Francine, but this is really extraordinary and really, really important. We have consulates in china. Clearly the chinese have said they are going to act rapidly on this. The backstory of this is intellectual property, which is nothing more than the stealing of trade secrets. Ellen not a shema in the Washington Post in recent days writing up the trial in houston phone that holds oil platform in the water. Where there is literally a court case going on about the intellectual Property Value of the foam that holds up big pieces of steel in the water. Just one example around this breaking story. Francine this also comes on the back of what we heard yesterday, right, tom . The u. S. And other countries accusing china of hacking and Getting Research information regarding covid19. Tom no question about that. Let me get a data check. Futures 17. The story is safe haven, and you see it quickly in yield, where the 10year yield has come in. 58 a vengeance,. 59, a handle. The twoyear United Kingdom coming into a negative yield. On a weekly chart, coldness at a record high fulsome on a daily chart, we are gold is at a record high. On a daily chart, we are getting to where we were years ago. Francine treasuries edging higher, the dollar racing a loss. There is a risk off mood. Stocks,ook at european futures dropped, and then gold 1850 per ounce. To talk about the markets, to talk about the banks and geopolitics, we are delighted to be joined by sir Howard Davies. You rebranded today, howard, so congratulations on that. Consulate story in houston, are we assuming that things between the u. S. And china . That china and the rest of the world will actually escalate on International Property issues . Difficultll, it is a one to answer because some cynics would say there is not much intellectual property in banking. The Financial Sector is not particularly affected by this issue, but i do know plenty of companies are concerned that their intellectual property has stolenell, whether is the right word but has been used by chinese competitors. What i find slightly surprising is that this is something that has taken place in a consulate. Most western countries, involveds are not in industrial espionage, but it looks like the americans have some reason to believe that is the case. I would say that these titfortat closures of offices are things which are quite easy to do, and sometimes they are almost like a safety valve, if you like. You close something, they close one of yours, and everybody has made that point. It will be interesting to see if there is something more to it than that. If it is just the cyclical closure of consulates, that is probably a relatively minor question. Francine how does covid19 change the trade war between the u. S. And china . Does it make it lead like a gay does it make it less likely that we will see howard it raises the stakes because when everything is going well, governments feel that they can perhaps make gestures or make political points in the trade area without too much damage. I think what the covid situation means is that you are playing with fire here because you are operating against a rather fragile economic background anyway. Therefore, taking tough trade measures and imposing tariffs is going to be potentially more damaging than it would be if trade is otherwise buoyant. I think that is the way in which it affected. Tom s are howard my must turn to this historic moment for , i must turn to this historic moment. You worked at the London School of economics. Is europe a better place this morning because of what occurred this weekend, to consolidate the United States of europe . Howard yes, it is. Whether the United States of europe overstates the case it does but clearly kind of a rubicon has crossed here. They have agreed to collectively guarantee borrowing. That has been something which the germans and others have held out against for quite a long time. That i think is a very important moment and suggests that the arguments for solidarity, the work that doesnt translate well into english, that the argument for solidarity in europe have won the day, at least temporarily. So i do think it is an important moment. You can see by the fact that it took them four days to get there that they were overcoming serious issues. I am modestly optimistic about the way this has turned out, and i think we could see a stronger european recovery as a result. Sit rightwhere you now, and all of your radar at the net west group and all of your discussion with the experts that are out there, how in recession is the economy right now . Im having trouble of getting a gauge of the depth or persistency of a slowdown in aggregate demand. The markets are telling me that it is worse than the chit chat. What is it, sir howard . Howard what we have seen so far is that some parts of spending have recovered quite well. Spending on staples, if you like, has been pretty flat through the period, and that is ok. Spending on consumer durables has picked up really quite sharply. What we have not yet seen is a sharp pickup in what you might call social expenditure, beating out obviously all the parts etc. Thatnemas, has not picked up. The question is, will people be confident enough to go back to their previous practices, social expenditure . That i think is going to take quite a bit of time. My favorite view of the shape of the recovery is that we have had the beginnings of a vshaped recovery, and that that has been quite good as far as it goes, in fact slightly better than the u. K. And the bank of england thought. But the next part may flatten out a bit because then you reach some social, psychological issues about peoples confidence , and that i think will take some time to recover. Francine s or howard, thank you so much. Sir Howard Davies of net