Market. Shareholdersas top supports a bailout today as bayer agrees to a settlement to put months into related liabilities behind it. Manus it has just gone 6 00 a. M. In london, 7 00 a. M. In paris and berlin. It comes down to this. 2. 5 drawdownll a on the s p 500 . Is that really a readjustment . The camera has just moved. What have they done to me . Nejra we will get you back in a moment. That drawdown that we saw of 500nd 2. 5 in the s p seemed to be a bit of a reality check in markets to the reality of a second wave. Not only that, the possibility of slowdowns. Restrictions happening in the northeast as well, certain parts of the u. S. Particularly at risk. Question the strength of the rebound or recovery, depending on whether you make a distinction. A lot of red on the screen. The Msci Asia Pacific index down. Futures. 28 low open as well but it does look like if we do see losses, they will be more muted than what we saw yesterday. A second day of dollar strength. Our guest this hour talks about the dollar being pushed around by risk onrisk off sentiment. We are definitely back below 70. Oil the losses after its biggest drop in two weeks yesterday on concerns around the outlook for coronavirus. The coronavirus pandemic is racing through the United States with a new model predicting 180,000 deaths by october. The u. S. Approaching alltime highs for daily cases. The virus is spreading rapidly in some states that were slow to put letdowns put lockdowns or slow to lift them. A massive outbreak in texas according to the governor, greg abbott. The state posted its worst day so far of new cases. The biggest cities are straining to handle the influx of patients. The imf has also downloaded also downgraded its outlook for the pandemic. It expects significant lead deeper recession and a slower move out than it expected two months ago. The outlook is even worse under a second wave scenario. The case we have simulated of a second wave would generate 2021,lly zero growth in compared to 5. 4 growth as we were projecting. That is the classic lshaped nonrecovery. That would be a really dire outcome, and getting even closer to Great Depression levels than we already are. Derek, head of research at Global Markets, international securities, mufg. You are concerned about this lurch lower in risk. You say it gives the dollar a little bit of a bid. That is good news for you because you say ultimately you resell the dollar. Good morning. Good morning. I think the easy part for investors is done in terms of predictions Going Forward. Intoeconomies went lockdown, it was very easy to predict what was going to happen when they started to come out, there was a strong conviction in terms of rebound. Now, investors are starting to consider beyond that. I think we are into much more difficult territory in that regard. That is why, i think Going Forward from now, markets will be more sensitive to the ongoing news flow and the potential of lockdowns either slowing, social distancing rules remaining in place for longer, or even some economies going back into lockdown. Of course, the data out of the u. S. Over the next week or so has been pretty alarming. It has been very clear that certain states in america, at the very least, going back to normal will take significantly longer than investors had been taking up until now. Investorss of what had been thinking, is the assumption in the equity market and therefore in the dollar broadly as well, has it in that even if we get a second wave, we will not see lockdowns to the same extent that we saw with the first wave, and even if we do, the stimulus supports will help us . Is that assumption changing in the market now . Guest. Everyone i speak to, clients, there has been that, it is ok because we are not going to go back into lockdown, surely. I think that is correct, but the key thing is how quickly economies come back to where we were. In particular, what we need to happen is for Household Consumption to come back quickly. Your own journalists at interesting piece of analysis from harvard talking about economy trackers. There is a very large discrepancy between high income earners consumption, still down basis,3. 5 on an annual and low income consumption, very back very close back to where we were on an annual basis. That discrepancy is a Significant Development in terms of high income earners more concerned about health risk, and that consumption is still a significant gap. With covid reescalating again, that consumption gap is likely to remain for longer. There is that, and the savings rate. And that is about human behavior. When you look at the flow of money. You have been looking at the money market funds, stacking up the money into the money market funds, which is about liquidity and concerns. But you also worry about the flow of money back into the market. Run me through your thinking on that and what it means for risk. That is sort of a supportive feature for risk, the capacity to look beyond the very shortterm negative news flow, because there is a large pool of cash sitting on the sidelines. Certainly, the money markets Mutual Fund Data does indicate that based on growth into those 1. 2, 1. 