Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

Will have a great chart coming up on this. Madame lagarde is worried more about big worried about more than economics. Francine this is something a lot of people, i dunno if they saw coming but certainly we should be more prepared, but your absolute right. Lets go into the data and i will have a liquidity chart in the moment. Down. Tures down futures down. All of this rocketing off the president s speech last night which was taken quite poorly by the markets. Onto the next screen with oil weaker. A couple of pretty good days. Down to a stronger yen, thats a safe haven play. Brazilian riel an example of emergingmarket stress. Francine today we have Christine Lagarde. See are all rallying, we oil sliding. I wanted to show you what im looking at in terms of the european boards. This was quite significantly because european stocks you can see individually the dax and all of them down some 5 . This is my more broader cross asset and i have to say everyone is talking about President Trumps remarks on the coronavirus. Seeing this is a catalyst for the latest let in risk assets. This is one the most famous bloomberg charts. At Merrill Lynch and Deutsche Bank. This is the Bloomberg Financial conditions index. It is set in standard deviation. Outrly the lehman low is eight standard deviations and we are rapidly getting back there, blowing through a quite normal two standard deviations and instantly we are down here. I cant convey enough going back 30 years how rare this moment is with the clarion exception of 2008, 2009. Let me bring in our cast, chief Investment Officer from Deutsche Bank. Lets go to the heart of the matter, what will it take for equities to start going back up or for markets to stabilize . Markets look at fiscal policy and Monetary Policy especially with with ecb in frankfurt Christine Lagardes most Important Press conference and decision. We need to look at the cause of this. At thelly we need to see rate of infected people is coming down. Until then expect more measures in europe and all these countries and thats bad news for the markets. It could take some time. Eventually we see some clarity on the coronavirus. If you look at the budget yesterday in the u. S. Template,n as a youve pretty aggressive package with some pretty aggressive bread that is nothing for equities or markets. Its all about the infections or is there something at this point the Central Banks can do together with fiscal. They can do something together. It makes a lot of sense. You need that from a global perspective so i think the market was a bit underwhelmed and much more was expected. Fearing then the bipartisan agreement of fiscal policy. It might take some time. Continue. You need is bipartisan agreement as long as its not in place i think they are worried and from the Central Banks at the you need to see a lot, you talked about this and thats necessary to see that. Its about fiscal policy and from the central bank i would is an morbid tom this incredibly delicate question. I want to go back to your niceties at this stern school. You are seeing multiple standard deviation moves and liquidity measurements in the acceleration of those liquidity moves are substantial whether its Interest Rates, earnings rates going back or on the banks. I know youre not on the liquidity desk at Deutsche Bank, but what do the liquidity people need today from madame lagarde. What do they need from ecb president this morning . Need liquidity what they is the Central Banks are ready to support the small and Medium Term Enterprises that this is the root cause if they get liquidity there. Mentionedats as i where they should focus not only cutting Interest Rates where theres limited room to do so, especially focus on liquidity for the small and Medium Term Enterprises. What is your perception right now of what always ends up being the challenge of liquidity particularly across trade which is leverage within the system. I know there will be individual cases that are difficult, but what is the overall leverage exposure you see off the desk at Deutsche Bank . Im not at the desk of Deutsche Bank, among the Wealth Management side so i dont have access to that data. Know them to be honest. I must not know them. Tradetalk about our impacted. See, but i side you think its important to watch this of whats liquidity and markets. Liquidity is drying out simply because the virus. What happens to the cash flows of the companies and thats why think and from the monetary side we need to work on this one and also the trading desk side. Francine do you have insight into how Money Companies could face default, are we there yet . Will it happen in a couple of weeks or months or is this just scaremongering . Its tough to estimate because what you need to learn and know is whats the timeframe , a problematic cash flow situation. We have a lot of tools in place and looking at the infections, i think its critical and whats important is the first deviation is coming down ceeo see more people infected but to a lesser extent and i think thats where you can estimate the timeframe. Otherwise i think its tough to answer at this point in time. Buy gold at the moment . We did buy gold. We increased our forecast. Helpful ina very diversifying the portfolios. Equities, we still of exposure though. From that perspective we feel relatively ok, of course we dont like what happened to the market from that perspective for now. Presume we will see in mass consolidation . Our company so exposed because of the medicine of the moment