Out. Alix yields on the 30 year in the u. S. Down 19 basis points. Lets get some more layered a, Julia Coronado joins us now. We have been trying to answer this question, what is driving the dramatic decline and move into safe havens . Onryone has been blaming it jay powells gdp forecast for 2022. Do you buy that . Is notthe feds forecast at all out of step with the consensus in bloomberg, bluechip, all of the congressional budget office, so i dont think that is new to the market that it will be a gradual recovery, and i thought that powells message was steadfast in terms of the feds commitment to participating in the recovery. I dont think this can be blamed on the fed. Into complacency with the virus. States that are opening up are starting to see escalating cases even controlled for increased testing. This is still a problem that we need to grapple with, is coming back to the forefront. We were always going somet a risk aversion and point the market would have a ritz look at what is going on in the real world. For acts as an opportunity the equity markets to push even higher. Julia that remains to be seen. Liquidity and liquidity from Central Banks around the world did a lot to disconnect the market from the realities on the ground, and powell clearly stated yesterday that is the intention, this transmission from transition from an economic shock into a financial shock. They were successful, but there will be some slows. If you get market to focus on the medium term instead of the near term, where do those meet . The outcome is uncertain. We dont know how the epidemiology will play out in the u. S. And on a global level, so the fact that we are seeing lows should not be a surprise. The market with passive investing has gotten used to trending, correcting, trending, correcting is more of the dynamic we see these days. It is not that surprising we are taking a step back and i would not necessarily think this is a sign of panic either. Alix it is interesting the depth of the move. A 4 selloff is a big move and it comes on the heels that jay powell played down asset bubbles. Really, it is about getting the labor market back and getting it in shape. That has been our major focus. Wewere to hold back would never do this but the idea, just the concept that we would hold back because we think asset prices are too high, others may not think so but we decided that is the case, what would happen to those people . What would happen to the people we are legally serving . We are pursuing maximum employment and stable prices. Risk comesongerterm from the backdrop of doityourself investors. Is that anyway a takeaway for you yesterday . The fed has very blunt and they are using them aggressively. I think we need to remember in march, we were in a financial crisis. Not even the treasury market was functioning, and that was very dire, the possible transmission into a Global Crisis was tangible. The fed did not mess around and all the spigots were open. Yeah, it stimulated the market and then there was this disconnect and everybody is demanding that powell explained the disconnect. He said, look, i am using the tools i have got. It is not a perfect process. If we want to give the fed different tools, that is a conversation we can have, but the fed is doing what it can do to put a floor under this shock and help the and just provide insurance as we adjust to covid. What else do we want from him . He doesnt have the perfect tools and that is just the reality. Guy history would dictate that inflation and a low of near inflation. Do you buy this dip . Is there a better entry point coming . Understand,ough to financial markets, when they get in front of the real economy it tends not to wind well. Not to end well. Is this a good entry point or do we reset the lows . Julia it depends on your horizon and if you are thinking long term, then you might find value. This is going to be a long process. I fully concur with the feds forecast that this isnt going to be simple, there is going to be some lasting damage. Again, i would expect we will flows in the market through the next year as we process the information of the shock and tried to get clarity on the outlook. Whether this is an opportunity really depends on your horizon. What we do know, what we are seeing in the bond market is that the fed will be here for the medium term. The fed will not be raising rates anytime soon. They will be actively engaged in qe and may move toward yield curve control, so on the Interest Rate side we know better what we can expect to match that outlook. Dont risk asset side, we know which sectors will be permanently damaged, which will be the winners, what new Business Models might arise. To mohamed elerians point, one thing we are not seeing as a lot of leverage going into this. Maybe that will come out. We have some expected leverage in the business sector coming into this and yes, the fed is providing too much insurance deleverage firms, but it is not firms,rance to leverage but it is not like the banks are tightening. Consumers are not seeing easing lending terms nor are they wanting to borrow, so i dont see the different situation when the market is moving around on Central Bank Intervention then when you