News from california yesterday and have been. ,olatility is a little elevated and we have got a really negative u. K. Two year yield. We were below japan a little bit early on. Slightly better retail numbers, but i have to say a bleak forecast coming out of the obra. Even the medium one i do not think it was positive. What are we going to be talking about . We will be talking commodities. We will chat oil and a little bit of copper and gold. Francisco blanch will be joining us a little bit on a little bit later on, and he is the head of the Global Commodities research at the bank of america. His dash cam weighing in on those commodities commodities. Fargo, citibank and jp morgan with jp morgan the outperform or. What stood out to you. It was something that one of our guests said earlier, validating the thesis that the strong get stronger, banks like jp morgan can use their skill to build up the dominance. In terms of how the shares are performing it is a mix. Jp morgan all the loan gainer. Jp morgan scaling back after jamie dimon was cautious. Wells performer was the worst performer. Does wells fargo was the worst performer. Jumping, at least at jp morgan. I pointed that out as one example. Jp Morgan Building on its dominant decision. Trading was an area of strength with fixed income currencies and commodities doubling. Trading revenue rose to 10 billion dollars. Another record quarter. 68 andcitigroup, investment great banking rose seven percent. They collected more fees as companies rushed to raise cash. Of course, the outlook is uncertain, and if government stimulus does not come through, loans could turn bad quickly. 10. 5gan setting aside billion to cover bad loans adding to the 8 billion plus it set aside. Under 8 citi just billion and wells fargo setting aside 9. 5 billion. The stocks have been in the cellar along with energy. Banks are down 23 and this is oft the waiting weighting financials. It has been down for several years and it trades below book value. As a of people see them dangerous to a dangerous investment. Guy we are interchangeable. So, scarlet as scarlett was saying. It has been fascinating, the calls. Analysis of what is happening in the economy is worth paying attention to. He is not exactly clear on what is coming down the pipe towards us. Jamie it was the same stage at the end of the corridor. Clear, we cannot forecast the future, we do not know. It is also very clear that you will have a much murkier economic environment Going Forward than you had in may and june. You have to listen to what he has to say. Citis call underway and wells is getting further. Johnny is joining us now to give us a cake. Jamie was getting cautious, what are you getting on the other call . If you thought jamie dimon was being cautious, the others are pessimistic. The outlook is not only getting worse when it comes to credit provisioning and the idea of the u. S. Consumer, but the Global Consumer might be in worse shape tomorrow than yesterday. The reality is starting to bake in, and citigroup is starting to voice concerns about the mexican economy, the strength of the consumer in asia and all of these u. S. Banks that have spread their wings globally to make sure that they can keep growing, and now the Global Economy is weighing on them. Both banks have said, citigroup and jp morgan, citigroup and jp morgan have said that you cannot expect these trading headwinds, were huge windfalls, persist to the end of the year. Jp morgan says to expect that half of these levels to be more to be normalized, and citigroup, which fell short was leaning on the fixed income trading revenue. Like we have been saying, a lot of that has come from the federal reserve, and if the u. S. Government does not step up in a big way, a lot of the headwind that helped the bank may not process. Alix thank you very much. I should point out that wells fargos call is underway and the ceo is saying that the asset cap is limiting their ability to offset low rates. It adds another headwind for some banks like wells fargo. Byare joined by columbia walter todd. Jp morgan is one of his top holdings. The rally for jp morgan as citi and wells fargo are lower. Do you add positions for jp morgan or are you holding it at holding your breath . Walter thank you for having me. I think with new money, certainly the account is open and new money comes in, we fill out the position we have and we have a very healthy weight and it currently. Certainly, for new money we would add i do think the volatility that you alluded to with the share price will continue, so you could perhaps get it a little bit lower and on a down day in the market in the market has a range point. You can pick your spots, but we like the long term outlook and i would agree with everything said around what jamie dimon said on the call. It was honest and sobering about the challenges that the economy faces, but i think they are planning for the worst, and their base case reflects a lot of that pessimism. Let us say the scenario is slightly better, do you think we could see some of the money come back, you think they will be disbursement down the road, they are being a little cautious, and maybe the economy is on a better trajectory . Walter i do, jamie dimon addressed that. He says if their base case plays out, which is fairly pessimistic and realistic, if it is better than that they will