeno. Now, we are joined by david page. Very good to speak to you this morning. We had some enthusiasm, confidence from Mario Centeno that a deal can be done despite the hesitance of 4 particular nations. How crucial is it for European Growth story that we get this Recovery Fund . David well, i think it is crucial that it comes through. And has underpinned investor hopes that we start to see some movement Going Forward in eurozone recovery. Centenos comments probably are a little bit of hope over experience. We think it is unlikely it will come this week or later on this month. As is the way with european negotiations, particularly with divergent views coming through, i think it is likely to take longer to come through. Takes some of the pressure off of the negotiations. I think we are likely to get something come through. I think the package overall is a fundamental step forward in what the eurozone is able to offer in terms of fiscal stimulus. I think it will take a little bit longer to come through. The risk of that is that the actual delivery of this, the stimulus that the euro is being spent themselves, is not going to be something that will supplement the eurozone economy in the near term. It looks like something that helps in the years ahead but not the corridors ahead. Europe will need further stimulus while this comes through. The pattern of the day. One of the risks is, if the data improve,materially if Continental Europe continues to really manage this any outbreaks of the virus quite effectively, then perhaps that is the danger that the resistance to put so much money into play just grows. David yes, i think so. What we are seeing at the moment is a very strong rebound come through. It has been across a number of states. T i think those Growth Numbers are beguiling. We get sucked into this statistical fallacy that a 10 fall and then a 10 rebound really just does not get you back to where you started from. Although we are seeing strong rebound coming through, we are still expecting eurozone growth down across the course of this year by around 7 . We are still looking at a very sharp fall. There still expecting unemployment much higher at the an itf this year th currently stands. Regardless of the fact we are seeing an encouraging early rebound coming through, there is a lot of work in terms of the recovery probably through 2021 and 2022. The ecb is playing its bit but it can only do so much. Fiscal stimulus will be important. It does not expect to see expenditure peak until 2023, 2024. I think we do need to see Something Else coming through. There is a risk that the politicians get a little bit lost in these numbers. Anna right. Charte just looking at a of the italian bond spread over german bunds. What would it take to move that spread further down . If there were something that could move that lower, the ecb, Christine Lagarde famously talked about how it was not her job to bring down that spread. Although, she clarified those comments later on. Is it the ecb that brings it down further, italian action specifically or the Recovery Fund, the paneuropean debt efforts . David i think once you see the Recovery Fund working, want to see almost a step towards fiscal and once you see the some partners,r one of its that i think that will give the market some confidence. We do expect that to come through. In the meantime, the reason we have been able to hold at these ofels, despite the fact is down toances, it the ecb to manage that. Although Christine Lagarde famously suggested that was not their role, actually, everything they have done since have suggested that has been exactly what they needed to do. It has given them the opportunity to manage those spreads and make it possible for governments across the euro zone to do the job they need to do in the short. The short term. Anna thanks very much, david. Investmentfrom axa management stays with us. We talked about some of the u. K. Data at the top of our, didnt we . U. K. Gdp data showing some kind of growth in may, but not as much as some anticipated. We will talk about the u. K. We will also talk about it from inflation perspective. Can higher prices eroded the u. K. ballooning debts . We will discuss next. This is bloomberg. Anna welcome back to Bloomberg Markets european open. 40 minutes to go until the start of the european trading day. Down by one point 4 , according to euro stoxx 50 futures right now. Away itsannot inflate growing debt pile like it has done in the past, according to richard shes, the next chairman of the u. K. Fiscal watchdog, the obr. Higher inflation would just push up the cost of servicing it. Axa Investment Management is still with us. W seems to be that a third of the debt in the u. K. Is index linked. I guess i was thinking that is only a third. What about the other 2 3 . Is there any future in inflating away some of this debt for the u. K. . David i think what the u. K. Needs is nominal growth. Part of that nominal growth is to make sure we have healthy levels of inflation. When we talk about inflating away debt, it is often viewed that strong as part of how we reduce the very high debt burden. There clearly was not on inflation linked stock or debt out there at that time. The u. K. Troduced after economy had used a relatively high levels of inflation to bring those numbers down. It was designed to give ofestors a degree confidence that that would not happen again. Policyccess of that constraints them. That would not be consistent with that either. There really is not flexibility further u. K. To be able to do that, nor indeed many other developed economies. We are just seeing some comments coming through from the chancellor, rishi sunak. He is commenting on this gdp data, saying that the gdp figures show the scale of the challenge. I was looking at what you penciled in for the u. K. In terms of Growth Numbers this year. Did the positive reading for the month of may give you any reason to change your assessments about how much the u. K. Economy goes this year . David it does make it more difficult. We penciled and a 4 rise in gdp coming through this month. What you do not get in may, you might get engine. In june. There is a large degree of uncertainty. These numbers suggest that the manufacturing and Construction Side of the economy responded very well to the reopening. The service sector, where really we saw the delayed reopening because of the virus coming through, that is where we have seen the weakest growth. That is what has hobbled the gdp numbers. If we see the Service Numbers picking up in june, july as the economy is opening up to the same degree that we saw in manufacturing and construction, then you could see a bounce or catch up coming through. We thought we would see a 20 quarter on quarter fall for the second quarter. Taken alone, these numbers are to the downside. That contributed to our view. Anna ok. David, thank you very much for joining us. Investmentfrom axa management, thank you. This is bloomberg. 