Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

Professionals, carers, Public Health officials, and volunteers across the country, and the exceptional efforts of the sco abroad. U. K. Citizens the bank of englands role is to help households manage through an economic shock that could prove large and sharp, but temporary. That is why the bank is announcing a comprehensive timely package of measures to help u. K. Households and measures bridge across the economic disruption caused by covid19. These measures will keep firms in business and people in jobs, and they will prevent a temporary disruption from causing longer lasting economic harm. Maximizing our response requires ordination across all of the banks coordinating committees. That is why all policy committees are simultaneously theng today, maximizing effectiveness of our response requires working in concert with treasury. Ys that is why we are acting on budget day, when the chancellor will announce a series of government initiatives to support u. K. Households and businesses. Acts rising the effectiveness of our response requires continuity over time, that is why the next governor participated in all our policy meetings and is joining me to help explain our approach. I would note all the decisions of the policy committees were unanimous. Following the spread of covid19 risky assets and Commodity Prices have fallen sharply and Government Bond yields have reached alltime lows consistent with a marked deterioration in Risk Appetite and global and u. K. Growth. Although the magnitude of the economic shock from coronavirus is highly uncertain, activity is likely to weaken material early in their u. K. Over the coming months, temporary but significant disruption to supply chains, and weaker activity could challenge cash flows and increase the demand for shortterm credit for households and working capital from companies. Likely to bere most acute for smaller businesses. This economic shock will affect demand in thed country. That is why we are acting today. Reducing the bankrate, this will support net cash flows during a time in which Economic Activity is likely to be disrupted. The reduction in bankrate will help support confidence at a difficult time to bolster the cash flows of businesses and cash flows and to reduce the cost and improve the availability of finance. When Interest Rates are low it can be difficult for some banks to reduce deposit rates much further which could limit their ability to cut their lending rates. To mitigate these pressures and to maximize the effectiveness of Monetary Policy, the mpc is launching a new Term Funding Scheme with additional incentives for lending to small and Mediumsized Enterprises, socalled tssme. The tssme will provide fouryear 5 ding for banks of at least of participants talk of real economy lending at Interest Rates close to bankrate. Additional funding will be available for firms that increase lending, especially for small and Mediumsized Enterprises. Overall the facility could provide in excess of 100 billion pounds in term funding. The tssme will reduce the thesition of bankrates to real economy to ensure households benefit from the action. It will provide participants ost effective to provide against adverse condition and funding markets. It will incentivize banks to provide credit to businesses and households to bridge through a time of economic disruption and provide additional incentives for banks to support lending to sme countries that typically there the brunt of heightened risk aversion and economic downturn. To andrew to explain the actions of the ftc and prc in his current capacity as a member of both of those committees. Fill the support of banks able to supply credit to bridge this potentially challenging time, they have reduced the cyclical capital buffer rates to 0 . 1 and hadad been at been due to reach 2 by december of this year. Expects to maintain zero rates for 12 months so that any subsequent increase would not 2022 atace until march the latest. Given the resilience of the core Banking System businesses and households should be able to rely on banks to meet their need for credit to bridge through a time of economic disruption. Although the disruption from covid19 should be sharp and large it should be temporary. Such disruption to the economy should have low impacts. Those stress tests demonstrated the banks would be able to continue to lend to households and businesses even while absorbing the effects of substantial and prolonged economic downturns in the u. K. And the global economies, as well as falls in asset prices much larger than experienced in recent weeks. The release of the cyclical capital buffer will support 190 billion pounds of bank lending businesses. That is equivalent to 13 times banks netlist and to businesses in 2019. Together with the new terms funding schemes bank should not face obstacles to providing credit to the u. K. Economy. The ftc will monitor closely the responsive banks to these measures and the Credit Conditions faced by u. K. Households and businesses more generally. Turning to the prudential regulations, the release also reinforces the expectations of the ftc and prc that all elements of banks liquidity and Capital Buffers can be drawn down as necessary to support the economy. The expectation was put out today that banks should not increase bonuses in response to these policy actions. The bankssupervisory team has increased reporting , includingrms managing operational risks resulting from the outbreak of the virus. Major u. K. Bigs are able to withstand severe market disruption. They hold one trillion pounds of liquid assets allowing them to meet their obligations for many months. In response to the material fall in bond yields, Insurance Companies are invited to use the flexibility to recalculate the transitional measures to slew the impact of those regulations to support market functioning. Let me mention one other support that we have in place, which is that the bank of england has operations in place to make loans and all major currencies on a weekly basis. Commercial banks have prepositioned enough collateral with the bank of england to allow them to borrow 300 billion pounds through these facilities. Now i will conclude, the bank of englands actions today comprise a timely and powerful package to support u. K. Businesses and households to bridge a temporarily difficult period and mitigate longerlasting effects on jobs growth and the u. K. Economy. The bank is coordinating its actions with those that the chancellor will announce later today in the budget to ensure our initiatives are complementary and will collectively have maximum impact consistent with our independent responsibilities. The bank will continue to coordinate closely with our international counterparts. The bank will take all necessary further steps to support the u. K. Economy and Financial System consistent with its statutory responsibility. Recall ahing will financial crisis a little more than a decade ago, and then the Financial System was the core of the problem. Now it can be part of the solution. Over the past decade the u. K. Financial system has been transformed. We did not build the strength for its own sake. This is prudence with a purpose, resilience with a reason. That reason is to fulfill the bank of englands mission, namely to support the good of the people of the United Kingdom by maintaining monetary and financial stability. I acting today the bank is insuring the strength of our Financial System can be directed where it is most needed in the months ahead. With that we are welcome to take your questions. One question at a time, please. Francine Andrew Bailey speaking at a press conference after the surprise cut and many more measures. The bank of englands move has gone beyond a simple rate cut focusing on making sure small and Mediumsized Enterprises have enough money. Mark carney with the incoming Andrew Bailey, the next bank of england governor. Lets take a listen. 0 so there is conventional room for the committee. Additional room in all of the committees instruments if it were to choose that. In terms of evidence is very early days and is uncertain. The direction is clear, the orders of magnitude are less clear. Evidence frome is other economies. We have seen what happened in the chinese economy, swinging from north of 5 growth, 5. 