have significant Access Capital that they would hopefully used to buy back stock, which i hope we can do before goes up too much. It is likely not this year, but he said he would not rule out the fourth for that happening if we see a better than expected outcome. I do think the build and reserves that has been very aggressive for a variety of reasons over the past two corridors should start to moderate into the third and Fourth Quarter, and was said earlier, the tail and of market tail end of market revenue is not replicated, so you will have this straight off between markets moderating. The i am struckalix by ceo of citi saying that the World Economy will not reach normalization without a vaccine, and i am wondering does the value trade that one finds in investing and bank stocks, does it need government stimulus to make it a viable Investment Strategy . Yes, values have been a tough spot. It speaks to the need to have a barbell in a portfolio. I do think in the nearterm, you probably need to extend the access to Unemployment Insurance that expires at the end of this month, and have one more round of stimulus to get you to the other side of that bridge where there is a vaccine. I would note that in the base case, they are not seeing gdp in the u. S. Back to peak levels, even by the end of 21. I think there is a lot of bad news baked into the cake. The values outperformed in the past two days because that has been hit very hard. I think they were going to be fits and starts there are going to be fits and starts as we move into the Third Quarter economic reopening. I will ask you a slightly Bigger Picture question. Why do you want to own bank stocks . This is an area which is kind of uniquely limited in its ability to interact with shareholders, and i thought it was interesting that jamie dimon talked about stakeholders instead of shareholders. It is restricted by government in its ability to distribute money to shareholders. It has a restriction to grow via m a, are there better places to put their money to work right now rather than the Banking Sector . Walter it is a fair question. The holding at jpm and financials in general are part of a broader barbell strategy where we have exposure to other areas like industrials. We do see value in some of the bank stocks, collectively, financials is only about 6 of our portfolio, so the broad exposures beyond financials, because there is some of the challenges that you highlight, but we do see value in some of these key franchises like jpm, and bank of america, we think the dividend is safe unlike some other Financial Institutions that we have seen today. That is really kind of the thesis within a portfolio context. I understand your question, in isolation why would you want to own any, in a context of a broad portfolio, that is what i would say. Alix is there one value stock that is on your shopping list, like i will look at earnings and i am going to pull the trigger . Walter yes. We like the things that we hold. I would say a company like ray has been raytheon particularly beaten up and it might have good value. Here that is one that we own currently. Is one that we own currently, and that comes top of mind. Guy we really appreciate your time, and thank you for talking us through your vision of what is happening at the banks. The calls are still happening, thank you very much. John shrewsberry, wells fargo see cfo at 4 00 p. M. Eastern. What do we have coming up for you on the show . The u. K. s lackluster growth is a subject of attention. We will look at the recovery and we will talk to the c l economist and a look at the euro, through 114 to the dollar. This is bloomberg. Guy live from london, i am guy johnson. This is a european close on bloomberg. Office of budget responsibility posting three scenarios. Gdpr the downside scenario, could be as high as 14. 3 in 2020. We have had gdp data out, which to be honest, most expectations missed. The retail numbers were better and we also have a u. K. Twoyear that is in negative territory. And traded below the japanese two year. Joining us is paul dale. First up, let us talk a little focus the opr forecast. Do you think there is a growing possibility that the downside scenario from the u. K. Economy might emerge . Paul i think that has been a risk for some time, will attempt br our own forecast, the o scenarios are as downbeat as our. That showeddata that the u. K. Recovery seems to be slower than that in the euro zone in the u. S. , and that is even before the u. K. Has had a lot of second flareups that california is experiencing, and melbourne is experiencing. I think there is a greater concern that the u. K. Is already lagging behind and will only fall further behind, perhaps of the virus spikes again in the united kingdom. Alix does that justify where we are in the yield picture, where the two year yield is lower than what we are seeing in japan. Look at the curve and everything out six or seven years as negative. Does that make sense . Paul it makes sense when you think about the Economic Outlook , which is reasonably poor, and it makes sense when you have a proactive bank of england. We think the bank will increase its quantitative easing by 250 billion pounds, and the economic the is probably giving market more food for thought on whether the bank will in fact pay Interest Rates below zero for the first time. That