49. 50 i found you good job. Now im gonna stay here and you go hide. Watch your favorites from anywhere in the house with the Xfinity Stream app. Free with your xfinity service. Now any room can be a tv room. Stream live tv, on demand shows and movies even your dvr recordings. Download the Xfinity Stream app today to stream the entertainment you love. Xfinity. The future of awesome. Anna welcome back to Bloomberg Markets european open. Start ofs until the what looks to be a negative session. We will talk about reasons behind that in just a moment. The late drop in u. S. Trading will look to factor into european trade this morning. Here are some of the things we are watching out for. At 10 00 a. M. U. K. Time, we will get some Industrial Production figures out for the euro area. We get some eurozone data later. Cpi will be, u. S. Published. The german chancellor, Angela Merkel, meets the spanish Prime Minister at 5 30 p. M. We saw her with the italian Prime Minister in the last 14 hours. Later on, we hear from the st. Louis fed president , james bullard, and the fed governor. We get secondquarter earnings from some of the major u. S. Banks. More on this from dani burger as we go through the program. Jp morgan, citigroup, and wells fargo will be reporting today. We will bring you a preview, as i mentioned, of what we will hear from those banks in under an hour. Lets talk about some of the geopolitics. It was this story and concerns around california virus infections that knocked markets off their stride yesterday in the u. S. Deteriorating relations between the u. S. And china one of the chief headwinds faced by stockmarkets, besides the coronavirus. Washington has escalated tensions further by rejecting beijings expansive Maritime Claims in the South China Sea. Check mark turn of therks a a of the previous policy of not getting involved. What is the latest on these u. S. China tensions . This is a break from the previous stance on this particular issue from the u. S. Thats right. In the past, the u. S. Largely have limited itself for calling for freedom of navigation in this contestant waterway, which is critical for global trade routes. And had stopped short from taking a position on specific claims. Now, it is a very different situation with the Trump Administration rejecting these expansive Maritime Claims and aligning with the 2016 ruling by a United Nations tribunal that found chinas claims to the waterway contested by the philippines were unlawful. This is another pushback in what the u. S. Sees as an intensifying Chinese Campaign to dominate in the region. Yet another area of dispute countries aswo this larger war of words and actions continues to intensify. We time ofems that day, we tend to get it seems that we tend to get some chinese response around this time of day. How my china choose to retaliate . A spokesperson for the Chinese Embassy in the u. S. Called this action completely unjustified and said it exaggerated the situation in the region and was an attempt to sow discord. This is yet another what we have seen is the Trump Administration will do something, china will push back against of that, then china will do something, and the u. S. Will pushback. This is where we are now in this basic intensifying campaign. We have seen it not only on this latest issue. We have seen on a number of things lately in terms of the situation in hong kong, which the u. S. Has taken action against. The trumpen it on administration blaming china for the star of the coronavirus pandemic. One. Ally, this is another critics of the Trump Administration say they worry seems ready to back down. An extreme situation could lead to a clash at sea. Anna we will certainly watch for the latest comments coming from china. Talking about hong kong on another subject, the handling of the virus. A lot of the tension in the market on california, arizona, florida, but also very much focused on places that seem to virus andn back where it is flaring up again. A coronavirus demic since late january this is a place that has been doing with the coronavirus pandemic since late january. We have seen more than six months of dealing with the virus and some are calling this a third wave in hong kong, even though hong kongs cases are much lower than the u. S. Now, they are seeing more cases than they have on a daily basis. Also worrisome is that they are what there center of those infections are. Most of these had been from travelers coming back to hong kong. This had been something worrisome to epidemiologists about where these cases are coming from. There is an escalation of the restrictions. , andally, bars, gyms beaches will be closed, Public Gatherings Limited to 4 people and fines will be doled out to those without masks. Trying tos very much clamp down on this, what they are calling this third wave, before they get more cases. Hongteresting, because kong is adopting a much harder nosed approach than we have seen with the flareup of cases in south korea, japan, and even mainland china. Anna thank you very much. Interesting to see that mask wearing culture certainly spreading. Jodi schneider joining us from hong kong. Openrt has kept its stores during the coronavirus pandemic and expects to continue doing so despite a resurgent in cases. The ceo told bloomberg what kind of impact the crisis is having on business. We sell food and consumables and things people really needed during this crisis. Our form of retail was deemed as essential here in the u. S. And countries around the world. We have stayed open mostly throughout the crisis selling food, consumables, and other things that people need in stores and online. Youre alluding to the fact that ecommerce has grown during this time. That has certainly been the case with us. For everybody watching, how many total stores does walmart have . Around the world, 11,484. In the u. S. , we have got around 4700 stores that are walmart supercenters and neighborhood markets and then another 600 sams club in the u. S. 2. 4, 2. 