and the finance is the only solution at this goes out weeks and even months will be a consolidation of the 19 30s into the 40s . I honestly wouldnt think of it too serious or compared to the 1930s. I dont think so. Its a very tough situation, but if you look at the model. If you want me to go back, the spanish flu is 19 eight teen, 1919, the expense of growth of , itsion going away warmer where perspective we should look at six to 12 months out we should be in a much better position from that perspective. Theres opportunities in the market we see companies under stress and i wouldnt say its the kind of 1929, 1930 situation. Im not in that camp at this point. Francine thank you very much. A very valuable conversation, we will get back shortly. Stay with blumer for live coverage. The ecb decision followed by Christine Lagardes press conference. We talk about italy and coronavirus with the former Prime Minister of italy. He joins us shortly. This is bloomberg. Oomberg. You are watching bloomberg surveillance. We begin with soft futures plunging after President Trumps primetime speech even though his farreaching measures are meant to stop the spread of new coronavirus. The president said he is spending all travel from europe and suggested this restrictions would apply to trade. Later he tweeted trade would not be affected. Travel secure restrictions generally apply those who been europe within 14 days. Tom hanks and his wife rita wilson tested positive for coronavirus. They are in australia for a movie suit movie shoot. Italy were normal life is on hold. Shutting down nonessential services. All stores except groceries and pharmacies will be closed until march the 25th. Caseshas more than 12,000 of the disease. At least 827 people have died. Global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Staying on the coronavirus. Joining us from rome is matteo renzi, former italian Prime Minister. Thank you for joining surveillance. When you look at the latest efforts and when you look at President Trump restricting travel from europe, what more can be done . Mr. Renzi in italy its a strange situation because for the first time after world war this is really life, but i think this is the right decision because coronavirus is a new today is the only way lock the contagion. Italian people made some wetakes in the past because blocked directly from china but we lost the people who arrive, so from beijing the people dhabi using moscow or abu or paris and that created a lot of sanctions and put them in our nation. Please around is the world, dont make the same if present trump blocked the planes from europe, this is not the solution. Solution is because of the spread of contagion is a problem and now in italy like it will be in france and germany, u. K. And spain and more unfortunately in the usa. Please dont waste time and dont make the same mistakes of the italian government. Thecine do you think European Union and its countries should have closed borders to trying contain the virus . Virus is a very strange enemy. Is european, if you look at the number, it is clear. So the numbers today in france and germany and spain are the same eight days ago, nine days ago in italy. Block the virus is not to block the borders, its the occasion opportunity. Yesterday in the Champions League soccer event around the , the supporters were very. Appy because the team won but the authorities blocked entering the stadium. Maybe thousands stayed outside of the stadium and that is unbelievable good news for the virus. Eventy happy to use this to create contagion. My opinion is the first thing is for theblic Events People permit for the people. O stay altogether and we know my request is be wise, be , this is theble message. Advantage,e week of if we lost this time, you lost an unbelievable opportunity. When you look at how you measure this getting better, what is life daytoday like an do you look at the number of deaths, the number of infections, how does the country know when things are turning a corner for the better . All the most important scientists explain us worstvirus is not the virus in terms of lethality. The problem is if too much infected,ogether are the problem is that unbelievable partr of people there is a who needs a hospitalization. That is the problem because if altogether entering the hospitals the risk is the collapse of the system. That is the great problem particularly for old people. Our idea is block the people that probably will be very effective to block the contagion. That ise the number of a problem but the average is not. The real problem is the organization of such. Francine what would you ask in the European Central bank today . We had a number of measures and money reported by the government to help some small and Mediumsize Enterprises in italy, what can you ask frankfurt today . Mr. Renzi i believe theres only one way, give liquidity because you can block. The people a very happy, you can block also the italian people, we cantroblem is definitely give to the people liquidity because we look at without freedom of movement, its important to encourage small and Medium Enterprise to have the money necessary. Ecb,e all the board of moment very crucial because its important for the economy. We have difficulty for germany to continue the export of china. We have the problem of brexit. A lot of tensions and politics in a lot of areas of europe so its time to change the Business Model of the European Union. ,e need more infrastructure more investment in innovation. But we need also a lot of liquidity. With qe, whatever it takes, the great strategy of president draghi. Its time to write a new page ,nd i believe Christine Lagarde its time to act now. Next week for all the other countries. Tom thank you so much. Former Prime Minister of italy and i must say, the images we see including a completely vacant spanish steps just absolutely extraordinary as well. Right now are coming in. 10 year yield roughly lower here. 17 basis points. 