5 growth, to likely a contraction in the First Quarter of virtually all of the evidence pointing to that. We have the very early signs in global pmis across a range of economies of a similar shift. Not the same order of magnitude, but directionally moving. We have antidotal evidence we are building up through our direct contacts with businesses where we have seen a sharp fall in trading conditions, particularly in retail, Consumer Discretionary items over the course of, really, the last week, week to 10 days. Prior to that we were seeing supply chains disruptions in the Manufacturing Sector as well. Directionphasize clear, orders of magnitude still to be determined. Also what is clear to all of the committees is that this is a situation that should prove temporary. Part of our job is to make sure the Economic Impacts are temporary so we truly are taking the steps to bridge where we are today to where we should be when this passes. Said is what you just the economic situation, if it deteriorates further in the next couple of weeks, do you imagine the bank of england may have to act again in the march meeting . My second question is why would quantitative easing or quantitative purchases not included today, and would you an important part of the toolkit . Of qe and asset purchases, they are very much part of the banks toolkits. I testified last week it seems like, longer ago . Monetaryament about policy space that we have and in the range of Monetary Policy space i gave in my view that asset purchases can be an important component providing additional firepower for the mpc, for the bank, if that is needed. Why not now . This is a big package. I recognize quite often the focus is on Interest Rates. The easiest to understand is the conventional policy instrument. Shifting a countercyclical buffer to 0 releases a huge 2 to 0 buffer from releases a huge amount, just under 2 billion of Corporate Credit lending capacity, exactly the type of drawdowns that would be required in this type of capacity isnd the 13 times net lending to the entire corporate sector last year in this economy. , big number. Nothe capital side, liquidity, but term funding clarity, probably in excess of 100 billion at bankrate to cross the banking and building society, it is a big, big package. In terms of forwardlooking, i will just note the statements the bank will take all necessary further actions. Here to take all further actions, i will pass to the man the only thing that i would remind is that there is a ritual schedule of meetings the mpc will have later this month. Meaning been a special and a special action, but it doesnt change the schedule. This will be under constant review and consideration. If you all ask two questions youre not all going to get in. Governor, you are talking shock that is both sharp and large. Could we end up seeing a recession this year . Coronavirus is not as temporary as you think . It will pass. Medical situation will pass with time. There will be a vaccine with time. Of the virus will be arrested. We dont know exactly what that. Of time is what that period of time is. The expert epidemiologist talk in scenarios and quite rightly so. We have the resilience in the system that has been built up over a decade that can withstand all of those scenarios. The important thing is to use some of that resilience for the purpose of bridging where we are to where we need to get to. Too early. I apologize to repeat what i we have anway, but sense of the direction, we have a sense of the orders of magnitude. It could the large, but it is a temporary situation. What is important is that a viable business today, or viable businesses of last week, has the resources and can be bridged so they are viable Going Forward and peoples Jobs Associated with those businesses are there. The is how we and government help prevent, and the Financial System itself, the private Financial System, has an Important Role to prevent a difficult temporary situation having longerlasting economic effects. Is another question to the incoming governor. At the select Committee Last week you said you agreed with 250 carney there were basis points of loosening available. How much do you have left . You have to combine two things. What have we done and how have the markets moved in the meantime . It is like the Forward Guidance elements of that is a combination of what we do and what the markets anticipate. I dont want to put an exact number on it, but from what mark said earlier in terms of what is left, probably roughly sort of in the order of just under half. That could move around from day today for the reason i just gave. That means there is more available. Could you explain the effectiveness of lowering boundaries by 1 . Cut is notpoint going to im sorry, i missed the last clause of your question. On the grounds that it didnt . With only 15 basis points to go what is the point of not having done that today rather than delay . A couple of things. A big package. This is a big package. It is a big deal to cut by as they did. It is a huge term funding sector. 100 billion at bankrate with additional incentives that could be substantially increased depending on the lending path of the economy. There are fiscal measures coming. We have direct line of sight of the relevant bits of the budget. That is part of coordination, acting in concert. You have to wait for the end of the day for the whole package. Or until midday is may a better way to put it. The last one is the mpc is in a and ion where it has, very much associate myself with the incoming governors comments, in terms of magnitude policyroom on all of its instruments if it so chooses and it has regularly scheduled meetings and we will take decisions at the appropriate time. To ask if you agree with Christine Lagarde about the risk of as serious as 2008 . It is a different form of shock than 2008. President lagarde knows well, and we have had this discussion, and we lived through 2008 in our previous roles. The core ofstem was the problem in 2008, and it is in a very different place where we can draw on the resources of that. There is no reason for this shock to turn into the experience of 2008, a virtual ift decade in the economies, we handle it well. Isat the bank of england, it the government and private Financial Sector recognizing this has the potential to be and of course, very much those on the frontline, we shouldnt forget the extraordinary work they are doing and how important that is. That is fundamental. Stepping on the economic side, all of us working together, including the private sector, ensuring it is something that doesnt have longerlasting effects. Decade or more led by what mark has done domestically and globally building up the resilience to face a shock. Isnt that what shock is going to be . Is a totallyt different discussion than the one we were having a decade ago, and that is a very good thing. An estimate,give could you express the measures you unveiled today in terms of 2 boost to or gdp, for example . Anyone at the bank have coronavirus and self isolating . The answer to the second is no, but we are taking a series on contingency measures that are fully operational. Three sites for our critical functions rotating critical teams including the governors level. With the deputy governor, with the governor, and ensuring that necessary capacity to take all necessary decisions. In terms of the scale of the stimulus, there are different ways you can size it north of 1 . I say that not least because imagine if we didnt do this in a situation and the signal to banks in the Financial System would be to draw in, conserve your capital. This could be difficult terrain in to rein in. Doneamage that can be there can be significant. Andrew may want to expand on this, it is selfdefeating ultimately, but it is a coordination issue. We have that base in the system, the strong base in the system. Just like quantitative easing is particularly powerful when , using were disruptive the countercyclical buffer when or credithe potential constraints, it is particularly powerful in that situation. As many of you know we are dealing with some of the more painful elements of the consequences of the last crisis with small firms. We dont want that again, thank you. A very clear