5 million associates, as you call them . Correct. Your revenue is about 500 billion or so per year . A little more than that. Do you expect to hold onto all these employees . Or do you think there will be a decline in sales after the covid19 situation . As we started into this covid a policy foreated associates that needed to stay home if they had a Family Member to take care of or some sort of concern. We created this leave policy. Hundreds of thousands of associates that needed to or wanted to stay home have. We have a need for a lot of people to learn the stores, serve as it relates to ecommerce, and also responded to the demand that has gone up. About 60 of the 400,000 that we have hired since the middle of march are temporary in nature. We will retain a big portion of them but not all them. Your biggest competitor in the Online Business is amazon, i assume. Is that correct . It is, here in the u. S. Would have you learned from amazon . What have you learned from amazon . Did they inadvertently teach you certain things that would make your Online Business better . Others,er it is them or i think the goal is to learn from them and apply what should be applied. Definitely, the customer has spoken. They want convenience and a broad assortment and timely delivery. We are trying to do the exact same thing that they are trying to do in some respects. In other respects, we have a set of assets unique to walmart and we are trying to put them to work. One of the big differences is how we are using our stores. And the fact that you can go on your app and purchase items or reorder items you have bought before and swing by the store later that day and open up the trunk and someone will drop it in there for you is superefficient. Americans really like that service. There are unique aspects to our strategy. I think the stores underpin most of those. It has been rumored that you will announce some type of prime equivalent from walmart. Atlmart plus, i think is wh it is called. Will that be announced soon . We have a subscription we have been testing called delivery unlimited. Walmart plus, the common theme is that this grocery, consumable delivery, really, delivery from the supercenters, which can include back to school or apparel items, done in a really fast manner as part of a Membership Program is something that we think will be compelling for people. Based on the success that we have had with this pilot, we have got some confidence that people do want a membership from us. When you think about it, there is a delivery cost of taking an order and delivering in order to someones home. What the membership is, fundamentally, and the beginning, anyway, is on ability deliveriesulk those at a discount in the form of an annual fee. That is the form that we have taken. Anna really interesting conversation with the walmart ceo speaking exclusively to bloomberg. Coming up, we will talk about the aviation sector. Easyjet shareholders are due to meet today and vote on conditional share issuance. We will discuss that and the future of the aviation sector more broadly. This is bloomberg. Anna welcome back to Bloomberg Markets european open. Until theinutes to go start out what looks to be a negative session for europe, but u. S. Futures improving, not up 0. 58 . Ut the u. K. Is poised to ban huawei from its nextgeneration mobile networks. Bloomberg understands phone companies will not be allowed to add new huawei components to their 5g networks by the end of the year. All existing equipment supplied by the chinese firm will have to be removed by 2027. Boris johnson is expected to set out plans in Parliament Later today. European union judges in luxembourg are set to issue two crucial rulings affecting the tech sector this week. First will be a judgment on the eus decision to slap a 13 billion euro irish back tax bill on apple. The eu court will decide on the legality of this. Both of those rulings coming this week. Softbank is set to be considering options for its stake in the british chip designer armed holdings, which about four years ago. If it pursues a listing, the company could go public or return to being public as soon as next year. Largestthe u. K. s listed tech company when softbank purchased it. That is your Bloomberg Business flash. Lets stick with the Corporate News and talk about aviation. Easyjet shareholders are due to meet today and vote on a conditional share issuance plan. The carrier announced it had raised about 490 Million Pounds in a share sale. Easyjet is gearing up for more flights as the European Aviation sector continues to face losses from the coronavirus measures. Lets get analysis of what is going on at easyjet and elsewhere with john strickland. Good morning to you. Whatit that easyjet is likely to be the outcome as we stick to the here and now for the month . John like many, easyjet is in need of generative extra liquidity. They plan to increase their base of shares. They have already had a listing over the last few weeks. I expect we will get a support for that today. They are going out in many other ways to raise funds to increase by actuallyuffer sourcing funding and cutting costs. That is a very important point. Unlike other lowcost airlines, easyjet is actually shrinking. They are deferring air deliveries. All of that will give them a better Liquidity Position but will actually reduce their relative position in the marketplace compared to other lowcost carriers. Anna you make the point that taking, wizz air may be a different stance. Much of the headline grabbing expansion claims israel is real . Is it a nice way to make some waves and try and disrupt the industry further . Shortterm, everybody is flying only a fraction of what they would be flying at this time of year. Summer is prime earnings season. The difference between easyjet and the other two is that although in the shortterm, all of them are flying below capacity, easyjet will see its fleet shrink by more than 30 aircraft in the next 12 months. Ryanair is talking about possible order difference. Eference. Wizz is still taking new aircraft. They are starting a new venture in abu dhabi. Al airlines are watching on day by day, month by month basis to see if they can still fulfill that depending on how much demand comes back. At the moment, demand is still very fragile. I think we will see some review of the level of growth from all those three as time goes on. Anna hmmm. Why do you think easyjet is taking this more cautions cautious stance . John partly, it reflects shareholder challenges for easyjet. The founder has been very vocal not only over the last few weeks but over recent months that he felt the company was expanding to quickly. He was pushing to see a cancellation of forward orders of over 100. Airbus aircraft. To some extent, he is getting his way. Byis a risk, as i mentioned, putting the airline in a smaller of then the ranking three major lowcost carriers. It leaves the company less able to take advantage of opportunities. Other airlines are going to fail, other groups are going to see disappearance and capacity. That is where i would expect ryanair and wiiz to jump in wizz to jump in. I would have expected the