1. 20 . Christian, what are the signals the bond market . We saw the normal price up, yields down and then not once but twice in two days aggressive swings the other way. Would you suggest that that is people on the street that have made the wrong trade getting out of their boxes as rapidly as possible . Have such highou volatility not only on equities but also bonds. Thats probably not the environment where you have these trades. If you need to do this at high probability itll get wrought youll get it wrong. Situation,n such a the markets are tough. You see massive swings. That is normal and to be expected. This is lainey to think through and not be disrupted by daytoday trading. Tom this is brilliant folks. I cant say enough the importance of what we heard from a gentleman from Deutsche Bank. It is normal and expected that you see trades clear. Is that the heart of the matter in our modern central banking that we have central bankers who are unwilling since 2007 to let their part of the world clear again with some pain and again with some damage . Are they willing to take a loss as we say date we see daytoday . And in this environment its important to look at your strategy and if you think through cannot be to trade the market on a daytoday basis. A forecast, our Strategic Asset location and thats how you work on it. Have a tactic is a location on top refused equities and then at one point in time you need to analyze the situation and go back. I think thats actually crucial. If you try to trade the day on the day market on a daytoday basis, if you missed the best day, i think daytrading for the wealth client doesnt make sense. And thats why you need to look for Strategic Asset location. Im sure this will also be very important in this market, there is no doubt. Thats always been the case. Why have we not heard from the ecb so far . Could you repeat the question . Francine why have we not heard from the ecb so far. Have a massive discussions, what they are doing. Somethey announced in hours. But i do expect they work on something, liquidity. Perspective i do expect, nevertheless lets not forget not the Central Banks but also it needs to come from the fiscal side and thats even more important at this point in time. Let me also bring in andrew, pimm cohead of Portfolio Management in germany and he joins us from munich. Talking about some of the faultlines for the market. Do you worry about liquidity and treasuries . Liquidity is important in a matter what sector it is and when we start to see the sort of volatility as we are seeing in the u. S. Treasury market, then yes liquidity becomes one of the Top Priorities in markets. Againe welcome all of you here at the half break we want to welcome all of you worldwide in europe. In the evening in asia. ,rancine lacqua and tom keene with markets on the move, i will frame that in a moment with a little bit of data and an important chart. We have been so busy in our studios preparing that i missed the vics. Andrew is with us from pimco. From Deutsche Bank, with us as well, christian. Thrilled these two gentlemen deep in the Wealth Management and asset markets join us today. Et me show the vix i completely missed this this morning but we need to frame using the Standard Poors 500 where we are versus the lehman low of november of 2008. Up we go and we go through 30 and 40. What is so important, this is the 10 Day Moving Average of the vix, the height was up here at 62. 36 we are now up at then here is the 10 Day Moving Average. We are really getting up to the tension point and this anticipates the market open. Futures, 138. Pointsnow 7000 plus below where we were two cups of coffee ago. What is it can be like when the managers get together at pimco this morning . Give us an outline of the themes your managers will deal with in your famous morning call. Market conditions right now are similar to back in the times of the Global Financial crisis and in the sorts of Market Conditions we focus on risk management, liquidity, making approach tociplined managing the assets and that the number one priority. Squeezing out the extra few basis points and the sort of markets become a priority to those higher priorities. Tom though certainly take precedent. Christian, and the time we have left with you, i need to go back to your important insight of 10 minutes ago where you said you really dont like equities. If you need to own market . We have reduced equities massively. You need to look through this crisis as always and the question is when do we get back into the equity market . We should not forget before this crisis there was focus on technology. We have rebalanced the portfolio a little bit. Is trend is still there but probably too high in valuation so this has massively come down. Think through it. This massive setback in technology is significant down the road. Thise have said, we missed last year and the years before and now there is opportunity. That is what i would think in terms of trends. Bothine let me ask you what you think it will take or whether we will see a 10 year yield on u. S. Treasuries and what has to happen to get us there . Andrew i