have a rational exuberance and leverage building 2 it. I dont think that it building to it. I dont think that is the situation we are in. Banks have to use their liquidity tools and the banks in the market are different than we have seen, and you get these ebbs and flows. A lot of that roller coaster ride lies ahead of us as the recovery unfolds. You so much,hank Julia Coronado of macro policy perspectives. The president is making his views felt on what the fed has said about the recovery, saying often. , wrong so think it for a moment. More on the selloff we are seeing, particularly on how investors are positioning themselves. The medical director of equity derivatives strategy, we will get her take. This is blue. Bloomberg. You know what i find funny . The people on the internet debating who the better investor is. Right now, myself or warren buffett. There is no debate. It is no debate. I killed him. He is dead. Guy ok, another controversial time from david portnoy. Has been happening in the sports world or the lack of it, he has turned his attention to the stock arc it and he think market and he thinks he is crushing it compared to warren buffett. It is indicative of a market that people are scratching their heads about, particularly the rally over the past few days that people believe has been driven by fast money accounts, fast money retail accounts, and whether that is durable. Today, the lack of durability of whether that rally has been built on that. Bringing up the comments from david horton oil david portnoy, we need to reference with this, but another controversial remark from the guy. It is worth talking about, so lets have that discussion about the stability of this market. Joining us now is amy wu Capital Equities derivatives strategist. Welcome to the show to talk about what is happening. A lot of people have concerns about the equity market rally over the last few weeks, that it has been built by fast money in the retail space and has driven stocks like hertz which are bankrupt, to crazy valuations. What is your take on this, and is today an example of some of those accounts coming under pressure . Amy good morning, guys. Absolutely, yes. It has been very interesting for those of us who fit in the professional world because some of the indications we get might in toe the loss coming the options world play Something Like hertz or trades that are more sick goal and based on the recovery. Cyclical and based on the recovery. It is a sign it is not the institutional whales playing for this upside, and that always gives a little bit of nervousness in terms of how nimble that flow can be and how quickly it can change. The second part we have been watching closely is today should not be a surprise. Began, when the protests on may 26, and everyone saw the size of the crowds and everyone knows the incubation period of covid19. Two weeks and two days since the protests so if there was going to be a second wave, that would be now. We have seen hedges implemented for the june or july timeframe trying to play the possibility that this would happen. We are seeing that come to fruition. This is all about the value and momentum trade, just how far and heated that rotation has been in so, hundredsays or of basis points of outperformance between what the new flight of safety is, covid utilities selling off hard in favor of cruise lines and restaurants and cyclical stocks. People were watching that factor rotation carefully and inking it was overheated. Thinking it was overheated. Alix how do you play and options barbell . You were seeing put option buying for the essence the but you also s p, but you also want to participate in the upside if it is retail driven. Is there a way to structure here . Ande strategy i like just humor me for a second because it will sound strange if you look at the outperformance year to date, the top names are the names that are essentially your work from home basket, everyone is still quarantined basket. Those names are exhibiting the symptom of call exuberance and we see this over and over again and think it may be driven by retail where the upside, the call gets so much bigger than puts the option prices are greater, which is an unusual sign. We like using to sell the upside by using downside. Why what i do this on something s when the faang stocks getting killed are cruise lines . Large9 when we had a outperformance of tech and value, it was in the context of things going up. If you are looking for a general hedge and things are not good and we do not get a vaccine when we hope, correlation will go high and things will go down even if momentum factor outperforms. The market is giving you an asymmetric way to project downside on these momentum ways. Using that put, you are retaining 60 upside for the next six months and downside it is about 30 . That asymmetry is very uncommon, very difficult to get and makes sense for people who have outperformed or want to protect the upside. Guy if you think the read take the retail chunk out of that trade, how different does this you look and how theerently does that skew look and how differently does that position . Amy it is hard to sift that. And approximations this is more anecdotal obviously but