same from easyjet. Anna let me ask you about a different subject within aviation. That is Virgin Atlantic and the future there. Are latest reporting suggests that this company is closing in on a 400 Million Pound rescue plan. It is interesting to me that this is hedge funds perhaps stepping in here. Before hedge funds, it was maybe activist investors. Thats a volatile sector does not necessarily make you a lot of money, aviation, why is it so attractive to these investors . Ordinarily, the Airline Sector should be a good generator of cash flow. That does not apply right now. Virgin is very exposed to the north atlantic market. Its major market is off limits at the moment with the u. S. Borders being closed and the eu looking at banning u. S. Citizens into europe. Longerterm, hopefully, that Market Recovery will come. It can be a lucrative market as well if it is operated in the right way, such as british airways. Bigin, of course, has a spot portfolio at london heathrow airport. I believe they are pretty well securitized already by virgin against other financially raised banking. It also has a partnership with delta airlines. I think people will look at the position of virgin at heathrow. Ordinarily, heathrow is a honey pot for airlines. It is difficult to get in because it is full. Those slots are important. We have to assume that recovers in the future. Right now, even heathrow is suffering. There would be hope of something positive for the airline in the future once we are once the coronavirus pandemic is passed. Her i wonder how much of a rogue assumption it is to assume we get back to those previous levels. John strickland joining us here on the European Market open. Nine minutes to go until we get to the open. Up next, our stocks to watch, fresh. Ng hello the Meal Delivery company sees secondquarter revenue significantly above estimates. This is bloomberg. Anna minutes to go until the start of european equities trading. Lets get the stocks to watch. Annmarie hordern has a breakdown. Annmarie i want to kick it off at swatch. It is the first time the company is not profitable. Not really a surprise as they have had to shut about 80 of stores or sales outlets during the lockdown. They reported an operating loss of 3gh june. Analysts looking at a loss of 160 million francs. June was a. Bit brighter. They are seeing profitability. Thanks to sales and mainland china. Reported last night they boosted outlook and already trading higher. They see secondquarter revenue significantly above estimates. For o cotto, retail sales jumping 27 . Pointing tos are the downside. We are expecting to play catchup with the u. S. U. S. Session was certainly negative yesterday. Watch for that to be the team early on here in europe. Chinese stocks have been paring their losses as we approach the start of the european trading day. U. S. Futures also look increasingly positive. They have gone flat fro from flat to up half a percent. This is bloomberg. 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The plan would mean British Companies need to remove huawei infrastructure by 2027. A quick look at futures before we get into the start of the european trading day. U. S. Stocks sold off in the last part of the session yesterday, so european futures do look a lot more negative than their u. S. Counterparts. We will see how long the negativity lasts. We are expected to see some weakness at the start of the european trading day. Speaking of that trading day, we are getting underway right now. The ftse 100 is out of the gate right now. Down by 0. 3 . The spanish ibex down by 1. 2 . A little bit more movement coming through perhaps. The stoxx 600 down around 0. 5 so far. The cac in the dax still waiting to open. The focus will increasingly be on earnings season and what kind of clarity we will get, what kind of Balance Sheets, what kind of commitment to guidance we will get from european corporates Going Forward. A big focus on u. S. Corporates, and u. S. Banks in particular. Later, we will get a preview of that shortly. The cac opening to the downside, down by 1. 3 . Looking for some of the stocks we were talking about ahead of the open, to see if we are getting any movement. No movement from swatch. Swatch opening to the upside by about 0. 3 . One of the stocks we were mentioning earlier is down by 1. 5 . Generally speaking, a negative picture for European Equity markets. This comes as investors assess new u. S. China tensions over the South China Sea as well as the Economic Impact of rising coronavirus cases. We are joined now by our guest. Very good to speak to you. Let me ask you about the risks that you have in mind at this point because we talked this morning about the very near term market trading action seems to be around infections in california and across the u. S. , certainly in the south of the u. S. But it is also around geopolitics. When you look at the risks presented by those two factors, are you very much more focused on the virus and the geopolitics or the other way around . Thanks. Absolutely. I think these are the two parts of the risk analysis we will have to take into account when we talk to our clients. The bearish side of things is pretty wellknown because we have already been through a pretty significant first wave. The likelihood of seeing a tests is actually increasing as well. That is why the market might not be reacting as well with regard to the cases in the u. S. And california. However, what is increasingly on investors minds is election and the prospect of biting winning the election and therefore particular corporate taxes on u. S. Tech being a topic in which case we could see more volatility when it comes to u. S. Equities toward the end of the year. Anna yes, and let me ask about chinese equities, because we have had a lot of focus on the big rally upward and then some selling and some take backs seen as a signal to Retail Investors to be a little bit careful. We have seen the way overseas investors are reacting. The red headline said overseas traders sell 2. 