does makes sense why the yield is so low, but it is interesting that that has happened at a time when the fiscal watchdog is warning that dealt that that could balloon in 50 years305 gdp time, so clearly the markets are putting much more emphasis on the nearterm Economic Outlook, the outlook for Interest Rates rather than the long or mediumterm physical out. Outlook. Absolutely. That would make life difficult for the treasury. I am curious, the obr painting a bleak forecast for what happens in the autumn when the furlough scheme runs off. Are they underplaying the potential for a pickup in unemployment . I am still struggling to get my arms around understanding how it will take properly from what i hear. A lot of firms will probably have to lay people off. How can we manage our way through this process . Do you thing that tapering is the right way to go . Paul it is certainly better than having a cliff edge. I would have a few rolling slopes to climb rather than one big cliff, and that is what the government has put in place. There is probably no perfect way to do this, there will be job losses. For work for what it is worth, they have risen from 4 to 10 in the best scenario. 12 is the middle scenario. 13 in its worst scenario. Frankly, they are all pretty bad scenarios. We are slightly more optimistic, we have the Unemployment Rate at 17 at 17 peaking next summer. Wings will not be quite as bad the obr expects, but not let us not beat around the bush. A badnemployment rate is result, and i think that is one of the reason that the u. K. Might be slower to emerge from the crisis they on some other economies whose labor markets might prove a little bit more resilient. Alix thank you very much. Ahead, bank of americas renewed confidence in oil demand. We will break that down with Francisco Blanch. Wells fargo ceo speaking on the call does not seem particularly positive when it comes to the outlook, saying that the issues with the fed is preventing real offset on loan growth, and talking about debit card spending returning to precovid levels and still down. This is bloomberg. It is time for the Bloomberg Business flash, a look at some of the biggest stories right now. Will ban why away tech Huawei Technology by 2027. Isver dowden says that it about longterm telecom security. President trump has pressured the u. K. , and the prime ministers decision to impose the band as a major reversal from his earlier decision. Virgin Atlantic Airways has secured a one point billion dollar rescue, a major victory for richard branson, whose airline could have gone under. Were and davidson will provide about 460 million in funding. Urgent election Virgin Atlantic will get 1 billion in relief. Lockheed martin is the primary contractor. China previously threatened to sanction American Companies over arms sales to taiwan. That is your Bloomberg Business flash. Thank you very much indeed. Is ongoing and definitely worth paying attention to in that is happening with that company. Charlie sharp making it very clear that we are going to see aggressive cost cutting coming through at the business. He is pretty blunt about it. Layoffs. Management we will get a series of the situation that wells is bad. He has known as a cost cutter and he has big work ahead of him. Alix and bloomberg reported about wells fargo cutting jobs, so there is something coming down the pipe, and that the virus will negatively impact earnings. Also, i am super interested. Underway,oup call is talking about hong kong. He said this you had the ceo saying you cannot just look at hong kong, there are a lot of other issues. We will follow the rule of all a rule of law, it felt like they were skirting the issue. At some point you think that u. S. Companies will have to choose between china and the u. S. Yes, and you wonder whether it has make made that decision. Big decisions coming up for the banks. The new security law puts them in a bad position. If sanctions, and after the united states, the u. S. Banks will have to abide by those, but that put them in a difficult spot. In theory, they would be in violation of it. A really difficult spot for the banks. I understand the need to prevaricate therefore, and figure out what exactly will be happening. I think everybody is trying to put themselves in that position. European close will happen and we will have the mom the numbers in a minute. Guy european stocks wrapping up the day. 30 seconds away from regular trading coming to a close. Stocks pushing higher over the last hour on both sides of the atlantic. The price action yesterday fairly grim. As a result, what we saw this morning was europe coming in, fairly negative start. A tight range we are trading in. Pushing up a little bit. I talk about session highs. I think that is a fairly pointed story to be talking about. These markets are struggling to find direction after the price action yesterday in the united states, which took some of the tech stocks down sharply. Where we finish today is really important in terms of the price action. At the moment we are largely positive. In terms of the individual markets, tltros doing relatively well. We are seeing the oil stops trading strongly. Some of the things helping out the london market, down. 1 . On the continent, the numbers are more ugly. The dax down a percent, the cap down the cac 40 down 1. 