the exuberance is whatitely not coming from i would characterize as the institutional set. The way you see it traded size wise would tell you it is many small pieces coming into the upside versus large chunks. On an individual sector, financials have been taken out to the woodshed and i imagine that continuing. What do you do with financials . Amy financials is a tough one. I feel like every day there is a flipflop in terms of the trade, but in general in financials in a lot of these sectors where it is going to be very fed apendent, we like trades like fly, which is a low premium, high payout trade so you are saying because of the situation, i cannot spend a lot of premium so i am willing to almost pin the tail on the donkey where i right of 5 ow bound to 10 , i get a good payout but do not have to be perfect on direction. Alix i like not being perfect. Amy wu silver and silverman of rbc joining us, thank you. Stepping up the antitrust probe into amazon, we will break it down with a shareholder. This is blue. Bloomberg. Ritika it is time for the Bloomberg Business flash, a look at some of the biggest stories in the news. The European Union filing an antitrust complaint against amazon in the coming weeks. It has to do with the way the online retailer treats sellers. Amazons information that uses data from sellers and uses it to compete against them. Pershing Capital Management has confidentially filed for an ipo of a socalled Blank Check Company and could raise up to a billion dollars. Blank Check Companies raise assets on the market to make money during a set period of time. That is your Bloomberg Business flash. Guy it was formed by two and wees, uni and lever could be heading in the opposite direction. Planning to combine in dutch arms under the same headquarters. This has been kind of a rocky road, to excuse the pun. We found ourselves with a situation where unilever tried to go to the netherlands and that did not work. Shareholders stuck it to the company, very embarrassing. Now it looks like they will come the other way and it could herald a split, the low and high growth business. Alix i like it, ben jerrys, rocky road. The food and refreshment business could have a market cap of 35 billion euros. That is huge. Absolutely, but you want to focus on high growth areas coming through, and you see this in nestle. Nestle has gone down this road of focusing on a highermargin business. The lower margin business is bread, things that you compete with kraft with. That is where the hyper competition is. To then that off and go highermargin businesses. That may be easier under this structure. There is a lot of history anolved, and unilever has incredible headquarters in london, one of the most beautiful buildings in london, and more beautiful inside. Some people will be happy they are leaving that london had orders. Headquarters. Next,uropean close is european stocks very much under pressure. You say that customers make their own rules. Lets talk data. Only Xfinity Mobile lets you switch up your wireless data whenever. I accept 5g everybodys talking about it. How do i get it . Everyone gets 5g with our new data options at no extra cost. Thats good. Next item corner offices for everyone. Just have to make more corners in this building. Chad . Your wireless your rules. Only with Xfinity Mobile. Now thats simple easy awesome. Switch and save up to 400 a year on your wireless bill. Plus get 200 off a new Samsung Galaxy s20 ultra. Guy a down day for European Equity markets. Have not seen one of those for a while. Lets take a look at the numbers and give you an idea of the trajectory. It is the most cyclical stocks that have battered the most. We are seeing on both sides of the atlantic. The banks are down and we are seeing more defensive names back to the fore. The stoxx 600 down for percent. Some of the peripheral markets are under even more pressure. Everything that has existed for the last few days has been completely turned on its head. Europe has been in outperform or over last couple of weeks. That is not the case today. Lets take a look at the individual markets. The ftse, the dax, and lets throw in the ibex because the peripheral markets are taking it harder. Spain down for. 5 . The ftse 100 a much bigger market spain down 4. 5 . 4 ,dax is down almost closing at the 12,000 level. Volume is quite high today, which is worth paying attention to. The market is buying in on the downside move after the big upside move on slightly lower volume over the last few sessions. Just in terms of how the sector story breaks down, that is worth talking about. Grrs get a view on what the on your bloomberg looks like. The banks, the cars, the oil stocks, the travel stocks, which have all done well are part of the pile. Everything is down. Days you have seen defensive names still doing ok, at least holding their ground. They are selling off today. Individual names, unilever one of them we have been focusing on. S unification in the u. K. 47. 