3bout trillion during the crisis period, only about a hundred billion dollars of that has reversed the other way. That only captures the last leg of the risk rally. Dont forget, we moved higher from the low of the 23rd of march up to the high when we had that 6 correction of the s p. In other words, there is still a large pool of cash sitting on the sidelines. Whenever we get corrections like we are getting now, there is money to be put to work again. Explain to some degree the potential support for risk assets. Nejra and that support for risk assets is also something that you may be see further down the line. At the moment, you talk about the risk off being supported for the dollar. Why are you a dollar bear on the 12 month horizon . Notwithstanding an episode that i think is upon us, or certainly over the next couple the feds, beyond that, policy stance has obviously changed dramatically. One thing i think is important to emphasize is the quantitative easing, the outcome or even the reasoning behind qe in the u. S. Versus the ecb is very different. For the ecb, it is very much about reducing fragmentation risks, trying to solidify the single currency bloc. It does not have the same consequences as fed qe. That explains the monumental change in the 10 year fed that we have seen. That has dropped over 200 basis points from its high points. Whenever we have had that shift extentear spread, to the that we have had, it has always resulted in u. S. Dollar weakness. I see no reason overy 12 month horizon for that to be different. There are other factors in terms of policy, which i think is more significant. Manus we will take into those policy supports in just a moment. A lovely encapsulation of the differentiation between the two Central Banks and what they are doing. First word news flow for you this thursday morning. Canada tripped up canada stripped of its aaa status. A spike in emergency spending to capital to tackle the coronavirus pandemic. It makes canada the first toprated country to be downgraded during the outbreak. Fitch expects canada to run a recession and emerge from the recession with a much higher debt ratio. Apy cut the country to a lus. President donald trump is accused democrats of voting Downey Police reform bill because they want to cripple law enforcement, and after they blocked legislation in the prohibit theould use of chokeholds and prohibit and require body cams. Bayer has agreed to spend more than 12 billion to put its months into liabilities behind it. Forlso sets up a fund future claims. The German Chemicals firm has over a legislation herbicide and claims of toxic pollution. 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. Nejra coming up, Goldman Sachs ceo David Solomon says a rebalancing is in store for the equity rally. This is bloomberg. Been a little concerning. Very sluggish and the return of the economy, many of the sec theres, the consumers being more cautious about spending. They health impact, the consumer is far from firing on all cylinders in asia. Citigroup president jane fraser speaking exclusively to the bloomberg invest summit. Lets talk a little bit more about global risks across the system. The debate is what happens next in this pandemic. Host, he to our guest joins us now. The citigroup head, she is talking about concerned about asia. I was looking at some of the swap markets, the rate debates from asia. They, one could say, are lacking the develop market relative to the asian market. Is that the case . Yes. Differentialsare in most areas, i guess. Donenk asia generally has significantly better, of course. They have had the experience in sars. While most countries have had episodes, it has been significantly different than the major developed economies. I think that is the major differential Going Forward. It is clear that asia is not going to be impacted to the same degree as most of the rest of the world. Manus we also spoke exclusively to David Solomon and he said this years stock rebound. David the equity market does seem to be a little bit ahead of my view of the future earnings performance of businesses as we look 612 months out. If i am right about that, you will see a rebalancing over time. Solomon also discussed the impact the pandemic is happen is having on his business. David we were very clear when the crisis started that at the height of the crisis, we are focused on our employees and we would not be making any layoffs. We are running a business Going Forward. Part of our business we have not done at this year because it was not appropriate at the time we would normally do it. And 3000 outen two of two and 3000 people out of school every year, and we have a process of looking at the bottom 5 and bringing new, younger talent in the. As we go forward, we will continue with that business model. We have some longerterm or mediumterm goals where we think there are opportunities to run the firm more efficiently, and we are still committed to those, but obviously the crisis changes the timeline a little bit. As we go forward, we will do what is right for our shareholders, and to make sure we are operating our firm as efficiently and appropriately as we can. Those issues would become closer once people are back in the office . I think there is a period of crisis and a period of normalization. One thing that will be a drag on the economy broadly, i think all businesses are learning and seeing ways where there are efficiencies. I think that will have a toll and adjustment on workforces more broadly. That is not something that is specific to financial services. I think that is a cross industry broadly. About i ask you diversity . You are amongst the earliest to do that. When you came in, you set these targets. Hispanic, 50 women as an entry level. When you did that, you did not get an enormous amount of credit for it but you are now probably getting more credit. I wonder what you thought about wall street, diversity, especially race. Why is wall street not been as good on race . What has been the block . Why did you seek to change that when you came in . Focused ont very Diversity Inclusion at Goldman Sachs broadly before i became the ceo of Goldman Sachs. At first, to be honest, some of it was experience in thinking about gender diversity through my daughters, were in their 20s, and their own experience, coming to understand how their experience as young woman as young women was different than mine might have been. Doing more listening and understanding of those differences. So i got focused on this when i was running the investment business, recognizing that were