25 . Some of the tltros doing quite well. Despite what we are seeing in terms of the u. K. Government about huawei. Tech is down. Health getting knocked. Bp doing relatively well. Sector tradinggy strongly. Travel and leisure, some of the cyclicals getting knocked lower. Insurance, oil and gas the best performing sectors. Lets show you single stop names. Single stock names. Bp trading ok. You wouldve thought the huawei story would have a meaningful impact. The stock would be concerned. Interesting to see erickson trading softer. You would think they would be beneficiaries of what is happening. Not thinkying he does it will affect their company. Hello fresh coming out with decent numbers. I wouldve thought the hello fresh numbers would have been received more positively today. Good news already baked into the share price. That has company benefited from covid. On a day where the markets are taking a more cautious line, not seeing that kind of stop pulled through. Alix in terms of the commodity market, oil is grinding its way higher. Wti over 40 where copper has taken a break, down over 1 after a monster rally. Lets get more into the details with Francisco Blanch, bank of America Merrill lynch head of commodities. I feel like the market today is faced with two things. One is strong imports into china on the copper side, on the oil and, on the iron ore side, on the flipside continued potential shutdowns in the u. S. And potentially weaker gasoline demand and refinery utilization. How do you understand these different narratives . One of the biggest stars we will have from covid 19 is that the gap between the u. S. And the chinese economies in terms of gdp size will close at a faster rate, which is the major geopolitical shift and also has huge implementations huge implications. Chinas doing a lot better than a majority of emerging markets in terms of controlling the virus. If you look at emerging markets like brazil or chile or peru, they are not doing as well as china. They are doing poorly. Mexico as well in terms of controlling the outbreak. We are having disruptions on the mining side, which are supporting industrials, and china, we see the economy doing well. Consumption is up. In theseeing a run up industrial commodity front. Oil is a different story. Alix lets focus on oil before we get to things like copper and iron ore. For oil it is confusing and conflicting. You have an opec meeting tomorrow they have to decide whether they will rollback their production cuts, increase the amount of oil in the market. How do they do that . Francisco at the end of the day, opec has been clear, they do not want to lose market share to u. S. Shale permanently. They will not be holding back forever. Back, andcoming understand the comments he made about california rolling back opening measures. The reality of the matter is all of the rollbacks in terms of the lockdowns are quite local. On a global basis we are seeing gasolinensumption, and is experiencing a vshaped recovery, not so much jet fuel since we were just talking in many of us will not be sitting our foot on the plane. I think jet fuel will be in lshaped recovery. The majority of the demand for oil comes from Ground Transportation and the demand for plastics is strong. That is supporting the petrochemical industry. There are other oils that are seeing strong demand. I think opec is counting on that recovery and counting on localized lockdowns as opposed to what will happen in beijing in the last month is an example of what we may see on a global basis. For the most part, the world is waiting on a vaccine, on a treatment for a full recovery, and that is something opec has to manage. My view is they will proceed as planned and rollback 2 Million Barrels a day of cuts into the they willugust and have to cope with that. 60last thing opec once is oil overnight and shale coming back immediately. That is the last thing they want. Guy can i take you back to that lshaped recovery in the jet fuel market . How far out does the bottom of the l go . The delta posting numbers sounding cautious about what is happening in the sunbelt. Transatlantic is not coming back anytime soon. How long are we talking . I think, if we look at china, traffic has recovered to 50 of normal. In china they have the virus under control. If you look at beijing, we almost went back to zero flights as we had an outbreak a few weeks ago. Forink the best we can hope is the range of 30 to 50 of normal, assuming we have some degree of control of the virus. Or maybe we just give up on it. I dont know. In my opinion is that the virus is driven by lockdowns but by human behavior, by fear. If the death rate goes up, it is not just of the government will implement lockdowns, it is people not go anywhere, you will be afraid something will happen to you. Fear is a big factor of human behavior. The sunbelt of the u. S. Did not feel that fear until recently. As we have learned to new york city, it is a scary thing. That prevents the l. At least six months, maybe 12 months until people deem it safe to be back on the plane. That is my expectation. Six to 12 months would be the path we would expect. Alix that is a good drill down into the demand side. I wonder how much flexibility producers will have. On the one hand, producers in chile are not very flexible. Case fort be the bull copper. Opec might be more flexible. Maybe oil will be