west group stays with us. Ackman,p later, bill Pershing Square founder and chief executive officer, 1 00 p. M. In new york, 6 00 p. M. In london, and this is bloomberg. Ritika lets get the bloomberg first word news. Another sign of worsening relations between the u. S. And china. Beijing says the u. S. Ordered the closing of the chinese consulate in houston. Anna calls that unprecedented escalation. The u. S. Says it is because of intellectual property issues. Firefighters were sent to the thatlate after it learned papers were being burned in outside containers. President was notably more reserved than in the past, encouraging americans to wear masks and avoid risky behavior. The president promised the virus will be defeated, but he said it will probably get worse before it gets better. Republicans putting together a Coronavirus Relief plan, supporting the idea of more stimulus checks to individuals, but they expressed doubts about president trumps call for a payroll tax cut. The differences between republican senators and the white house threatened to push action on the stimulus into next month. Global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more im ritikauntries, gupta. This is bloomberg. Francine . Tom . Tom thanks so much. Francine lacqua and tom keene ,ith you, and Howard Davies formerly with the London School of economics and now with natwest. What i noticed this weekends who was not in the photo, who was not in the conversation, and that is britain, the United Kingdom. I know it is a generational change in europe, but part of that is a Seismic Shift of the United Kingdom really not participating. How alone is the United Kingdom right now . Well, we are in a slightly curious phase because we are in the exits lounge from the e. U. , but we have not quite left because all the rules still apply to us. I think it is fair to say that we have not yet situated ourselves on the world stage in a way that we will need to do for brexit. The government was working on that. The brexit talks have been difficult, not least because of covid19. I do think that what lies behind isr question, if it is what the role of the u. K. . I think that is an open question. The dean etches in quote is that someone has lost e. U. But not the role. Which i think is probably true, and i feel it is a bit unfortunate, and i think we do have a contribution to make globally and we need to resituate ourselves after brexit. But realistically, the government has other priorities at the present time. Tom i dont mean to denigrate anybody here, but it is a phrase out there. I know it is a popular tv show years ago. Is there a risk, Howard Davies, of a Little Britain . Howard yes, Little Britain is not particularly well remembered because of various caricatures in it, so we dont talk about it anymore. But there is a danger of that. The governments rhetoric is we are going to be a global britain, we are going to be a global player. We are going to do so in an open trading way, and i hope thats true. But unfortunately that is difficult to achieve, and we heard today that there is not likely to be a u. S. U. K. Retrade deal by the end of the year, which the government had hoped. So this reorientation outside the e. U. Is going to take us quite some time. The practicalities of negotiating pretrade deals are quite complicated, and i think a bit underestimated by this government and the previous one for the last four years. Sir howard, if you look at the u. K. , how worried are you about bad loans . Unemployment will rise, and with it, of course, some of the concerns in terms of provisions that will need to be booked by banks. Howard yes, that is certainly true. One important point i think, which we need to register in terms of the longterm impact of the covid19 on the economy, is that there is likely to be a shift, if you like, in the relative price of capital and labor. It looks as if capital goods are going to be relatively cheaper, and labor will be for various reasons slightly more expensive because of the social distancing measures, the way in which people have to be supported at work. Labor is likely to be more expensive, and of course companies have discovered that they can operate with people and people working from home, etc. So over time, i think there will be a bit of a rebalance, which is of a rebalancing, which is likely to be a structuring of employment, which will require retreatment retreatment retraining and restructuring. That prospect is quite a difficult one. Set against that background what has happened to businesses, as one bank has lent about 10 billion pounds in Business Interruption loans and bounceback loans, as they are called. And clearly some companies are going to have difficulty paying that back, which is why there is now a bit of a debate about whether there should be some sort of recapitalization vehicle, governments reluctant on that because the moral hazard issue, you dont want to hand out loans, and then say dont worry about it, you will not have to pay them back. I suspect there will need to be some recapitalization of loans in the next six to nine months in order to avoid a large number of redundancies. That is something that we are working on, we are working with individual customers, working collectively in the city to try to devise appropriate schemes, to try to mitigate the impact of the withdrawal of the Government Support mechanism, which has to happen fairly soon. Francine how difficult is it to model bad loans, specifically he e . Howard well, we all have to do so, whether it is difficult or not. We will be publishing our results at the end of next week. To be super cautious about what i say about it, there is of system, new accounting which is pulling forward provisioning earlier than it used to. I think what the market