dont think we see a negative yield on 10 year treasuries. I think we will see more actions from the fed and next week from the ecb. Zero and even negative on the 10 year, i doubt we get there. Francine do you agree . Andrew i broadly agree with that. In this sort of market, these Market Conditions, anything is possible. It will be driven by central bank policy, how they anchor their money market rates. That is one of the determining factors of where the yield turn dust yield curve trades. Treasury yields can go down or further up. When you get 20, 25 basis point moves a day that tells you the bond market is uncertain about the direction of growth and inflation. Tom i want to bring this to your attention. One of the best people let Deutsche Bank is george saravelos. He has been brilliant in thoughtful notes. s your colleague note your colleagues note is simple they are too slow. Do you, does Deutsche Bank with all the challenges and your colleagues at pimco, do they need an emergency rate cut today velos, theymr. Sara are too slow . Andrew this is a tough situate christian this is a tough situation then the fed has already acted. At theecb is lifting same time as the fed, it is a strong signal for the market. The market is pricing in further rate cuts so it would be a good action to get this done. ,rancine Christian Nolting thank you so much. When you lookrth, at what the g7 can do to come together, what does the economy mean . This is no longer a supply shock and you have compounded what happened to the price of oil. What can Central Banks do to calm markets and give a helping hand . Andrew given what is happening to the real economy and the nature of the shocks, companies, their working capital will be squeezed. They are not able to sell things. They have ongoing costs with personnel, so what Central Banks can do is give them access to cheap credit to bridge them over. On the assumption there will be weuge type of recovery, probably are looking at a short period with a lot of uncertainty openownturn, and they can the quiddity facilities to corporations liquidity facilities to corporations. The second is the price of the liquidity, Central Banks are bringing that down. The ecb has done that without much further room to the downside so we expect them to of emphasis on the condition those loans and the asset purchases. Tom Andrew Bosomworth with us, point down a percentage on the Standard Poors. Channel your inner jerome schneider, your inner Anthony Chris enzi. Zi. Crecen what do they see in the short term paper market . The shortterm markets are starting to show stress now. They have been pretty well behaved compared to emerging markets or credit highyield markets. ,iquidity is getting less starting to deteriorate and manufacturing manifesting lth in the Balance Sheets manifesting itself in the Balance Sheets that banks it is getting reminiscent of the financial crisis. If that is tom the case, if we move from correction to bear market to greater than bear market in a pro like you starts to talk about liquidity, how should mirror mortals react . How should they reposition portfolios . Markets,n volatile just be calm, do not panic, do not overreact, do not trade fast and make rash decisions. Focus on the return of capital, getting your capital back, not the rate of return on it. That means putting an emphasis on high quality assets in a portfolio. Even despite the low Interest Rates we are seeing on developed market government bonds, they are showing a negative correlation of returns to the stock market. That is a reminder that sectors like that belong in a balanced portfolio. Francine thank you so much. We will talk about credit lines and liquidity. Livewith bloomberg for coverage of the ecb decision, followed by Christine Lagardes News Conference. For u. K. Viewers, 12 45 is decision time and the conference at 1 30. This is bloomberg. In iraq, two is american soldiers were killed in a rocket attack. In january, a similar assault almost led to a direct military confrontation. ,ernie sanders is not quitting vowing to keep up his race for the president ial nomination despite a series of defeats to joe biden. Mr. Sanders speaking after losing four states. The National Basketball Association Decision to suspend its decision was made after a player on the utah jazz tested positive for the new coronavirus. The nba will use the hiatus to decide the next steps. 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 greatly appreciated. Breaking news and of course this is the set up of the equity markets coming in. They really shifted last night. I am going to call it global disappointment off of President Trumps speech, whatever you think of the politics. We see it confirmed in the bond market. A wonderfuls to me sends to me a wonderful bloomberg story about the dash for cash, leading with boeing yesterday, a small cash call on jp morgan. Andrew bosomworth with us. This is what we are going to see , the shortterm use of cash. Boeinggoing to see more where they use their line of credit to go to the banks and say, this is the agreement we had, we need x number of billions now . Andrew given the squeezed taking place on corporations working capital, we would expect to see line of credit lines of credit drawn down. That is what they are therefore. There for. Drawing down on those lines is nothing unusual. What is unusual is the external circumstances where companies have got ongoing costs and are unable to sell stuff so there liquidity is getting drawn down and they are turning to those facilities. , or otherbor, ois