managed. How does that inform commodity bets Going Forward . Francisco we think prices will be range bound at this levels over the course of the next few months. Maybe there is a buying opportunity if opec brings back more supply and compliance tips a little bit and use that as a buying opportunity for position because eventually at some point, once demand recovers from the average level of 90 Million Barrels a day compared to 100 last year, we go to 98 Million Barrels a day next year. At that level you will see shale supply coming back, and for that you need prices meaningfully higher. The shale industry will take a huge hit, and the only way to see recovery, which i think you will need, is global construction, which we see in the energy sector. We think prices in the second half of next year will hit 60 a barrel for brent so we do think we will see higher spot prices, on average we think brent will be around 50 next year. That will not materialize until we are headed into the Fourth Quarter and there is clarity in terms of the demand recovery. It will take time from here on to see stronger price action. Francisco, this will be a strange question to ask a commodities guy, but they are with me. What you make of the rise in tesla share prices . This is a signal of what for the commodities market that ultimately we are going to be driving electric vehicles, what does that mean in terms of input cost, in terms of rare earth and copper . The share price story is crazy, but it has to be telling us something about the direction of travel. Francisco we have an acronym on the m. F. T. Lled metals in future technologies. Cobalt. Nickel, lithium, there will be a strong pickup in consumption for those industrial metals. No doubt about it. We will see a lot of electric vehicles. This brings me to an important point. Im not a stock analyst so i cannot comment on specific names, but the big runup in the value it is not just tesla, but there other names who produce electric vehicles who are experiencing a runup in prices. Showingplays out, it is biden presidency or a blue wave in the november election. The one thing we have seen in the past crisis is the governments have got a lot bigger. When you get bigger, you start using your bullets as a government to implement policy, and i think whether it is a biden presidency or it is what we are seeing in europe, a massive increase in government budgets will be directed towards policy objectives, and there are few objectives that are as big in Climate Change as the energy transition. To your question, i think what we are seeing in the stock market reflects the financial and a belief we are moving faster into an energy position. From an Oil Consumption intopoint, is an upgrade 2022 to 2025. If we transition faster into this new energy, we will see demand for oil beating before the end of the decade, even before the middle of the decade. I think that is the big issue the oil market has to contend with, and ultimately we need to see how governments behave. My impression is they are using their bullets to fight Climate Change and a fight car emissions. That is a powerful force when governments have gotten so big. Yesterday the u. S. Government deficit of 850 billion for the month of june. That is a single month. That is half the gdp of brazil for a single month. Enormous. And we will see 750 billion potentially going out of the door on friday when the European Council meets. That money will go out the door next year, but nevertheless the emphasis will be on the green transition. Francisco, thank you for sharing your time with us. Francisco blanch of bank of america. A quick look at european markets have closed. London doing better than the cotton on markets. London flat, continental markets down. We will continue the coverage at the top of the hour. The cable show takes to the air on dab Digital Radio in the london area. This is bloomberg. Guy i am guy with alix steel in new york. This is the european close on bloomberg markets. From. K. Is banning huawei its generation of mobile networks. Here is the u. K. Cultural secretary announcing the move in the house of commons. The best way to secure our network is for operators to stop equipment to build the u. K. Future 5g networks. Guy operators will not be able to allow huawei components to their 5g networks after december 31 this year. ,oining us is Jeremy Thompson u. K. Huawei executive Vice President. Walk me through your reaction to this decision. Jeremy it is a very disappointing decision and i think it is bad news for everyone in the u. K. With a mobile phone. The government has been bound to this position by huge pressure from the u. S. We have had a steady stream of senators, congressmen, and others. The draft announcement made by the department of commerce, the foreign director, which are in draft of the moment, made the u. K. Consider its decision to allow huawei into the u. K. Networks. We are disappointed they have bent to that pressure. We feel we are urging the u. K. Government to give us more time to identify the mitigation to the sanctions the u. S. Had we willted, and we feel have some mitigations and we would like to talk to the u. K. Government about. The position is disappointing and bad news for the u. K. Alix what does it mean for huawei . How much money do you stand to lose . Jeremy we have not worked out that precisely. If