message to banks, reflected in a number of things banks have already said. Take that into consideration that you have all of the resources and wherewithal to see ,hrough this issue, the shock and to support the economy and businesses. That is a very strong message. You mentioned, governor, potential forebear of what could come. Are you saying we could see similar measures in terms of isolating cities or industries within the u. K. , similar to the lockdown we have seen even in italy this week . The medical strategy, if i can put it that way, those are ultimately decisions for the government advised by experts. It is not for us to comment or speculate on what those could be. Takell say that we dont the premise of your question as what im about to say confirming it, if you will. Directly with those same medical experts to understand the various scenarios in terms of the spread, the potential spread, of the virus. here are different strategies social isolation and protection of groups. We have looked across those different strategies and have been able to make judgment in our analysis. I would underscore that we dont have a forecast, a scenario, but in terms of our analysis and how that could propagate through the economy and which sectors could be the most affected and the knock on back through the Financial Sector. Suffice to say looking at those various scenarios made it clear to the various policy committees and us collectively that we should act, act quickly. We dont have a lot of time until the next meeting on march 26. A lot of data is coming out, the official numbers have been backward looking. Can you tell us what indicators you would be looking at in Financial Markets or antidotal measures in the u. K. In terms of deciding if more policy stimulus will be needed . Two points. On the indicators, and going back to with the governor was saying earlier, we will have some evidence coming in between now and then. We will have reporting from the banks agents. Those are relevance in the area of how supply chains are holding up, and the impact on that, how firms are in a sense of running free stock levels. Theres a bitfree stock levels. Theres a bit of evidence from our agents parts of the economy have moved somewhat higher. It is a question of how those are running down. We have been looking at all of that. The second thing i would emphasize is we have not done a forecast. For all of the reasons we have discussed. We could classify it more as analysis will stub drawing also as the governor was saying epidemiologists understanding the transition of the possible likely transmission of it. The uncertainty around that as such as you will understand im sure is the other thing we will be doing for the meeting on the 26th is to come back and say we did a set of assumptions and analysis for the decisions we announced today. It would not be unreasonable to think we would revisit some of that because of the uncertainty around this and we are doing this on the basis of analysis that has a lot of uncertainty. Back to that from the evidence. Can i ask how the measures announced today, contingency plans put into place for a no deal brexit and if there is no deal by the end of the year will the bank have enough firepower to deal with those . Gov. Carney one of the challenges with no deal brexit is the supply demand effects. The supply effects of no deal brexit would be expected to have a longer life. In other words, the economics will change depending on the relationship that is ultimately struck but in that extreme scenario, the economics of certain activities will change and there needs to be capital and people moved from one area to another, and that takes time. That complicates the decisionmaking process. The committee is very much up to as but in advance, it is not simple as these policies were prepared a year earlier and they in thised out, whereas situation it is disruption not destruction of supply. Part of our job is to make sure that is indeed the case so that we are bridging. That is very much part of the analysis. , there isne additional we have used policy space but there is additional policy space. One of the advantages of the bank of england as we have multiple tools across multiple committees. Mr. Bailey it is the interaction of those things however they come to pass that the committees will deal with them. The daily mail. For cap test households with cash households with cash savings, that is good news whereas people with money on the market it will be sort of alarming. What are your words on how to get through this . Gov. Carney the first thing is we all want to get through this ,nd those savers with jobs savers with children with jobs, relatives with jobs, neighbors with jobs want to make sure i am confident. All the daily mail readers want to make sure people up and down , their health will be affected unfortunately in some cases severely and tragically. But what we can do and what the government can help do is ensure that peoples jobs, their livelihoods, their businesses are there. That requires drawing on the resiliency of banks, stimulus through Monetary Policy, funding , other measures you will hear about today. That will all mean not just for those individuals and their livelihoods, but it will mean in the end that in terms of Financial Markets and assets and value and growth profits, they will be higher and this will be temporary as opposed to what is priced in some markets as a more permanent shock, and that is not what needs to happen. A question on your announcement today. You said in december there should be an overall cash requirement for banks to compensate for a planned ride in bc why d rates so what does that mean . Gov. Carney good question. All the other questions were very good but this one is very good, very technical. If i may clarify the question, the issue is that there is certain minimum capital standards and buffers put on top are hour specific, that Bank Specific and then there is the countercyclical buffer we are drawing on. The policy decision in december was that we should raise the towardsrate of the tcyb 2 and my consequence is the consequence is it makes it less risky for the system as a whole so the minimum levels can be adjusted downwards. These drawyou have on them in situations like this and you do not take them away by adjusting the minimum amount, so adjusts and there will be a higher resting rate in a standard environment, so on average it will be higher, doesnt it make sense to make whatdownward adjustment to i will call the minimum . That is the case. That consultation goes on in that decision would be taken later in the spring, earlier in the summer, i forget the timing. Anything beyond sunday, i forget about. The logic of that adjustment is still there and just to be absolutely clear, what is not going to happen is that the committees are going to do something which we have done flexibilityde more by lowering this countercyclical buffer rate and have it taken away in other ways by changing the minimum, pushing it up. It will not be taken away by banks dividend and out Additional Capital and raising bonuses for employees. Andrew mentioned in his opening remarks, there will be constant and constructive monitoring of how the banks are using their flexibility on capital liquidity to help bridge the economy. The things wee of have said many times over the years is buffers are there to be used when he gets to situations like this. You can only have confidence in that on our side and the bank side if you have the minimum underpinning and that is the right level to give you that confidence. It doesnt change. You have got that minimum and you can be confident to use the buffers and that is what we are doing. The minimum is there. It is much higher than it was in the past, and the buffers can be used to support the economy. How important the budget and International Partners regarding 2008, the jeep on g20 response was vital to the last recession. Time, the g20 is initiating a price war on oil with russia and we have seen different Central Banks moving at different times. How important is coordination and how concerned are you about the lack of it . Gov. Carney let me focus on the international coordination. If others want to, we can come back to domestic. I was there in 2008 and was part of the