56. M a stories floating around that. O raising money. The company is definitely on expansion drive. I am throwing carnival because this is a company that has been strongly bid of late, one of the companies that has a had a tough time of things but has seen an amazing stockmarket rally over last couple of days. That is the story. It is probably similar in the United States. Alix yes, and also what is able to stay in the grain. One of the stops is amazon, up. 1 . That is interesting today is the story out of europe, the eu latest move in the antitrust investigation of the company. Regulators filed a formal complaint on amazons use of data for thirdparty sellers, and we knew this was going to be coming down. This could mean meaningful fines for the company and change its Business Model. Here to break it down is james cakmak. He has a hold on amazon. Wire company why are companies ignoring the prospects of changed Business Models . The way we see it is antitrust or any of these actions from the eu was inevitable. They went after all of big tech so amazon was still in the queue. If you do look the other Tech Companies like facebook and google, you can make a more direct case there was competitive harm and central harm to consumers. Case, they make the case people flock to them because they have the best logistics in the world and because they do so that is hurting competition. I agree beyond therell be some type of material find. Jan that it is a nonissue. Beyond that it is a nonissue. Guy the concern at the commission is that amazon is a seller and a platform and it is using the data it gets from the thirdparty sellers and using that to piggyback better products in and compete with those sellers. The platform seems to be under pressure. Do you think this will be something that changes behavior more broadly . Amazon is a business that has grown dramatically during this covid crisis. Do you think what happens in brussels has any meaningful behavioral impact, particularly in the United States as well . James in short, no. I do not think there is any change. Longerterm, i think amazon will be broken up in some capacity. Any company we can think of to date. If it is in the companys interest to spin off names in the u. S. , we think it will happen. ,f it is broken up in some way the ftc brings the hammer down or whatnot, it would unlock value. You are talking about Different Companies inside of one. You have gaming, your video, you have logistics, you of retail you have retail. If thepany is trading hammer does come down, it would arguably benefit shareholders but it would harm consumers in the end. I think there is no strong case to bring a Business Model change. A slap on the hand and fines are likely abroad and here. I think that will be the end all, be all. What kind of value will that unlock . What you think the market cap will be at that point . James you are talking about an asset rowing at 30 plus or the 30 plus margins. You can easily have tens of billions of dollars by the time that happens, if not more. You are talking about only a couple players in the market that are actually get, they by and large have the lead and should continue to maintain it. Businessesse standalone is worth multiples on a valuation basis where the consolidated is trading today. Risk. Here is a tax something i read in the european papers is that companies that have benefited significantly from the covid19 crisis are likely to face higher tax rates. What would a higher tax rate mean for amazon . James that is a risk. , thatis a political shift could definitely happen. Is it would hurt their Free Cash Flows. Manage to do is their Free Cash Flow generation. Abilityl diminish their to reinvest their capital in a to stay they need to three steps ahead of the curve like they are doing right now. It would definitely slow down reinvestment opportunities and ultimately see overall progress in the business. Alix either way, i feel like what guy is getting at is taxes in europe, but i feel like in the u. S. Im reading note after note about u. S. Strategists talking about a repeal of the businesses,ts for even blackrock said we have to pay for all of the stimulus. Do you have a base case for the future of amazon taxes and how you put that in your model . James on the tax basis, the trump taxes could be rolled back, but the bigger risk is there a broader change in the overall tax code . We do not think the rollback of the trump tax cuts is going to headwind to the immediate and longerterm aspect of the business. If there is a movement for changing the tax code that allows Companies Like amazon to benefit from the tax laws in place, we think that would be a material shift. That could well be the case if we have a change in the white house in november. That would change the calculus, for sure. Guy that would certainly change the calculus. You wonder whether or not that is being priced in in terms of the way the market is. I do not feel we are focused on the november election and the way we will become. Where does this leave amazon . How much more headroom does amazon have. Clearly it has been a wealthy company of late. How much higher could we go . How much more potential is there to make money . James we see this is a 2 trillion company. We are below that now. Last i checked we are 1. 3 1. 4,on 1. 