indicators of another time and place a good measure of liquidity and a liquidity squeeze . Andrew historically it is a reliable indicator of stress in the funding markets, so the widening we are seeing is a signal it is starting to get a bit more dicey. Here in europe, we are not seeing the commercial paper market reprice to the widening but it the ois spreads, is only a matter of time before that will get reflected in the prices as commercial paper comes up for rolling. Investors will look back and say, why do we keep on investing at those low levels when the risk on the market is trading wider . Those discussions have not happened but the widening is a signal it is probably not far away. Francine if you look at the industries, which will be hit most, or first . Particularly given the events of the last 24 hours in travel. And italy, it is , anything to do with tourism and domestic services. These are the sectors that are shutdownpacted by the measures that governments are implementing across the globe. Francine is there anything Central Banks can do to try and meet those risks . I dont know if they need to do more on the repo market. What are you expecting from the ecb today . Andrew highest conviction is they provide liquidity via a facility similar to what the bank of england announced earlier this week. That in the ecb have the form of their longterm targeting operations. They might ease conditions so banks can access more cheap liquidity at the deposit rate and may start a new separate facility specifically targeted at corporations of small and mediumsized enterprises. Second would be a doubling of asset processes. Purchases. We are less convinced on the likelihood of an Interest Rate cut. We think that will aggravate a very tense situation in the banking sector. Tom i want to prove we know what we are doing doing at liborois is a fascinating chart. This is the normalcy before the financial crisis and what is critical is not the lehman move, it is august of 2007 and how we are getting back up to the stresses not of bear stearns and lehman but just general financial stresses we saw in late 2007. That is an important chart. We have a bank of japan chart. They are likely to strengthen stimulus next week. Explain how slowmoving stimulus can help a liquidity crisis. Andrew in this sort of situation, the main priority for Central Banks should be that for companies and banks and corporations that are financially sound, that they have access to liquidity. Those are what the overdraft facilities provide. Lend abundantly was the motto coined a long time ago. That is what the Central Banks are doing as we have seen from the central bank of england, the ecb lending unconditional it bounce, not capping the quality of liquidity. They have been doing it for a while and i would expect more of these policies to come from Central Banks including increasing credit. Francine tom brought you the headlines, the boj is said to likely show a more active stance on buying assets. We understand from bloomberg reporting they will likely strengthen stimulus next week. We heard they were mulling the expansion of the etf purchase program, so we will stay on top of what the boj could do. Tom we are watching the markets and will give you extra data checks as we can. Down 1171 on the dow, s p futures 22. What has shifted is yields suddenly moved lower. We will see how that churns out. Yen, 103. 84. Coming up later today from Goldman Sachs Asset Management marcus will. This is bloomberg. Bloomberghis is surveillance. We begin with twitter. Working from home is mandatory. The company recommended it in response to a new coronavirus outbreak and said it would continue to pay contractors and hourly wage workers. Resorts struggling to deal with the Coronavirus Impact on its revenues, planning to draw down its credit line. They have operations in macau, closed for 15 days in an attempt to halt the spread of the virus. That is the Bloomberg Business flash. Francine we are back with Andrew Bosomworth of pimco. Where do you see the fixed income in europe going . Doespends on what the ecb and we had an option in easily yesterday. Yesterday. Andrew we are seeing flows you would expect in these sorts of markets. There appears to be reallocations taking place out of the sectors leveraged to growth, and it is going into some of the safer, including money markets. Got thiss we have uncertainty prevailing in the market and the high volatility, not just in markets but in the Public Policy space, we will probably see a continuation of these flows. Francine where do you see the best value if any, in europe right now . Andrew that is a good question given the level of yields on safe government assets, which if you hold to maturity they will lock you in a negative return. From a european perspective, over dutch other government bonds in the u. S. Other government bonds in the u. S. Hold value. Tom i want to look at research coming in, everybody publishing overnight and we are thrilled to receive that. Get this from Deutsche Bank, ravelos writing up a storm. Policymakers underestimate their mediumterm impact of this medical crisis. Central policy space is being exhausted. Deutsche Bank United States economists Inflation Expectations become permanently unhinged on a global basis to the downside. Odds of a 100 basis point cut rising by the minute. What is the efficacy of those Interest Rate cuts . Markets where there is still a positive distance between wherever the policy rate is and zero, those Central Banks can still do something. At this stage, those are