coordinated Interest Rate cut along with the bank of england and effectively the g10. We did that to get to the weekend. We cut Interest Rates 50 points 50 basis points coordinated in order to get to the g20 the factsd figure out of the system. Andrew was involved in that aspect of making effective what was necessary in this country, which was a model that was adopted by the g7 and then more broadly the g20 over the course of that time. We are in a different place. This is not about making it to a weekend or backstopping the system. We have been doing that over the last 10 years and the system is backstopping itself. There is a high degree of dialogue, cooperation, coordination amongst global Central Banks. We have seen a number of Central Banks move. We dont all have to move on the same day. Fed,ba, bank of canada, bank of japan, emerging markets collectively these measures will have a significant impact. There is a fiscal component of this, a very important fiscal component of the response and a need for as a complement to what the Central Banks can do, targeted fiscal policy which is why things like the budget later today are important. You expect the shock to be short. [indiscernible] gov. Carney there is no reason for it to be as bad as 2008. If we act as we have in different there is that targeted if we act as we have and if there is that , i will space reemphasize that the private sector has a very Important Role to play. We are encouraged by the early signs in terms of major institutions indicating flexibility, but we will be the , we will bee clear monitoring closely the response to the very considerable additional flexibility we have given to the system in terms of capital and funding certainty on top of liquidity. Those buffers, i agree with the governor, those are there to be used. [indiscernible] i wanted to just ask for anyone in the outside world who doesnt follow this closely enough, they will see bank of england shock, surprise announcement. The last time there was a surprise like this was in the financial crisis. I take the point that the banks can make this better by behaving in a different way but many of the public do not trust the banks and have a negative image of bankers. What reassurance can you give that the banks will behave in a different manner . Gov. Carney let me start. The public expects the authorities to act in a situation like this. They expect to use the tools at their disposal to make sure that something which is temporary does not have permanent effects. That is what we are doing. I will just reiterate that by providing much more flexibility the Banking System has been put in a position today where they could make loans to the hardest hit the entire in fact corporate sector, not just the hardest hit businesses, at 13 times of what they lend last year in good times. It is a huge amount of flexibility and on top of them we are giving them four years certainty on a considerable amount of funding at the cost of bank rate. On top of that, they have liquidity buffers and liquidity from the bank of england so they are in that position to support the economy. Again, wait for the budget and the government will do other things that are targeted to the exact issue we are trying to address. On top of that, the bank is going to be monitoring, and i would like andrew to whatever you want to add. Mr. Bailey let me also put the ici aca hat on. S is treatingre customers fairly. That is what must happen. They know that. They are in a position to do that and there should be no excuses. We will be watching very carefully. Scheme, have you effectiveis of how that was in its previous analysis . Gov. Carney are you saying how is the funding scheme different from previous incarnations . Have you analyzed how effective it was when you used it previous times . Gov. Carney yes, we have. Secondly, very effective. Well used, well spread across the banking sector, big tick up including by the challenger banks. You are probably familiar but it bears reinforcing, a lot of the competition in particular sme lending is not the particular high street banks. And they competition have eligibility for this funding which makes a difference. What we have changed is we have provided a specific incentive around lending to smes. There is an initial allotment which is around 5 of their anding stock to businesses households, but they get additional allotments if they lend more to smes, five times that flow. There is a penalty rate that comes in if they start to shrink that leonard lending shot stock. Will finishlear, i on this and pull it up a level, there are a couple of paths for the economy here. One is a donothing path, a pull in path which makes a shorterterm disruption have more permanent effects. That is the low road. The high road is the path where we use the flexibility in the system, support viable businesses, support households through a challenging period for some of them, and emerge strong if not stronger than we were. Here is the surprise which is the high road. A few weeks ago it was said rate cuts dont work when there is a supply shock to the economy. What changed . Gov. Carney sir john was observing the aspect of a supply shock that comes with a situation like this because of supply chain effects or because of social distancing and the workfor people to be off or in some cases not as effective as those. He did not say the premise of ,our question was the punchline and john voted alongside every other member of the mpc 450 basis point cut so it is clear where his bottom line is. Terms of the impact of rate cuts, there is a direct cash flow effect and the situation here, households have shifted so that now only about is third of their boring ishboard is board mortgages. Borrowing is mortgages. Half of business borrowing is unhedged, 4. 5 billion. Three quarters of sme borrowing is floatingrate. Who will get hit the most, the smes. Bring them up and ask if you think there is a benefit on cutting the cost of the money. There are broader effects that anect everybody and importance that the package as a whole which have real economic effects, but also acting across the board and in a coordinated manner with the government in a way that makes it clear that we are going to bridge a situation opposed to turn it into allow it to be turned into something. That was discussed and john said there is not demand shock without supply issues. How do those things bounds. Thank you all for coming. Francine that was the press conference, the first time we heard the incoming governor Andrew Bailey who will take his post next thursday along with the outgoing governor carney. This package is not only about a rate cut but it is targeting aid to people and businesses affected or at risk of the virus. Joining us to discuss the press conference and the package and geneva are expecting in is and also Stephanie Flanders. Thank you both for joining us. I know you have looked at the bank of england for many years. There was some kind of coordination with treasury for maximum impact. Will it work . Stephanie in response to the next shocker crisis, it was going to have to be more coordination and joined up action by governments and Central Banks, and we see that in action today. The u. K. Could end up, by the end of the day the u. K. Could be an example on a coordinated effort. It is striking that the important stuff in that press conference, the 50 basis point cut was almost a sideshow for the measures of liquidity into the Banking System of how this support will go through to smes. In this crisis or in response to the shock, it is the micro that matters, not the macro. Tom i thought it was absolutely extraordinary and so different from other Central Banks, truly a shining moment from the bank of england. I was taken by the final paragraph of mark carney, may be the last thing we will hear from this governor, absolutely extraordinary language. This is prudence for a purpose, resilience for a reason to fulfill the bank of englands mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. This is a history that goes back to 1694. Is there any way the fed and particularly such a young European Central bank can do this . Can lagarde approach this coordinated grace tomorrow . Stephanie it is not so much about the individuals. It is about structures they have to