3 trillion or we think that is easily where the company could get to as long as they continue to reinvest to the degree they are and make the gains on the logistics front. The optionality associated with grocery is not priced in at all, and then you have the gaming and video optionality on top of that. We are incredibly bullish on it and have no reason to get out of it anytime soon. Alix 1. 3 trillion dollars as of right now. Thanks a lot. James cakmak of clockwise capital. We want to give you an update on what is making headlines outside the business world. Here is ritika gupta. Ritika applications for Unemployment Benefits in the u. S. Continue to fall. Americansmillion filed initial jobless claims. That more than doubled the worst during the great recession. Thes programs fell top uniformed officer in the u. S. Has apologized for taking part in president trumps church photo op. The chairman of the joint chiefs of staff said in a videotaped commencement address that he should not have been there. Authorities used tear gas and rubber bullets to clear protesters so the president and others could walk to the church. President trump is hitting the road to convince the country it is time to get back to normal after the coronavirus pandemic. He heads to dallas for his first in person fundraiser in months. He will spend the weekend at his new Jersey Golf Club and give a commencement speech at west point on saturday. The trip is intended to underscore trumps commitment to reopening the nation as soon as possible. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Am ritika gupta this is bloomberg. Alix . Alix thanks so much. I should point out that texas on wednesday reported over 2500 new coronavirus cases. The highest oneday total since the pandemic emerged. It is easy to look at the High Frequency and make conclusions and say they reopened, therefore. It will take a while to sort through it and say what was the cause and effect of the cases and how are they handling it all . Guy absolutely. I am still not convinced. I have read a lot of stuff talking about a second wave. This feels still like the first wave. I think the reference towards the second wave should be made towards november, october november, interesting timing around the elections as people have to start going inside again. This feels like a continuation rather than anything else. The president clearly pushing to get the economies reopened. It will be fascinating to see the variability of the data all around that. European countries have opened. In terms of the pickup in numbers for some of those economies at this stage. The u. S. Is accelerating pretty fast right now. Reopen,wonder when you things could happen in july, even in some regions of different countries. I wonder how that tracks in your neck of the woods . Guy i guess we will find out in a couple of weeks. I think it will be interesting to see what the numbers are surrounding the protests. It will interesting to see the numbers as we start reopening the economies, as borders reopen. The challenge will be to split that data up and understand what the cause and effect is, and i think that will be very challenging. A quick wrap of where we are. The european markets are closed. We saw very big down day, and we will have the Daily Press Conference on the cable show later on. Those are the final numbers. This is bloomberg. Guy from london, i am guy johnson alix steel in new york. Ons is the european close bloomberg markets. A down day for equity markets. Stocks under little bit of pressure. It is hard to figure out what is causing all of this. Certainly the economic jitters coming off of the fed, fears of a second wave i question the use of the word second. Lets try to figure it out. Scarlet fu joins us. Try and separate out what is happening. What is the market reacting to . Scarlet there are couple of different threads. I do not want to get into cause and effect because im not smart enough to figure out what causes the market to suddenly take stock of the situation today. It feels like the market is shifting from the market reopening back to public health. The price has back that up because in the past we have seen indexes come off their lows within the first hour of trading and pair their declines, getting to a little change. The opposite is happening now, and we have indexes at session lows in the s p beefing its lost almost 5 . In the may jobs report, the way i think about economic jitters is the topper for the risk rally that began march 23. It validated all of the optimism that was swirling in the market that the economy is past the worst and it is smooth sailing from here. Now you have the negative headlines and the increase in infections across part of the west, texas, california. I feel like either one of these would not be enough to send the market down this much, but together they do raise a lot of questions. Alix i wonder if you could take us through a little bit about what is dropping the most . Andad the dash for trash for bankrupt stocks, i would not be surprised if those were selling the most. Within that, what you see . Scarlet if you look at the different Industry Groups within the s p 500, all red across the board. This began before the u. S. Trading day started. Red across the screens in europe as well. The industries that got a boost over the last couple of days, weeks because there