it comes into effect, if not immediately then by the end of this year. The u. K. Is a key strategic market for us. We have hugely valued customers in the u. K. We work with globally. We have not worked out what that means. U. K. Revenues are less than 1 of huaweis global revenues. However the impact, u. K. Decisions tend to have a wider it will take us a few days to work out what this means for us, but disappointing. The senate seems to be there is concern in the u. K. That once u. S. Sanctions kick in, a lot more of the equipment that will be built into huawei will have chinese derivation. As a result of which, it becomes harder to verify the security of the equipment, and potentially it makes it harder for the equipment to deliver what the Network Operators once. What the Network Operator wants. You say you will have provided revenues. How would youve got around those concerns . Jeremy it is fair to say we have had long and good relationships with the american tech sector and we have made a virtue of including americanbased technology in our equipment over many years. The recent actions of the u. S. Administration mean we have to diversify away from american supplied components and there is a growing market for thatmerican components will go into the technology of not just huawei, but other countries that no longer want to have the vagaries of the American Administration risk there investments. It is not just china. I fully understand the requirements of the k government to verify the alternative components. We think we need time to do that. Israeli, otherh, alternative companies that have this technology. The u. S. Does not have a monopoly on the invention in this phase. They are way ahead of many others, but others are catching up quickly. There is a growing demand for a more diverse supply chain, which does not rely on american technologies. That will take time to develop. Want you mentioned you more time to prove you can fulfill what the u. K. Is asking you. I assume youre talking to the telecom companies. Can you tell me about the conversations and how you want them to intervene or interject . Jeremy we would not tell our customers what to do. Our customers have already made their views very vocal as recently as yesterday. The ceo of a Major Telecom company in the u. K. Said taking huawei out of the network would be devastating. Or not even possible. The decision has been made. We will work with the u. K. Carriers to fulfill the wishes of the u. K. Government and support our customers in any way they ask us to. It will not be easy. Our focus be on supporting those customers who we have been working with in the u. K. For over 20 years supporting the secondgeneration, the fourthgeneration, and now the fifth generation, but in a more limited way than the government decision of january 20 this year , which gave us 35 Network Share in the u. K. For 5g. Guy Jeremy Thompson, do you think the u. K. s position will have an impact on other countries decisionmaking around the subject . Jeremy it might influence others. Pressurehere is a huge from the American Administration, even in person or virtual is probably the primary reason people are considering this. Ultimately each country will make their own decision, and it is our expectation that we will continue to serve in 170 countries, which we currently do. We provide Telecommunications Equipment to one third of the population and 170 countries worldwide. There is expectation that will continue. Guy jeremy, thank you very much indeed for your time. Jeremy thompson, while weight u. K. Executive Vice President huawei u. K. Executive Vice President. This is bloomberg. Alix what i am watching is something coming up in an hour and a half. That is joe biden giving his speech on clean energy. He wants to be carbonized the u. S. Power system by 2035, spend trillions of dollars and create tons of jobs. It wasthought interesting what Francisco Blanch said about the fact that if we do get a blue wave in the united states, may be the share runup in things like tesla is an indication that the u. S. Government will play a significant role and an accelerated role in this process. Alix some people say that is what we need. Fdr changing the environment and a new energy plan could do that if you pump enough money to change the infrastructure. I am looking forward to that in just about an hour and a half. That wraps it up for guy and myself. Power. P is balance of david will speak with the democratic senator from michigan. This is bloomberg. David from new york to our tv and radio audiences worldwide, this is balance of power where the world of politics meets the world of business. We start with the market check. We have abigail doolittle. Choppy. One of your favorite words. It applies to today. Abigail earlier on the open, up and down. Right now mixed. Weve the s p 500 and the dow a bit higher. While the nasdaq 100 and the new york faang index are doing less well. In the red. Yesterday we had a dramatic reversal for the new york faang index, at one point up 4 then down 3 . That index has been on fire out of the march lows. That stayathome trade investors going into it. A bit of an unwind. We had the financials pushing slightly higher but a mixed picture for the big banks. Jp morgan putting up a great quarter despite a large loan reserve loss. That was the case for citigroup