deal with and one thing we saw in the eurozone was the ecb was handed insufficient tools for handling these kinds of crises and they had to make one up on the fly during the eurozone crisis. ,he system as it has developed it has changed a lot in the u. K. With the independence of the bank of england, but it proved to be resilient the way the treasury and bank were able to Work Together in 2008 and the Quantitative Easing Program that had to be underwritten by the treasury. That is much harder in the u. S. , doeurope, and it matters you have people in place in the u. S. Who can make things up on the fly . They did that effectively in 2008 and we have good people in the fed now, but we have to worry about the coordination of governments within the u. S. And europe. Francine lets bring in frederik ducrozet. Have notlook at why we heard from Christine Lagarde yet, as she hoping to get germany on board for fiscal spending or why havent we heard from her . Frederik she attended the g7 last week and the euro group yesterday. We know from your story from bloomberg she made a push toward coordination. I would like to see the glass halffull for europe because there are two things the ecb can do. September last year with mario draghi, they launched fiscal qe. Smaller but it is openended. Isit is credible, it defective coordination implicitly with de facto cooperation coordination implicitly with the governments. Particular andin t ltro, it will borrow a little from the bank of england today. Buy more does the ecb Corporate Bonds and will that help . Frederik it is a possibility, it is easier. You can fund a lot more on the banks in the primary market as well which is the difference with sovereign bonds. More than five or 10 billion more each month will be difficult in terms of liquidity issues so now we are beyond this point. We need credible commitment or a signal or announcement that the limits for sovereign bonds can be increased. But saidghi has left the limits are hours and the limits need to be Christine Lagardes. She needs to send a strong signal that this is not a technical or legal obstacle. Up cycle. Germanyt signal does need to send . Loving their austerity, what do they need to do with the symbolism we heard from carney and bailey . Frederik you need those targeted measures. We need more Financial Regulation relaxation, in europeal that is nothing the ecb can do. It is up to each government. The bun to spank president bundesbank president is talking to Christine Lagarde. Opposing ae them stronger commitment from the ecb to do whatever it takes over the coming weeks and months. Francine thank you so much, frederik ducrozet. Stephanie flanders stays with us. Saying news out of adnoc they will boost oil supplies to over 4 Million Barrels in april. This comes on the back of saudi aramco saying they were pumping more oil from 9 Million Barrels to 12 Million Barrels. It seems like a coordinated effort to put more oil out there. Tom thrilled Stephanie Flanders can stay with us. Jonathan golub will join us from quite its wes Credit Suisse. Dow futures negative. This is bloomberg. Tom this morning, mark carney leaves with a coordinated action to stop recession. The governor and chancellor of the exchequer in lockstep. They will act. Will lagarde and the ecb act tomorrow . Growthr the exponential of any virus. Exponentially more serious for italy. Contained. The Vice President does exponentially better than the senator from vermont. David westin will report as bernie michigan, sanders is the toast of kalamazoo. I thought that was an absolutely historic moment for the bank of england, something you would never see in america or i would suggest you would never see in frankfurt. Francine first of all, incredible for a couple of reasons. It was the first emergency meeting since 2008 for the bank of england and the juxtaposition of the bank of england governor who is about to step down and the incoming one is not something we see often. The package, the import of it is not the rate cut but they wanted to target the real economy for businesses who could be hit by the coronavirus. Tom lets get to data checks. We have a packed hour for you. Futures 438. Ow substantially, 33. 24. The vix at 54 level. Down into the 40s and elevated to a 52 level. Yet, 104. 98. Yen, 104. 98. Francine treasuries are rising. European stocks are up. We are keeping an eye on pound and on a press conference happening right now, the premier of italy together with his finance minister. I think they are going through what they want to do with the economy. Today. E is gaining justthe images of italy, extraordinary to see the spanish steps in rome completely empty. For those of you just joining us, it is something to see, not only a governor but a governor designate walk in and begin a Historic Press conference. Ernor carney the banking the bank will take all necessary steps to support the u. K. And Financial System consistent with its statutory responsibility. From what it follows mark said in terms of what is left that probably roughly sort of in the order of just under half at this point. That can move around form day today for the reason i have just given. There is more get available. Us toonathan golub with comment on market reactions, including sustained volatility vixeemed seen by the above 50, and we are thrilled to have Stephanie Flanders. I am absolutely fascinated how you framed this within the modern bank of england going back to gordon brown in 1997. It is an ancient history back to 1694 but a relatively new independent british bank. How do they do today . A was stephanie it was united front and was important to show not just mark carney but the incoming governor as well. Mark carney was making a big effort to defer to andrew and letting him answer questions so they pulled that off well. Their emphasis is on the micro aspect of this and that is a crucial thing to watch later today when we hear what the chancellor says. On 2009 andook back the fiscal coordinated stimulus from the g20 and wonder if that will be coming. Much more important in response to this temporary shock is what countries do at a microlevel. They might not need to spend that much money because you are not talking about a massive boost of demand, you are talking about protection of key parts of the economy. Which parts of the workforce are vulnerable, things like that we should be listening for. Tom you are having lunch with Prime Minister johnson today just kidding. Could this press conference have happened today with a United Kingdom still attached to the European Union . Was there something about the body language and what we will see from the chancellor later on that is uniquely independent and uniquely brexity . Stephanie i would say the opposite. It is the first time british managed to look good and effective on the stage since we entered the brexits dog a brexit saga. Because this is not brexit related and because we are not facing up to those difficult negotiations with the European Union, we were able to be at our best in terms of coordinated actions by experts who were often denigrated by some members of this government. Precisely because it was not engaging with the horror of brexit, the details of it, that we managed to look coordinated and joined up. I dont think this will affect any degree of brexit dividends. Modelne could this be a for policymakers elsewhere because of the coordinated action . It is bold to do this hours before we are expecting this massive budget fiscal stimulus. Stephanie the u. K. Was lucky with the calendar. The budget that was never supposed to happen got delayed because of the election and the u. K. Is the only major economy going in to the crisis with the fiscal event can pump everything into. The chancellor can stand up, say what he wants, and it becomes law. That is not the case across europe. They are having to scramble to have emergency budgets and negotiations so we are lucky, and maybe there will be an example for others to follow. Francine where is the ecb in all of this . The fed acted by cutting. Tomorrow andeting we have not heard from them yet. Stephanie Christine Lagarde probably thought, we have a press Conference Tomorrow and that is good enough timing for us. We have had an exclusive about what Christine Lagarde said to her fellow governors last night. The emphasis, it will be hard for the ecb to be joined up with governments in the same way as we have seen today. That is not structurally what they will do, but i will look at the emphasis on Mediumsized Enterprises, will they take the sro tlt tom Stephanie Flanders, we will continue the discussion. Jonathan golub with us. I want to introduce a chart that shows the graciousness of mr. Carney and mr. Bailey, the average of the vix to show we are getting to the unusual in volatility. This is a 10 Day Moving Average of the vix back to lehman in 2008 and 2009. Central bankers are dealing with a volatile market. Will it continue . Jonathan if you look at the movements we have had in the last couple of days, an up market like yesterday and volatility is high, you cannot trust the number. 