opportunities to accelerate, be more purposeful and aspirational. So, i set goals in the Banking Division and i brought that philosophy as ceo to try and bring the organization forward. I think it is effective. You have to hold people accountable if you want a more diverse and inclusive workforce. We have been making progress but we still have a long way to go. We still have a lot more to do and we are quite focused on it. The industry, as you highlight, still has a lot more to do, but so does journalism and sodas industry broadly. There are fundamental racial quality issues that are deeply rooted in our society. I think it is a moment in time where leaders like myself need to spend a lot more time listening, trying to understand, then actually taking steps that in the medium and long term will move us more quickly. It is not just a question of Goldman Sachs, it is a question across our society more broadly. Nejra that was Goldman Sachs ceo David Solomon. Derek from mufg is still with us. Solomon was saying that this years stock rebound looks out of step. If we see the rebalancing extend beyond the shortterm as more comes through, with potentially extension of lockdowns, would you change your dollar bearish call and against which currencies most . If you look at the overall move, as i mentioned earlier, we have had a 47 rebound from the low on the 23rd of march up to the high two weeks ago. There is obviously a good deal of scope for a correction to the downside. I think certainly if it extended the aunt a couple of months, in terms of kind of high levels of volatility, that is important. If we correct and then stabilize, volatility levels come down again, that to me is still dollar negative scenario Going Forward. If we remain highly volatile conditions, absolutely i would have to alter the dollar forecast. Acrosstheboard really. The high data versus low data in the g10 space. Little bitill talk a more about that concept in just a moment. Do not hang up the phone. Do not disconnect. Coming up on the show, a moment of truth. Eu leaders want to ratify a brexit deal by october. But there has been little progress in the negotiations. We discussed the great exit debate. This is bloomberg. It is daybreak europe. So, to the markets and volatility. Our guest host this morning from mufg. ,olatility, i am looking at fx specifically on the yen. U. S. ,ically in the getting a bit touchy about this u. S. Election. Volie prepare that from a perspective . Is it dollaryen . Derek good question. Usually, i would just automatically say yes. The safee that some of haven characteristics for the japanese yen appear to have been dulled to some extent. I do wonder if markets are looking at what japan is doing, if that means that some of the safe haven characteristics. It is not as obvious as in the past. Nejra thank you so much, and you stay with us. Coming up, moment of truth. Eu leaders want to ratify a brexit deal by october. We discussed that and the outlook for the pound, next. This is bloomberg. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Good morning from dubai. It is daybreak europe. It is another down day for equities after a virus induced slump on wall street. Florida, california, and texas set new daily infection record. A new bottle sees 180 thousand deaths in the u. S. By october. The imf calls the rebound in the Financial Markets disconnected from the economic outlook. Lufthansas top shareholder supports a bailout. Agrees a 12 billion settlement to put month cento liabilities behind it. Nejra we saw the s p 500 dropped 2. 6 yesterday. The nasdaq also falling for the first session in nine. It seems that they have moved overhope to grim reality the virus. Nascent, i would say. Goldman sachs makes the point that it is about earnings in the future. Stress test tonight. Nejra absolutely. And you do wonder, speaking of stress, if and when more stress might come into these equity markets. David solomon saying that a come overg is due to time. You wonder when it will come and if it will be that aggressive compared to the powerful rebound we have had since march. Even if we do get a second wave, we still will not see the same lockdown as before. Is the market starting to question that now . Manus the political will form another lockdown is limited, that you have the reality of what people are prepared. Mufg,est host, mitsubishi derek halpenny, a dollar bear over the medium term. Because thelower imf says we are all disconnected. Our escape philosophy is moderately reduced. Copper goes up by 0. 2 . Have a look at oil, aussie, and gold. Risk onrisk off. Where are we . Aussie dollar is flat. That would you have got dollar bid. The coronavirus pandemic is racing through the United States of america. They have a new model, predictions, 180,000 deaths by october. The u. S. Is reaching its new alltime high for new daily cases. It is racing through states that were slow to set lockdowns or quick to lift them. Reopentexas was quick to its economy but is now experiencing a massive outbreak according to the governor. Hospitals in the biggest cities are straining to handle the patients. The eu leaders hold a summit and will want to see a Draft Agreement for brexit. It will give the country time to ratify any deal before the u. K. s transition period expires. Speaking at a video conference, Michel Barnier added that an accord is still in reach but a breakthrough is dependent on the u. K. Living up to its commitments from last year. You have put a new trade on, short pound against the dollar. I was talking yesterday about think of America Merrill lynch, seeing the woes weaken for the pound. They see sterling behaving like an em currency and recommend positioning for week is between the euro and the yen. Take us to the details of your pound trade derek versus the dollar, you have to have a view on risk. We think we are in the zone of a correction