was a shift to the cyclicals are helping to lead the decline. On theeping ian eye banks. There selloff began during the fed meeting. We are seeing the kbw bank index, all members down. Back. Lete round trip the yield curve is flattening. A flattening yield curve is not good for the financials. A lot of the companies that got caught up in this idea that the economy is reopening, people are going to start spending are also leading the declines, at least for today. Airlines, cruise operators, hertz, who had he raised its postbankruptcy drop has now come back into the red. People question the demand side of the equation for energy prices. One thing when you look outside of equities, you know the Federal Reserve was providing a backstop to Investment Grade credit in particular just by announcing that. We had seen the cost for ensuring against default start to come down quite a bit. That is now picking up once again. Inyou know, the smart people the markets a credit always leads. That is where you want to watch for any signal and change of tone for the market. In terms of what happens aboutwhat are you hearing this being an entry opportunity . Story . A buy the dips the liquidity the fed has provided has been the subject everybody has been talking about. That is true of what is happening corporate credit, it is true of what is happening in the equity market. The market is awash with that liquidity. Any down day, will people use that as an opportunity to reenter the market . Is that the narrative . Scarlet that has been the case since march 23. Right now does not look like for the time being that will take place today. A lot of people said this pullback was long overdue. It looks like it might be a couple days before things shake out. There have been a lot of excesses over the past week with those travel names getting such a big bid, with the likes of hertz getting a bid. Bookurse, it not likely to 1 billion of sales until 2023. This idea the fed will save the dovishjay powell is very in yesterdays News Conference and he made the point the fed is not convinced by any of the Economic Data it saw, in particular the may jobs report that was such a blockbuster and set things off late last week in terms of getting people feeling we had turned the corner. One thing i have seen in terms of notes is the idea that maybe the fed sees something the market does not, given how cautious it was when it came to the outlook for the economy. Jay powell was reluctant to say much on the jobs report in his prepared remarks, and when he was pressed in the q a he did say that maybe we have seen the worst of it, but the big take away for him was you have no idea what is coming, and there is a reality check for investors on that. Alix scarlett, thank you so much. Always a pleasure. The doubt on the lows of the session, down 4. 25 . The s p down 114 points. All major indices in the red. Angels and Energy Leading the way. This is bloomberg financials and Energy Leading the way. This is bloomberg. Alix live from new york, im alix steel with guy johnson in london. In about an hour, i will be watching the 30 year bond option. 19 billion reopening at 1 00 p. M. Guy it will be interesting to see where we go with a longer end of the u. S. Bond market. I have read a lot of things today suggesting that while the fed was coy on curve control last night, ultimately this will be where it had to go. Alix that is what they are already pricing in. , alsoind of curve control positioning. All of that will be playing into all of it. Guy yes. Also worth mentioning, a little bit of a hop. I bring this up because gold starts again in the United States and bain capital seems to be making a bid for a stake in italys top soccer league. We call it football, but one of my to call it on this. It is interesting, potentially getting a bid for pain. Considering what happened with the football leagues around the world. Maybe some of those sports bettors that have been in the stock market, maybe they will go back and take a look at what is happening in the sports market. Alix i had the feeling you were going to bring up sports so i can say things like sports. We are done. Ons is it for guy and me the european close. Coming up, david westin will be speaking in an exclusive interview with nancy pelosi. This is bloomberg. David from new york to our tv and radio audiences worldwide, welcome to balance of power where the world of politics meets the world of business. I am david westin. We will speak later this hour in an exclusive conversation with nancy pelosi. First lets get a check on the markets with kailey leinz. It is not looking very pretty today. Kailey it is looking ugly. The s p 500 and the dow are lower for the third day around, down 3. 5 and 4 each. What is notable is the underperformance of small caps. They have been a proxy for that recovery trade. The russell 2000 is now down 5. 5 in todays session, its worst day in more than two months. Youre seeing yields get a bid on the longer end of the curve. The 10 year yield down six basis points. This is on the heels of the fed decision and the grim Economic Outlook it delivered. You also have to layer on top of that concerns about a potential second wave of the coronavirus. Alarm