5 billion in chinese stocks, i believe that is referring to the shanghai connect and others. It is not difficult to break records when it comes to buying and selling chinese stocks still. As we see the momentum in the chinese economy. But what is your stance on chinese equities at this point is to mark kokou it is a topic weve been discussing with strategists and investors last week. Fear thatnvestors this is reminiscent of what we have seen in 2015 where the chinese equity onshore in particular went into a bubble and that led to a pretty significant selloff. Today, the dynamic is different. Demand is driven by earnings and consumer demand in china. Particularly when it comes to luxury goods and staples, etc. We might not be necessarily in a bubble as we were in 2015, therefore we think that there is a lot more legs going into the next quarter simply because of the earnings momentum that the chinese economy seems to have gone through. Anna let me ask you about the themes you are investing around at the moment. Social distancing, you mentioned this in some of your latest research, a theme that you see as i dont know about here to stay, but certainly we have seen. Sell aviation stocks . Cell and by tech . Yes, social distancing is a basket where we are looking at the new normal in terms of Consumer Spending behaviors. ,t is about working from home so all the companies around cloud computing, remote technology, than a play from home, so increasing usage of video games and normal games, aroundthird dimension eating and ordering food from home, so it is effectively a global basket. We would like to have the nasdaq is a short against it to utilize the market component. We do find this being a structural theme. Employees to go back to normal even if this pandemic is resolved. There will be some set of systemic change in the way consumer and employees work Going Forward. Anna talking of systemic change, you also mentioned a rise in state capitalism. How is that influencing Investment Strategy . Is that something companies have to take into account when it comes to supply chain, the way they fund themselves . What is the impact their . Kokou i think this is a very profound theme. One of the things seen in this recession which is a bit different to the previous ones because it was a more selfinflicted injury, but the cut in dividends forced by regulators and governments is something that was unprecedented. Is intervening in the board abilities to reward shareholders. One of the things that we believe in is the hierarchy of stakeholders might change. Shareholders might not be at the top of the pack. Therefore, employees, social and governance issues might be more significant Going Forward. This could have an impact on equity valuation, etc. The final point is we could be in a similar position is 2008 or 2009 for the Banking Sector where we had a whole host of regulation. We could think of something similar for nonfinancial corporate whereby there might be a cap on how much they can leverage themselves and pay dividends Going Forward. State capitalism is a concept of new governance and a change in hierarchy and priority when it comes to stakeholders from a company standpoint. The implicit criteria that are attached to government assistance we will keep an eye on. Kokou agbobloua stays with us, global head of economics at Cross Asset Research at Societe Generale corporate and Investment Banking. He stays with us in the program. Coming up, to calls from socgen. We talk about one of them. State capitalism gaining ground. And a covid vaccine. Will that be ready by yearend . We will talk about one impact that would have on Investment Strategy. We will speak to our guest. This is bloomberg. Anna welcome back to the European Market open. 11 minutes into the trading day that is negative, as expected. European equity markets down by 1. 25 . The cap down by as much as 1. 5 . Socgen says we should expect the covid19 crisis to result in permanent changes. Kokou agboblouas team has been looking at some of the themes. Lets get back to him now. Im really interested in to something you said about credit. You said we are halfway through the bull market in credit. Then you talk about how this is actually backing the equity rally, so the equity rally is back by the strong rally in credit. Explain the link between the two at the moment. Kokou yeah, sure. I think it boils down to the capital structure framework whereby equity is typically what goes before in terms of hierarchy in your capital structure. I think when credit risks or bankruptcy risks diminish, the value of equity goes up because ultimately the risk diminishes. There is also a more perverse dynamic which is called the zombie for cajun zomb ification of corporates. When businesses are kept alive, it destroys equity value and this is where you could see a disconnect between equity performance and credit. This is what we essentially secondin 2021 whereby a wave of Balance Sheets stress. Wave of Balance Sheets stress. Where do you see that following hardest . We have seen the oil hit in the u. S. , hospitality businesses having to seek funding or go under and smaller and mediumsized businesses being affected. Where do you see the Balance Sheets stress falling . Kokou the Balance Sheets stress is going to fall in the week Balance Sheet companies. Airlines and other sectors that are in these industries are likely to suffer most, whereas the stronger Balance Sheet are companies with higher margins and they will be able to deal ever by issuing equity to repay the debt they were forced to take on. In the short term, you will see a credit squeeze. There will be a second wave in guaranteesy the loan expire that are going to trigger is a very and this high Condition Team that we have been advising our clients to engage in the long short trade. Comes down toit the specifics of every Balance Sheet and its resilience. Let me ask you about Government Debt and where you go looking for investment ideas or where you go searching for yield. Maybe not the u. K. Two time horizon. We have gilt yields dropping to a record low. Does anywhere look attractive for you and Government Debt right now . In terms of Government Debt, we effectively do like the periphery because this is where you do have nonnegative yield. When it comes to em, credit is something we prefer. Clearly, we think that bets when it comes to the week Balance Sheets sovereign is an asset that will come under further pressure and we tend to be more conservative when it comes to u. S. Government bond yields simply because of this massive supply and issuance to finance these records that the u. S. Has engaged itself into. That will create more pressure on longterm bonds. Anna i wonder what you make of commodities at the moment. I notice that in your research you are talking about liking oil and gold. Liking something that moves higher when times are good for the Global Economy and also liking something that is typically seen as a safe haven, but also moves with other dynamics as well. What is driving you into both of those at the same time . Kokou gold because it is an inflation hedge. It has been roughly constant over time. Printed since the nixon shock has gone almost exponential. Clearly it will be a beneficial of the debasing of currency. Destruction. Supply therefore the supply demand dynamic is clearly tilted toward Higher Oil Prices over the