and risk. That should help the dollar first and foremost. Factors are coming into play. Certainly the covid situation, we are now going into greater steps of reversing lot downs. Are higher given the covid situation was much more severe. I think those risks are beginning to escalate. Brexit brewing in the background. To qenk, they did add last week but they are a little bit reticent. Quantitative easing, expansion, they dont want to go too far on that. Why you could say that is a hawkish conclusion, i am not convinced because we do in the backgrounds have the prospects of potentially negative rates. Being discussed, being considered. A me, it is also kind of pound negative scenario. Ofwe do go into any type unfavorable conditions, the markets will very quickly start to price negative rates. From an fx perspective, for the u. K. In particular, that would be quite negative for the currency. Manus we have moved away from we . Re p discussion, havent then you have this pushback from andy house and in terms of qe. There is no consistency here. We wont take that risk off the table. I am not going to go for more qe. And you say, i need to reappraise niorp . Derek i have not ruled out nirp. I have not ruled out qe either. I just think that taking a hawkish stance or interpretation , assuming thatqe the bank will be slower to ease Monetary Policy again, the voluntary expansion, coinciding with what governments are doing, particularly the u. K. Government, there is an element of being uncomfortable with that. Obviously, the link of the monetization of debt. Us,ink what covid has told maybe the bank of england is a little bit uncomfortable with that over the medium to long term. That shift to in situations where things deteriorate. Manus hold those thoughts. Derek stays with us. The imf, they have downgraded the outlook for the pandemic hit on global economies. They now project a significant lead deeper recession, slower recovery than anticipated two months ago. The imf chief economist told bloomberg why they downgraded the outlook. We are seeing in the first half of this year, when the lockdowns were more severe, the impact on economies was worse than we had anticipated in april. That was one factor. The second factor, because there is still no medical solution, we are expecting much more significant social distancing. That will impact Growth Potential for economies, too. There has been some conversation that the imf has been more optimistic than other agencies or other Central Banks. What is the likely that you will have to keep downgrading your outlook . When we put out our numbers in april, i think we were ahead of the curve, singling that this would be signaling this would be the worst recession since the Great Depression. Yes, we have had a downgrade that has brought us closer to one of the alternative scenarios we considered in april. Unlike in april, i think that this time the risks are somewhat more balanced. You can have better news on the medical front, treatment, vaccines, but on the other hand you can have worse news, a second wave, financial andtening, trade geopolitical tensions. Why do you think and it is not just the imf, but other institutions of well institutions as well have been slow to realize the magnitude of what has been happening to the global economy. What do you think has caused the creeping appreciation to the damage that has been done . This is a crisis like no other. Trying to figure out impact is a true challenge because to determine impact, you have to answer questions like how are peoples behaviors going to change . Will they want to stay home rather than go out and spend. What we have been seeing is that the lockdowns have been severe. We have been seeing recoveries, but it is uneven. Retail sectors, we saw the numbers in the u. S. , they look good. On the other hand, contact intensive sectors, leisure, hospitality, tourism, travel, those are still at a reald below and barely recovering. I believe this is what we are looking at. Secondly, this is a global crisis. For a country that is heavily dependent on exports. Even if domestically youre doing ok, you will have a big hit to growth. What markets are telling us and then what the underlying economies start telling us. Do you feel that markets are looking towards that recovery or a rebound, or are they looking at Something Different . I understand it as being the consequence of two things. One, the unprecedented policy support with huge interventions, liquidity privations. That is one important factor. The second important factor is, given the uncertainty on the path forward, and that there are upside risks, i think the markets are focused more on the upside than the rest of us are. So that is the other reason why we can expect to see a recovery much faster and a disconnect. We are concerned about excessive risktaking in the economy at this point and we also think of this as a vulnerability. What is the bottom end of your chart look like if we were to ca second lockdown, say in United States or europe the case we have simulated of a second wave with jenna great basically zero growth in 2021 as opposed to 5. 4 growth. That is the classic lshaped nonrecovery, and that would be a really dire outcome, getting even closer to Great Depression levels than we already are. That was the imf chief economist. Lets take a look at what you should be watching out for today. Time,00 a. M. U. K. Shareholders of the towns of will vote of lufthansa will vote on the bailout. 