will have to register you have seen that with american banks and the last two or three weeks. There will be earlier recognition of bad loans than there were in the past, and the market is going to have to understand that . That is partly to do with accounting rules that have changed. Tom sir Howard Davies, thank you so much. He is chairman of natwest group. We have a conversation with the chairman and chief executive officer, an update on spain. This is bloomberg. Good morning. Francine this is bloomberg surveillance. Tom and francine from london and new york. Spains Largest Utility Company says the lockdowns from the pandemic dampened performance of the first half of the year. Join us to talk about covid19 and the impact on covid19 is nacioow see a is ig galan. How quickly do you expect prices and demand for energy to get back up after what we have lived through the last three or four months . Guess there are a thele of charts avoiding revolution of the electricity demand. Markets with a 2 return, in this moment, we have in the past two moments in terms of demanding and certain weeks, 18 as a whole. In februaryprices so 44,level in europe, 45 euros now it is 44, 40 4. 2. At 42, andices were now they are at 42 44, 45, 46. Direction as same well. America hastin suffered more than a lot of regions in recent weeks. When does that region get back on its feet, and what does that mean for demand there . Ignacio countries like brazil and mexico, in the case of brazil, the government has a stake in our sectors, quick actions to protect the companies, so it has not really anerated or created balance loan for the companies to inject liquidity, to which Companies Might be affected by the lower demand. If you are not able to go to collect the money to your customers or the customer cannot pay. Come quite a lot of money in our case 1. 6 billion. Secondary in the process to compensate the negative impact of covid. So in terms of the case of mexico, i feel they are already in that situation, which is to take measures to protect our customers. In the power generation, eight has not changed very much. Practically the demand has not changed because they have continued working during this period. Francine i know you have been trying to buy is it a done deal now that you have sweetened the offer, and are you looking for more acquisitions Going Forward . Ignacio it is a company that we have been in this moment in investing, Something Like 400 million, Something Like that. Some windfarms and some i think we have been already speaking in talks, and the last two months, and during this somebodyi have seen made a need for it. See m a greenfield model, which gives us the opportunity of vast extension. We hope in the next few days and weeks tom sir, thank you so much. Ygnacio galan. Please stay with us. This is bloomberg. This is bloomberg surveillance. Warning thatmp is the coronavirus pandemic will probably get worse before it gets better, and he urged americans to wear masks. The president resumed daily virus briefings months after he abandoned them. Speaks on what he calls combating Violent Crime in american cities. He has pushed a new policy that appeals to his base. Plan tound the country resist if the president sends troops into their city. China calls it an escalation. According to the state department it is to protect American Intellectual property and American Private information. The move is likely to lead to retaliation from beijing. Firefighters went to the consulate after reports of documents being burned. Global news 24 hours a day on air and on quicktake on twitter powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Tom, francine . For more on china valley retaliation after the u. S. Shut down a consulate, lets get more from our senior editor. What do we know about the reason . The approximate reason the United States said was to defend intellectual property, to protect it and americas private information. The state Department SaidInternational Agreements require the diplomats to respect the laws and not interfere with internal affairs. That implies china had done something to run afoul in one of those areas, but it did not give more specifics. Tom what is so fascinating is it is clearly in intellectual property and economic driven. The Washington Post had a good summary of a court case in houston on chinese espionage, i am saying that in a loose manner. Which city is the economic consulate city for america in china . They wouldm mobile shut the u. S. Consulate in hong they wouldhomable shut the u. S. Consulate in hong kong . Derek there are a couple of options, there is a consulate in wuhan that i have heard chatter about. People are speculating about that. There are any number of options. The trick china will have is to calibrate this response such as it responds in a way that Chinese People think it was a serious thing without escalating past the point they want to escalate to. Francine what would escalation look like . Derek thats a good question. The problem is you have a pandoras box of options, and all of them are bad. You see that reflected in the market data and the risk sentiment you are seeing. I hesitate to speculate on where you could go, but a lot of it is on the possible table. You could go for consulates, company restrictions, Companies Like boeing or apple. The options are really limitless. You have a very large menu. Tom thank you, a quick view. Right now in london we are ned Broad International relations including three years ago a wonderful article on the closing of the russian consulate in san francisco. Relationsternational 101, when in doubt, close a consulate. It is almost normal procedure, isnt it . For the timingt there is a real sense in london of an increase in the increasere, an intense in temperature on the pres