next 36 months and this is what we see in the curves today. We do not like copper. We would effectively be long gold and short copper as a strategy. Anna ok, really good to speak to you. Kokou agbobloua, global head of economics Cross Asset Research at Societe Generale corporate and Investment Banking. Thank you very much for spending time with us here on the European Market open this morning. Lets get a Bloomberg Business flash. Top corporate stories we are focused on. Huawei. Is poised to ban from its nextgeneration mobile network, reversing an earlier go ahead. Phone companies will not be allowed to add new huawei components to their 5g networks by the end of the year. All existing equipment by the chinese firm will have to be removed by 2027. Boris johnson is expected to set out the plans and Parliament Later today. European union judges and luxembourg are set to issue two crucial rulings affecting the tech sector this week. First up will be a judgment on the eu decision to slap an irish back tax bill on apple. In a separate filing later in the week, the eus top court will decide on the legality on tools used to ship commercial data across the atlantic which up without violating rules. Softbank is said to be considering options for selling at stake in arms holding. The Chip Design Company would go lic as soon as next year company in theop sector in 2016. Primed for an ugly earnings season, some investors are pinning their hopes on trading sector revenues. This is bloomberg. Anna welcome back to the European Market open. We are 21 minutes into your european trading day. Down by 1. 7 . U. S. Te the fact that futures have been improving, they pulled back a little bit and we see further weakness coming through in european equities. Lets tell you what is going on in the Banking Sector. Report anks set to little bit later on today. Investors largely expecting lousy results. Losses. Y be a few dani burger is here with details. Outh lenders could come winners . There seems to be so much negativity, so they could surprise. The big investment banks could come out winners. Credit looks ugly for banks. Trading, there is that positivity already priced in. Looking at banks like Morgan Stanley and jp morgan, these things are buys because of the Investment Banking results that might outperform. They point out the positivity that might come out of Better Capital gains, Better Capital results. One could be the fact that it could read first some of the market reverse some of the market to market losses in loan provisions and equity investments. If they have a lot of these Investment Banking revenues coming in, that would give banks more flexibility down the road to set aside some funds to cope with chargeoffs later this year. J. P. Morgan chase might be one of the winners with a strong Investment Banking position. Streetnd what is the pricing and ahead of the earnings . ,ani if you look at pe analysts have had the biggest etf revision in about a decade. Already negative heading in. We saw the banks selloff yesterday. The bank index sold off about 3. 3 . Wells fargo has some of the biggest losses yesterday. The moves that are priced in today, they are somewhat volatile. We are looking at implied options pricing in. Options between 5 and 9 , so there could be volatility, but we are already approaching this with such big losses for these banks that there is a lot of potential in options. We do get some movement to the upside from the banks that report today, and i. Anna thanks very much. Dani burger with a look at the Banking Sector. Lets get to some of the movers, some stocks on the move. Lets talk about this business that we dont talk about very often. A global provider of design measurements and visualizations, hexagon is rising on strong preliminary secondquarter numbers. The data helping to push that stock. Ins talk about hellofresh the food delivery space. Sees secondquarter revenue significantly above estimates. Swatchutting 24 hunt cutting 2400 jobs, the biggest level of job cuts in decades. We can see that the share price as a result of that is actually moving to the upside, defying what is broadly a negative move for stocks, down 1. 4 . I should tell you what is going on in gilt markets. The u. K. To year bond yield, we broke the headline earlier that it was at a record low. Actually interestingly, more interestingly perhaps, the u. K. Twoyear bond yield is less than japan for the first time, or at least it was just a few moments ago when we saw the red headline pop across the bloomberg. Going into the wb function and looking at the twoyear maturities give you a sense of where we are on the u. K. And japan. The yield is a little bit more negative now. Those numbers not all that far away from each other, which is clearly more the point. That is a look at where we are on markets. Broadly speaking, selling off. U. S. Futures have been a little bit more stronger than they are right now. U. S. Futures coming off from earlier highs. Similar to dow futures. Actually, nasdaq futures which had been flying earlier in the session now up by around 0. 3 . More on the market shortly. Up next, time for cake . As the restaurants across england reopened it is a little bit early in the day we will be speaking to the founder and ceo of british bakery chain, gails, about the impact of the virus and the forecast for the second quarter. That is coming up next. Its pretty inspiring the way families redefined the word school this year. Its why, at xfinity, were committed to helping kids keep learning through the summer. And help College Students studying at home stay connected through our university program. Were providing affordable Internet Access to low income families through our internet essentials program. And this summer, xfinity is creating a Virtual Summer camp for kids at home all on xfinity x1. Were committed to helping all families stay connected. Learn more at xfinity. Com education. Anna welcome back to the European Market open. 30 minutes into your trading day. Down 1. 2 this morning. Well spaced. The ftse 100 outperformed a little bit. The dax and cac down a little bit more than that. Down 1. 