12 30, we get an account of the meeting. Manus later in the day, Interest Rate decision from the mexican central bank. Is widely point cut expected after a close on wall street and defend releases results from the stress test. Among the questions, whether the feds Capital Requirements will force u. S. Banks to defend dividend payouts. Lufthansas biggest stakeholder says to vote in favor of a bailout. This is bloomberg. Is daybreak europe. Wire card stock may have collapsed, but that does not mean all the shortsellers are making money. Nearly 2ny said billion euros had gone missing last week. Thea continues and so do berries trades. Explaining the bearish trade trap, dani burger. It is so hard especially with a company like wirecard. The former ceo arrested on suspected sales manipulation, prices for shares dropping to just above 12 euros. Bloomberg has spoken to investors, john ensign said that hiswirecard short is biggest losing position, because he started it around here about a decade ago. If you had that thesis then, you would have lost a lot of money. Lets say you come around to the bears trade a little bit later in the game. Your timing would have had to be perfect to make a pretty some. This is the fee that you have to pay for borrowing shares in order to short them. As the scandal unfolded, that figure jumped up to 50 . If you borrow 10 million shares, you would be paying about 200,000 euros per day. So you had better be sure it is dropping. Another comparison of a tesla often cited as one of the biggest bear can their positions in the u. S. There fee to short is only 3 . The fees for doing so have become astronomical. Thank you so much. Of course, the shares did resume decline yesterday. Lets turn to lufthansa. The airlines biggest shareholder says he will vote in euro of a 9 billion government bailout. Joining us, benedikt kammel. It looks like the deal will go through in the end. Is it looking good for today . And what changed his mind . It looks like he will come around to this. He said in a newspaper interview yesterday that he will vote in favor. Obviously a welcome turnaround for lufthansa and the other shareholders. He is the biggest one with about a 15 stake. In the end, it is unclear what changed his mind, may be realizing it is a highstakes gambling as a real chance of losing. The alternative would have been declaring solvency, and that would have wiped him out as a shareholder as much as anybody else. He looks to be coming around. We will know shortly after noon in germany, when the extraordinary Shareholders Meeting will convene. It is below attendance given coronavirus and everything, which has amplified the importance of his role in this. He is really the person who can tip the scales either way. But it looks good right now. Manus what is the counterfactual . I have not heard that in a long time, the counterfactual argument. If it had not happened and he denied his backing, what do you reckon . The first person who would have been very happy about this is Michael Oleary at ryanair, who has said for a long time, let those airlines go under, we should not be in the business of propping up airlines that should not survive, even in these extraordinary times. Insolvency was a real threat and something lufthansa actually company but nothing the or the government really wanted. There was a lot of political consideration behind this bailout, in some ways because it is a blueprint for other bailouts, but certainly will come rushing down the pipeline in the next month. This is how the german this, got wants to do in with a discount and hopefully , via this discount come are able to leave in a couple of years. Had this exploded in their face, that wouldve looked bad on the government. Nejra thank you very much. Coming up, jp morgan and alling an end to turkeys easing cycle. This is bloomberg. Nus it is daybreak europe to the markets. Lets focus on emerging markets. Jp morgan and barclays four an barclays calling for an end to turkeys easing cycle. Turkeys key rate has gone from 24 to just over 8 . Em. Is the whole problem of today, weve got turkey, egypt, mexico. Something like 5000 of cuts have gone through. Is that leg of the journey over . Do you expect much more demonstrable rate cuts to come . You can focus on mexico for starters. A bit more scope than turkey does, for sure. When you look at the emergingmarket fx to form, since risk began, the mexican thirdbest currency. The turkish lira is the second worst. Dichotomies,dest mexico still has scope in terms of running currently 80 positive real policy rate. In turkey, a significantly negative policy rate. Therefore, the scope in turkey i think is certainly somewhat less. But nott a cut today much beyond that. The currency is also manipulated. A true sense in terms of where the lire should be. But i think it will be weaker than where it is today. Becauset is interesting someone from Bloomberg Intelligence says that it is narrowing if the central bank in turkey wants to reveal the positive for investors. You talked about the dispersion between the performance of the mexican currency and turkish lira. Do you expect that to continue in those directions given what you just said, or if mexico does have scope for a cut, could we see a little bit of repricing . Derek i still think mexico has aope to cut and maintain positive real policy rate. Market tot expect the take a cut negatively. I think the peso can hold up reasonably well. For the lire, it is somewhat different. The potential for the real positive real policy rate to go even more. Like i said, the restrictions on trading the lire means that the scope of the further depreciation is somewhat more limited. There is a significant difference between the two. I would not expect the peso to weaken on the back of a 50 basis point cut, which is what the markets are expecting today. Nejra derek halpenny, head of research and Global Markets at mufg. That is it for daybreak europe. We look ahead to a lower open for european equities. This is bloomberg. Anna good morning and welcome to Bloomberg Markets european open. Londonna edwards live in alongside matt miller in berlin. The insidearkets say he is real. Asian stocks drop with u. S. And european futures, as rising virus cases snap risk appetite. Le