pretty low as you see in the u. K. And the u. S. At the last cut. Help, but we still are very closely not far away from getting to zero across the globe and as we have been talking about for a long time, Monetary Policy is coming toward and is of what it can do about being subordinate to fiscal policy, and helping governments finance expenditure needs. We permanently instituted financial repression where adjusted for inflation, disinflation, there is no return for viewers and listeners . Andrew japan has been in that situation for a long time. We have been talking about the japanification of the european markets. Expectations in europe are below 1 . It is fair to say we are probably in a liquidity trap situation in which we are looking at low rates of inflation. Is a bige of the shock negative demand shock coming from the coronavirus. It is also a positive supply shock coming out of the oil market. That combination is disinflationary, so the levels we are seeing are not surprising. Francine do you see any chance that something happens like in 2008 where the markets freeze up . Scenario, ifis a you look across the various Financial Stability macro prudential institutions across the world, that is one of the scenarios where there is a rush to exit assets out of the financial industry, and that increase in risk premia can lead to a reverse causality, a revision that way. Tom got to leave it that way, Andrew Bosomworth of pimco. This is bloomberg. Tom this morning, after a correction, after a bear market comes correct questions of financial liquidity. Under question, the strength of the Global Financial system and the too big to fail banks. After the carney resilience yesterday, Christine Lagarde and the ecb will act today. President trump ask out and overall life this oval office tirade. He demands a rate cut. , a flightkets moving to safe havens as the president bands flights to europe. To europe. Ghts action, what do you observe off the desk in london . Francine we look at markets, one of the first times s p futures for june has been down. If you lurk does look at european stocks in the market, the fact that you cancel flights or do not make flights from europe to the u. S. , there is questions from that. Italy was the first to cancel flights from china. Dubai,e to go through london, ireland, which is not in the band list. Banned. Tom the markets moved decisively off the president s speech last night. Have andrew boz and worth Andrew Bosomworth and Julian Emanuel with us. Points on the03 dow. As well, 31. 24. Bank ares at deutsche grim on oil. The brazilian real showing market tensions. India is the index in a bear market. A sea of red in travel and leisure. It is a risk off mood with a bid for swiss franc, yen, and gold. And getlk about the ecb back to Andrew Bosomworth who joins us from munich. Is there anything today that Christine Lagarde can do to catch up with the fed, to catch up with the boe that will make a difference . Is it worth waiting to see how the market plays out . Andrew i think we are getting to the point where there will be some outofthebox proposals put on the table. Whether they get implemented is a different question. Outofthebox will be more maybetory relief, changing the Capital Requirements for nonperforming loans so banks dont have to pose as much regulatory capital. National regulators are reversing their countercyclical buffers in the eurozone. They are not very high to begin with. S p et to the s p and start looking at the unique shock hitting the eurozone. You think about the draghi speech and transmission of the mechanism and you wonder what happens to italy. Tilt the Sector Allocation of asset purchases or the geographical allocation . Francine we are talking about lifelines and making sure people do not have to pay their mortgage. Will anything short of helicopter money work . Andrew i dont think we are that far yet. What we are missing in the discussion are the fiscal agents and that is just as important in this environment. We have to keep an i on there. Andgovernment can cut taxes make money available for workers who are forced to work on short time because of the tamp down measures taking place. It is fiscal and monastery monetary together that can help you. Tom thank you so much for joining us in crossing over into this hour. We are focused on the ecb meeting today, absolutely historical, particularly in the context of the bank of england yesterday. Acrossare just tuning in america, waking up to difficult markets. I cannot say this enough, a difficult dust different character different character to the markets. They areravelos saying moving way too slow and the bank of america team put out a detailed note and they see real challenges in the market. U. S. Treasury market deteriorated over the last couple of days and requires a rapid and large near term policy response from the treasury and the fed. To summarize all of this, we needed to get someone in equities and expert in derivatives. Julian emanuel joins us. I want you to take your mathiness and explain to the audience the accelerated effects we are living now versus one to three days ago. Julian if you look back to how this year has unfolded, the whole idea that the u. S. Equity market in particular, which is very much the barometer people think about globally, took so long to respond to what the bond market and commodity market began saying about the dangers of the coronavirus back in january, essentially snowballed this rate of acceleration. When you look at it, there have only been three periods of time in financial history where volatility off stockmarket alltime highs has been this aggressive. 