4 . If you have a look at the world map, were negative. We have been negative from the Asian Session. That came across from the u. S. Session. All of that weighing on sentiment throughout the Asian Session plus selling in the Chinese Market which had rallied so far in the last couple of days. In terms of the stoxx pacific, we talked about the two biggest gainers in the last halfhour of the program. Here are some of the top stories were covering. The World Health Organization said covid19 probably wont disappear in the coming months and it is unrealistic to think a vaccine will become available to everyone immediately. In the u. S. , closing restaurants, bars and cinema. In asia, hong kong tightened restrictions. Face coverings are to be made compulsory in shoppings in england. The move comes after opposition politicians accused the government of lacking clarity in its guidance for the pandemic. They made them mandatory for Public Transit but left them optional for shoppers. Reversing washingtons previous policy of not taking sides in the area. The u. S. Called for freedom of navegation in the water ways stopping short of taking a specific position. Secretary of state mike pompeo ays chinas claims are un with restaurants, bars and cafes reopening across england, the government is hoping consumers will have the courage to spend again. The government will pick up half of the bills for meals and alcoholic meals. It will cost up to 500 Million Pounds. Stay with us for this conversation. Ere talking now to the c. E. O. Really good to speak to you. You have been through an incredible period of uncertainty for your business. Gales near me, give us your state of play at the moment, how open or closed are you at this point . We started 30 years ago. Restaurants. Very far down. 70 , 80 . But the gales that you see in the gails that you see in the neighborhoods, we are back up at all but two sites. 58 or 60 shops we have open. Anna that gives us a sense of where you have been down to and where you have come back to. What difference does it make for a business like yours . Face coverings in shops. That might lead to initial confusion, how you define a shop or a cafe or a restaurant. Rule implications. Different definitions. Ive been in italy where my wife is from. I dont think it is a terrible idea. It is difficult for the staff who are working to be wearing a mask all day. For the consumer, i think it might bring more people out. Because they feel safer. It is not that inconvenient. I know were not that used to using them in the u. K. We have gotten past the worst. Using them, i think it could potentially help. Anna let me ask you about some of the announcements we have heard from the chancellor to support the u. K. Economy in its recovery. Are you participating in the eat out for Health Scheme as well . Were participating in the voucher scheme. We had a nice little boost. I think it was an important thing for the industry. The rents are all based on a world that doesnt exist anymore. Most people in restaurants that e serve and hotels, they are trading significantly down. Were also trading lower. To pay the same rent is really impossible or were going to have big closures across the city which means lost jobs whch means all the furlough money wasnt put to great use. Anna the backup was part of the chancellors announcement. We dont have much eatin this our sights. It is a takeaway option. You need to encourage people to come in and that is great for them. Mostly take away. It doesnt really apply. Anna on the furloughed scheme, that what kind of difference yo business . Have you used it and taken back all of the people who were furloughed . Does the governments financial snes make a difference . Yes, i think the Furlough Program was needed and critical. What were all faced is with the uncertainty of what is going to happen in the next three months, six months. How many people how many customers well have. How much employment. Hopefully we welcome everybody back. We have had 50 of the people furlougheded. Sometimes a little bit more. Were bringing people back. Hopefully well go back to the full employment picture we had. I guess it will take six month to a year, Something Like that to, get back to what we had. Anna i was going to ask you about longterm strategy. Whether the virus has impacted on your longterm strategy or is it too early to say . Yeah, i think it is too early o say. I think we can do long forecasting. Were in the same position as everybody else. Highly uncertain. Were doing our best to our labor force. To keep them employed. That has been easier and more clear. , whenf the Service People we figure out how the world looks Going Forward, they are tough calls in uncertain times. You just have to hold on. Anna thanks very much. Good to get to speak to you. Hope you enjoyeded your Morning Coffee this morning. The c. E. O. Of gails. Thank you for joining us. On to a different subject. The ongoing tension between china and the united states. Something that has gripped markets. China now saying, we understand this from a Foreign Ministry spokesman saying china will impose sanctions on lockheed artin. They made those comments this morning. P next, huawei will continue talking about china and a revue from beijing. Well bring you details next. This is bloomberg. Anna welcome back to the European Market open. European equity markets catching up with the u. S. Yesterday, down 1. 9 . Were down more than 2 on the cac. 2. 2 on the french market. Geopolitical tensions between the u. S. And china worsening. I mentioned this just before the break. China says it will impose sanctions on Lockheed Martin and called the u. S. A troublemaker undermining regional security. They said they dont steek build a maritime empire in the South China Sea. The u. S. Broke with previous policy on not directly criticizing china. We see these comments come there you go. Weeper looking at the Lockheed Martin page on bloomberg. Asia pact was 9. 7 of revenue for this business back in 2019. China will be smaller than that. Perhaps it is all the symbolism that matters here. Huawei from banned its network. They will not be able to add huawei components to the 5g network. The decision is expected to be announced in the house of commons later today. Joining us now is our u. K. Political reporter. Joe, you have covered the elecom beat. I thought we settled this back in january. We heard that we had reached a decision in the u. K. And now an about face. Whats happening . Yes, thats right. And the trigger seems to be the sanctions imposed by the u. S. Government on huawei which have affected its supply chain for microchips. Thats how they are justifying t. They were going to go ahead with haw ha way with restrictions but now are saying we expect them to announce they have to remove them. Anna so were going to see something phased. Different requirements when it comes to huawei equipment. What do Telecom Companies say about this . Do they sut this is going to push up the cost on rolling out f 5 g . What is the latest pushback . Definitely, the worry is about cost. Boris johnson wants to expanned fiscal infrastructure in the u. K. That sway a leader. If you remove them from the network, you have to take a step back ward. They said they want it to be one in a phased way over time. It is 57 years, the natural life psych obviously this equipment anyway. Anna thanks very much. Thanks for the update. Well watch for developments on that fronts a little bit later on. Ets get a business flash. Set to issue two credential rules affecting the tech sector. The e. U. Decision to slap a 13 billion euro tax bill on apple. In a separate ruling coming later on this week, they will decide on the legality. Privacy ylating data rules. Softbank considering options on the british chip designer which it bought four years ago. The Chip Design Company could go public as soon as next year. Soft way bought it after the brexit vote in 2015. G. D. P. Declined in singapore 41. 