3 or 4 could be down the following day. Economistsu telling and bankers they should ignore the markets . Jonathan what im saying is the news flow, the individual news flow has less of an influence of what goes on in the market moment by moment and the fact that the swings are wild. Until we get this vix lower, the market is under pressure. Tom stephanie from london said to ask what she should do with her retirement plan. Jonathan it is all about timeframe. If you said what are you doing in the next two weeks . I dont know. Between now and yearend, the vix chart will be closer to 15. Tom institutions are coming to the rescue, they finally act, and that is good for your stock market. Jonathan the question we have to ask is what do lower Interest Rates do over the near term . Stephanie made the right point, micro measures are what will matter. We need to make sure companies do not lay off workers and there is not dislocation among Energy Companies and companies in the travel leisure sector. If the Company Government can attack those in a micro way, they can spend not a lot of money and have a big impact. Francine why not buy gold . Jonathan it is interesting. When people are afraid of inflation, they think gold is an inflation edge. They think gold is a downside edge. I am not sure gold behaves the way we expected to, but what i am looking at more than anything else is the yields on the 10 year bond, down by 10 basis points. That is an indication this thing has not calmed down yet. Francine thank you for joining me. Coming up on bloomberg tv and radio, Nuri Al Rabin he roubini on this Market Correction and what happens next. This is bloomberg. Comeback,ore than a my campaign. It is a comeback form the soul of this nation. My campaign has taken off and i believe we will do well from this point on. Take nothing for granted. Tom the simple and quick primary, i guess we were all expecting that. I am kidding. It is amazing how much history changes. With as with us the former deputy of homeland security. She is deeply experienced in the action of what you do about viruses. Lets first look at this politics. When will senator sanders concede and allow the Vice President to run against President Trump . Amy this is a good question. What we know from 2016 is he stayed in for a long time and distracted voters from coalescing around Hillary Clinton. Lets hope we dont see a repeat performance of that, although now it is not entirely clear if he is anywhere close to giving up. Tom i agree. What is the path forward . There are conventions in the summer so they do not get impeded by the virus, but what is the primary path forward . Amy he doesnt have a clear path forward. Tom i agree. Amy that is why it makes sense for him to take a decision to step down sooner rather than later. He as well as Vice President biden share in common the goal of beating President Trump, and sanders remaining in the race continuing to divide voters, particularly those on the left, is harmful to that goal. Francine what does the coronavirus due to the chances that President Trump gets reelected . Amy it will depend quite a lot on where we are with the coronavirus over the summer and particularly going into the fall. Incumbent inw, the general has the wind at his back. He is more likely to be elected based on past precedent, but we are seeing real concern about the governments management of coronavirus. We will likely see increasing numbers of schools closed and people forced to work from home, and impact on the economy. Francine what does he need to watch out for, the impact on the economy which is out of his control, or making sure that people amy amy do not die . Both are out of his control to some level. The government needs to show they can manage this effectively, calm the fears of the americans. That is driving the action. The cdc is not recommending that everyone stay at home and work from home, but we see increasing numbers of companies directing their employees to do that. Tom i do not mean to interrupt. Please continue. Amy companies are taking measures that go beyond government guidance. That suggests they have concerns government guidance is not sufficient and government actions are not enough to keep them safe. Tom a phenomenal morning must read from Megan Mcardle in the Washington Post where she walks through the classic math of exponential. College from haverford learned this the long way. You have a pond and a lily pad. The lily pad reproduces once a day so day two you have two, day three you have four. Pads 48kes the lily days to cover the pond completely, how long will it take for the pond to be covered halfway . The answer is 47 days. Moreover, amy pope was not able to count the lily pads. How impinged are we as a nation with an administration that week after week has displayed an antiscience tact . How do we break out of that given the emergency in new rochelle, new york . Reallyat is what is alarming about this administrations response. What is the ultimate impact on the elections . Politics has no business when it comes to managing an outbreak and particularly a pandemic. We are beyond where we were with ebola. This is more like h1n1 where at some point there are so many cases we just stop counting, stop diagnosing them because we assume people are being infected. This government needs to get behind the doctors, get them shy away from any they are muzzling them. Dr. Fauci is the leading expert and was incredibly helpful in ebola, h1n1, and a host of other diseases. Let him speak. Tom amy pope with chatham house, thank you for joining us. Jonathan golub with Credit Suisse will continue to look at the markets, futures down 54. E. M. With mass currency depreciation. Us in the 8 00 hour. Francine this is bloomberg surveillance, breaking news out of italy after we had the finance minister and Prime Minister together updating everyone. This comes from the economic 25e, italy will spend billion euros in measures against the coronavirus. We do not know the details. It will be interesting whether they suspend mortgage payments for a while or run through more the banks. It is interesting to see all the leaders together with Central Banks trying to prepare some response to the economic adversity because of the virus. Tom it really goes to live hard lagarde tomorrow. There is all of this jockeying for the ecb. Francine we had a cut from the fed, a comprehensive package from the ecb bank of england is targeting businesses and individuals that would be hit by the virus, and that is also treasuries. We have not heard from Christine Lagarde from the ecb but we have a scoop she will be telling leaders to act and act fast. Tom Jonathan Golub with us. Here is the line before the virus and here is the Jonathan Golub line after the virus. This is earnings and it is not very pretty. Declinethat earnings you are forecasting, how does it fold over to cash flow and how does it fold over to price response in the market . Jonathan analysts on wall street are not adjusting their numbers fast enough because they are waiting for companies to give them specific guidance, and most companies are likely to suspend guidance. The estimates for the economy or for earnings are way off. Thinkou look at this, we the brunt of this is not in the First Quarter because january and february were fine. This is a Second Quarter problem and we think we will have something down 5 to 10 . That is not a cut of 5 , that is negative 5 eps growth. Francine what are the chances of a recession in the u. S. And globally . Jonathan it is lower than we think. As u. S. Defines a recession two calendar quarters of gdp and corroborating evidence in terms of deterioration in the labor market and credit. It does not appear as if you will have companies laying workers off. This is too new. The economy is strong and the labor market is tight. Will we have secondquarter gdp . Probably. Six months plus and deterioration in other factors, i dont think we will hit that. Tom Jonathan Golub with Credit Suisse with us, futures 66, dow futures 519. The vix at a 52 level. Not prudential in the united states, it is prudential of the United Kingdom. There chief executive officer will join us in the 10 00 hour. This is bloomberg. Tv just keeps getting better. How you watch it does too. This is xfinity x1. Featuring the Emmy Awardwinning voice remote. Streaming Services Without changing passwords and input. Live sports with realtime stats and scores. Access to the most 4k content. And your movies and shows to go. The best tv experience is the best tv value. Xfinity x1. Simple. Easy. Awesome. Xfinity. The future of awesome. The bank will take all necessary further steps to support the u. K. Economy and Financial System consistent with its statutory responsibility. Although the magnitude of the economic shock from the coronavirus is highly uncertain, activity is likely to weaken materially in the u. K. Over the company does coming months. Disruptions to supply chains could challenge cash flows and increase the demand for shortterm credit for households and working capital for companies. Toncine this, we listened the press conference together, is truly historic. Flanked byrney was the incoming governor, Andrew Bailey. This is significant because it comes hours after the u. K. Budget and they both say this is a coordinated action to make impact that they want it to have but also, it is not only a rate cut that was unexpected. It targets aid to people at risk of the virus. Tom the messaging for people, particularly those across europe and america, this is how banks use to do it. There was a grace to the statement. They kept mentioning resilience. We will see what we get from madame lagarde tomorrow and mr. Powell and any further action by the central bank of the united states. Francine sterling, 1. 2939. Begin with some parts of the country now beyond containment. This morning from a top u. S. Health official, Johns Hopkins saying the number in the nation tops 1000. Donald trump did not provide any detail on a package to fight the coronavirus. More information will be given in the near future. U. S. Candidatedemocratic primeden sweeping and the best in the primaries, further widening his lead over Bernie Sanders. Illinois, ohio, florida, and arizona will be next week. Sets to betin russias leader for another 16 years. Twochange would allow him more sixyear terms after his current one expires in 2024. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom joining us now, Wendy Schiller of brown university. Is of course at brown university. Joining us as well is david westin, star of wall street week. I just assumed sanders took kalamazoo and i said he was the host of kalamazoo but he did not win anything. David he was ahead in kalamazoo late in the night. The michigan thing is a big story. Tom what distinction do you see . David michigan went for trump narrowly four years ago but Bernie Sanders won. It is a key state with michigan and wisconsin and pennsylvania. Tom i am going to cut to the chase. What is the distinction between secretary clinton and the Vice President besides one is a female and the other is a male . Wendy who votes for them within the democratic party. You saw more men voting for joe biden then voted for Hillary Clinton. There is also women, suburban women, some of whom were turned off by Hillary Clinton to be flocking to joe biden. It is really a stark contrast in the coalition that joe biden is looking like he is building and the one that Hillary Clinton could not quite master in 2016. Francine if Bernie Sanders were to drop out, would he support joe biden . Wendy he has hinted he wants the bardi party to unify. He did not support Hillary Clinton actively and did not encourages voters to go to the polls on her behalf. It looks like he might change his mind this time. I dont see a sent future for Bernie Sanders if he turns his back on the party twice. It is not over yet. Anything can happen. We will see dropped turnover turnout in primaries because of coronavirus. It is not quite over yet, but joe biden has tremendous momentum. Francine when are we expecting Bernie Sanders to make a decision . If he loses in a sweep next week, if he says it is time to nominate joe biden, joe biden might not have all the delegates he needs for a majority but if somebody gets more than anyone else, we could anoint them the nominee. Bernie sanders has a very loyal following and has to be true to those people who worked and campaigned for him. He does not want to abandon them and quit too early. Inare seeing a massive shock our political system right now. Tom nding the trauma understanding the trauma of my one is moreo visceral about flint, detroit, and the Union Structure like you. There was joe biden with a hard hat really going at them, a 78yearold. What is your take as joe biden took on the hardhats . Sed to tour that plant david i used to tour that plant because my dad worked there. Autoiden saved the industry, a point that is not lost. There are two things we should look at. If you look at the exit polls, people said i care more about who can beat donald trump then policy. Tom trump is going to go after his hardcore union vote. What is the democratic strategy to pull at the margin those Union Members back from where they were . David if you look at specifically the areas that joe biden did well in, they were trump country. Upstate and rural areas, he did well and he has a visceral appeal to bluecollar. I want to come back to coronavirus because people are really worried about this. If you look at exit polls, people are uncertain who think can deal with the crisis. I think joe biden can handle a crisis. Tom do you agree . Wendy as this gets worse and the economy suffers, people will look for stability, someone who wont be too drastic, who will not raise their taxes, but will take care of the country and lead it and joe biden is successfully pretraining himself as that guy. Brownendy schiller of university, there will be a clinic today on calculating the spark while gap spark plug gap of a spark club. Jonathan golub is like, what are they talking about . West Texas Intermediate Oil at 33. 31. A gentleman looking for a 20 handle, Jeffrey Currie will join us from Goldman Sachs. This is bloomberg. Good morning, everyone, bloomberg surveillance, a historic day for the bank of england. I will look over at the bloomberg terminal, 46 on dow 59. Es, spx we will get to an incredibly important discussion on oil. Right now on your diminished equity holdings, did you go to cash . How did you respond to your institutional and retail shock when people say go to cash . Fasthan this happened so and you do not have the kind of sin symbols you usually have, we are not going to cash. Pension managers are sitting on their hands and waiting for this to play through because the belief is by the end of the year conditions will normalize. Distinction see a of use of cash . Prices are down and you want to buy back more shares, or is Dividend Growth a yield equivalent . Jonathan Many Companies will have to focus on preserving cash if the economy gets soft as we move into the Second Quarter. We think the dividends will hold up fine and buybacks may get cut a little bit, not forever, but perhaps the second and third quarter. As we move through this they will go back. Tom on the banks but not talking about the swiss banks. Jonathan low Interest Rates and credit issues are problem. The Energy Sector may come under pressure. Right now it is not a problem but the credit spread is widening, telling you there is a threat. Francine do we understand supply chains . I am not talking about china which had a heads up of the supply chain. Europe and other parts of the world that could be affected . Jonathan do Companies Understand their supply chains . Extraordinarily well. In the last two to three weeks, investors