2 from the previous three months. The biggest quarterly contraction on record. Singapore is one of the First Companies to record g. D. P. Data and they are taking a bigger hit than many others in the region. That is a Bloomberg Business flash. Lets check in on where we are n the markets. Cac down 2 . We see the u. S. Futures pulling back from previous gains. Now we see something more flat. We will look ahead to the u. S. Trading day to see if we manage to stay with that positivity. Up next, well get into the markets conversation. What will be the next weak link in market. We will put that question to our Bloomberg Markets editor. He is coming up next. This is bloomberg. Anna the government is spending huge amounts to protect the u. K. Economy from the coronavirus lockdown but if history is any guide, britain could be paying it off for decades to come. The u. K. Has had a National Debt since the reign of william iii. It hit an alltime high shooting above 200 of g. D. P. When it needed to the u. K. Has paid off its debts quickly. It borrowed nearly 4 billion dollar interests the i. M. F. At that point the largest loan requested. In the end they only used half the money and paid it all off by the end of the decade. That is not usual think case. In 2014 the u. K. Was still talking about paying off debt associated with 1720 and world war i and money the u. K. Owed to the u. S. After world war ii only got paid off at the on the other hand 2006 and that may be the best way to look at this pandemic debt. Some are urging the chancellor to treat it like war debt. That means it may sit on the books for longer than usual. That is possible in part due to the bank of englands bond buying program. The governor andrew daily warned this scale of Central Bank Intervention cant last forever. As support is gradually withdrawn, the u. K. May have to make tough decisions to bring its debt load back down. That was a look at how the u. K. Can pay off its National Debt. That report highlights it has been higher rellive to the g. D. P. Im not sure how comforting that is. We have u. K. At twoyear guild yields. We hit a new record low for the u. K. Twoyear guild yields going lower than japanese twoyear debt. Lets get the thoughts on markets now with our managing editor in singapore. Let me start with what were seeing in guild marks and the move lower in twoyear guild yields going lower than japan. What kind of bragging rights does that give the u. K. . I guess it worries most Market Participants about what the future, the last 20 years or 30 years havent looked too positive. This there is another way to look at this. One is the fact there is no real pressure from this big debt burden now. Listening to your intro there, the music is intimidating. I dont think they will pay down their debt pile any time soon. Zero market pressure. In sf there is any time you explode your debt is when you issue yields. The u. K. Has not been punished for this. Many look at it as a real negative. I think it is possibly not as negative when you take into account on whats happening on a per capita basis. Japan is a shrinksing population. It has maintained its wepts despite its shrinking workforce. That is quite an impressive achievement. If they get an overly negative rap, it is not a thing to strive for but if people are letting you keep printing money and providing aid to an economy that is struggling. Anna im sorry if you were intimidated by the music. Lets get back to the recent market action. The geopolitics, the u. S. Statement yesterday on the South China Sea and the retaliatory statement from china and sanctioning Lockheed Martin. All of this does not give confidence into risk assets. There is certainly a whole gamut of negative catalysts. Trade tensions and of course the ongoing virus headlines. Many of these same stories would perturbed the markets last week. We have these gains and were about to start earnings season. It is quite negative. There is so much uncertainty. The chances of a shock in either direction is quite large. Therefore i think that many traders and investors, you made a lot of money on the recent rally. It is time to take some risk off the table and wait until a new narrative forms. Maybe well get back in and miss a couple of percent but it is not a great risk reward to keep your none the market. Earnings could go this whole idea of a vshaped rebound was madness. So i think for a risk reward point of view you want to take money out of the market. It is not about bearishness out there. I think there are some scary headlines about the Lockheed Martin sanctions coming through announced by china now. I think it is really about whether they provide the gloss to a negative earnings story or if earnings come in positive, well start to dismiss the tensions. Anna ok, mark, thank you very much. I wonder if it is ratcheting up tensions between the u. S. And china. Is this where the next weak link in markets is going to come from . Thank you. Joining us with analyst. That is it for the european open. Stay with bloomberg television. Surveillance is up next. They will be keeping an eye on whats happening the equity markets. The selloff taking place in europe. We have some catch up to do in europe. Down 1. 6 . U. S. Futures came off earlier highs. Off some of that geopolitical tension. Adding to anxiety if you were anxious about that in the first place. U. S. Futures entirely flat now. This is bloomberg. Hike Simon Pagenaud takes the lead at the indy 500 coming to the green flag, racing at daytona. Theyre off. In the kentucky derby. Rory mcllroy is a two time champion at east lake. Touchdown only mahomes. The big events are back and xfinity is your home for the return of live sports. Markets in europe and asia go risk up as coronavirus cases and political tensions rise. California shuts down again. Merkel and Giuseppe Conte come together at a crucial eu summit saying a massive response is needed to counter the virus. Jp morgan, citigroup and wells fargo kickoff reporting season for the u. S. Banks