went from this is a supplychain problem to this is a local demand problem if you see businesses shut down on a rolling basis or lack of travel. Think that the issue right now is how much of a direct gdp or sales is it, and that is concentrated in a couple of industries. Investor,as an equity every day for five companies are retracting guidance because they dont know what happens. How do you know where to put your money . Jonathan if you look at the economic data, you are getting readings that told you what happened in february which gives you very little information. You want information that is more nearterm, so the morse important thing is weekly jobless claims most important thing is weekly jobless claims, will we see a change in companies terminating employees . There is little indication that will happen but it is something we are watching. We are looking at credit data, are Companies Making their loan payments or coming under stress . It is something that as we move into the Second Quarter will be really important. Now, the gentleman teaching microeconomics at chicago, Jeffrey Currie as global head of Commodities Research for global set Goldman Sachs was shockingly prescient in suggesting oil prices would descend. Little did we know there would be an oil war. Jeffrey currie with oil prices where he predicted they could be. Could we see oil fall below 30 a barrel . Jeffrey absolutely. When you look at what saudi said yesterday, when they slashed the price of oil, the likelihood that the demand for that crude is 12. 3 Million Barrels a day. That doesnt even include the increases the uae has talked about. There will be a lot of competition from the refiners for those spot barrels that were already on the market. If you back oil into the midcontinent of the u. S. , you can see wti and midland connect to the downside. We are far from being out of the woods and there is more downside risk. Tom give me an example of the elasticity around the price of oil given these multiple shocks. Give me one vignette of how russia defends itself against the saudi reaction as they try to move hydrocarbons twoyear up. Jeffrey when we think about the magnitude of the increases, it will stress the system in terms of delivery, storage. Floating storage outside of the u. S. But have not gotten to the point that the u. S. Has the potential to blowout the front end. I would tend to think as you see this physical crude move on to the market as we get closer to createthat is when we dislocation and see markets like brent trade below 30 a barrel. Francine i cannot understand why there is a price war between russia and saudi arabia, saudi arabia saying they would put 1. 4 Million Barrels in april and adnoc saying they would add one Million Barrels now. War is athe price second round effect of the virus , meaning the virus crippled demand. Prices were already off. The economic justification for those cuts never made sense to begin with. Our core thesis going back to 2014 was this idea of the new oil order, meaning lowcost producers no longer have market power because of shale. If you look at the damage these cuts did, they cut 4. 4 Million Barrels a day. It generated 5. 7 Million Barrels a day of new supply and that supply cost equity shareholders dearly. 1 trillion. Ost never made economic sense. Francine does it mean oil has to be at 20 to get rid of the shale producers and do they not come back online when it goes to 35 and 40 . Jeffrey if you are saudi and russia you want to create Zombie Companies out of these producers. If they go to bankruptcy, the assets, unless you blow them up, they are still there. They will change hands to a better balance sheet, new hands, meaning the cost structure will go down. You have to do something with the highyield debt. That has to be taken down, written down, and you end up with a lower cost structure. Tom you mentioned deadweight loss. Let us talk about the distinction in the media and elsewhere is price. You correctly go to the unit dynamics of a tangible asset. , how doit is a thing they unit dynamics of a tangible asset fold the unit dynamics of a tangible asset fold and the ability to sustain at 20 a barrel . Jeffrey that point is critical what separates commodities from the physical world and the financial world. The supply chain issues will become apparent. If a ship is in the wrong part of the world, getting it into the right part of the world can take three to four weeks. The margin in the oil market, as these excess barrels come into market, you have to find physical storage and if you blowout fiscal physical storage then you get the dislocation. Tom Jonathan Golub listening to Jeffrey Currie. Give me a clinic on big oil. Can Credit Suisse, with all of your heritage and heritage of your shop, can you get behind big oil . Jonathan oil is less than 3 of the s p in terms of market cap. The bigger Oil Companies are not showing as much stress but if you look at the highyield spreads in the energy space it tells you there is a lot of pressure. At what point does the ifinistration get involved russia and saudi arabia are players in this . Tom one does the u. S. Step in with these price declines . Jeffrey i would say the right answer is let do it stuff. Let the market do its stuff. Given the severity, i would like to point out just in the two days since this began, the carnage in the u. S. Oil pass is significant and likely generating a response. I do not want to speculate, but our view would be more let the market take care of it because you would get a more efficient industry that could compete with the likes of russian Oil Companies and saudi aramco. Francine thank you both. Very significant headlines from Angela Merkel saying they will be flexible with the e. U. Stability pact. We are listening to her conference now. She says we must have a coordinated European Response to the virus. If she says something about the budget, this could be the lifeline the ecb and Christine Lagarde were looking for. This is bloomberg. Surveillance. Is lets go back to commodities with Jeffrey Currie of Goldman Sachs. We are talking about the price of oil and the market share play between russia and saudi arabia. What happens to price . Does it touch 10 . Jeffrey once you start to breach storage capacity, because energy is different from other commodities in that it has to be stored in a sealed tank and cannot get out of a pipeline. All you need is a parking lot, chainlink fence, and a dog, you can stack it to the moon. You can drive prices to hit extraordinarily low levels. 20 a barrel is probably a better number, but when you look at natural gas, another one that needs the storage facilities, dislocations can drop it down extremely low. Our base case is if we have the dislocation we are going to Something Like 20. Francine how much oil will we have in april . Jeffrey we also have to go with how much demand loss we get. The market is in a surplus. When does it overwhelm the ability of the system to absorb it . Tom coming up on francine coming up on tv and radio, we speak to nouriel roubini. Major markets, u. S. Stock futures dropping, treasury yields falling after surging yesterday. Good morning oh no, here comes the neighbor probably to brag about how amazing his Xfinity Customer Service is. Im mike, im so busy. Good thing xfinity has twohour appointment windows. They have night and weekend appointments too. Hes here. Bill . Karolyn . Nope no, just a couple of rocks. Download the my account app to manage your appointments making todays Xfinity Customer Service simple, easy, awesome. Ill pass. The bank will take all necessary further steps to support the u. K. Economy and Financial System. Alix bank of england joins the fed, this time with a 50 basis point cut and a new Funding Program to pump cash to the system. Fiscal is up next. Ecb president Christine Lagarde warns of a Major Economic shock similar to the economic crisis unless leaders act. And treasury yields swing. Experts warn the repo market is still vulnerable. Investors flee into say haven assets like gold. Welcome to bloomberg daybreak on this wednesday, march 11. Im alix steel. The stimulus conversation follows through in italy, as well as the u. K. In the u. S. , we are waiting for fiscal stimulus, and that seems to be weighing on the stock market, down by about 2