2007 2008, 1987, and 1929. Tom it is thursday, simple surveillance day. There is two trades to focus on, Interest Rate parity and when and usetreasuries futures to arbitrage the difference. Interest rate parity is a julian world. Buy stocks which are you most concerned about . Julian it is the equity bond play. Yesterday, the character of the market was different. The risk parity funds were deleveraging. Clearly with todays actions, that is cause for concern, but positively, we would say what we saw yesterday with yields going higher at the same time the equity market went lower was reminiscent of the endgame in the Fourth Quarter of 2018. Longs and shorts being taken down, exposures being taken down. Francine what are markets looking at . It is unclear whether they are concerned about a recession, whether they worry about infections, deaths, spreading. What are we looking at . Julian i dont think you can disaggregate the two. Going back to why the speed of this has been so shocking is that there is really no way to measure the realtime procession of the data itself. Focus on isthing we the weekly jobless claims which we will have this morning, to see how that progresses. It is the on the ground data that the only other data you can look at is Financial Market input, but you cannot disaggregate the two. The probability of recession has risen dramatically in the last several days. Francine is there anything Central Banks can do that would work to alleviate it . We have been talking about s. Ns, ecb tltro is there anything they can do to avoid a recession . Because of really, what we see as the altered state of the consumer and investor. It is difficult to avoid, school closures, restricted travel. The message of the last 24 hours is that Central Banks will be there but the required response, the biggest bazooka has got to come from the fiscal side. Where theuote president of the United States reamed the secretary of treasury of the United States. The president of the United States along with many other people feel the single solution here is chairman powell, the governors, and the president of the fed. 100 of economists say that is baloney, and they say the treasury must act to get us away from the ultimate fear, mass selling of government paper with a higher yield. Mnuchin secretary affect that in tandem with the chairman of the Federal Reserve . , then the feedback loop way you ultimately get higher yields and we could have a philosophical debate about the longterm effects of running a budget deficit of unimaginable proportions, but this is a moment where we should be spending, the globe should be spending, and that in itself and its in the long term will cause rates to move higher. Tom the bank of england we will see madame lagarde under huge pressure today. What will you request from chairman powell this morning . Bps. E seeing 25 or 50 is it a dramatic day for Julian Emanuel . Julian it is dramatic because we are waiting to see madame lagarde was hired into this job with the expectation that she would be a catalyst to cause fiscal stimulus to appear within the continent. Merkel made a comment about whatever it takes yesterday. Plansd to see concrete and the disappointment this morning is when you look back to the president s speech, the speed of getting fiscal stimulus tom it was not there. The german to year yield has gone back below 1 negative, 1. 008. That is critical for madame lagarde. Francine it is. To listen to back what Mohamed Elerian was saying yesterday, timing is everything so if you cut Interest Rates too soon, the markets still tank. There may be an optimal time. Lets get straight to the bloomberg first word news. , two americansq and a Coalition Soldier were killed in a rocket attack and two others were hurt. A dutchr attack led to almost led to a direct military confirmation. Confrontation life and italy is on hold. Groceries andept pharmacies will be closed until march 25. Italy has more than 12,000 cases of the disease and 827 people died. The National Basketball association and its decision to aspend the season, after player on the utah jazz tested positive for the virus. Wife ritaand his wilson testing positive for the coronavirus. They are in australia. Public healthg as requires, the couple will stay isolated. 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. Hurtado. Ana this is bloomberg. Tom curve flattening and yields in, futures at 1. 30. It will be an extraordinary moment as we saw yesterday with the bank of england. Lets do it again with Christine Lagarde, an announcement at 8 45, not a routine announcement. Ballet atation, the 9 45 new york time. This is bloomberg. Good morning. Keep new cases from entering our shores, we will be suspending all travel from europe to the United States for the next 30 days. The new rules will go into effect friday at midnight. Tom the president of the United States in the oval office, a rare event. Rich meadow had a nice walkthrough with the history of how rare it is to see a president from the oval office. It was extraordinary to see that moment. Futures down, saying the president s speech didnt work that well. Terry haines is trying to pick up the pieces from his Retirement Plan and joins us from washington with important perspective. Thatre your perspective market time is different from political time. What is the political agenda for the secretary of the treasury . Agenda forpolitical treasury secretary mnuchin is to stay abreast of the developing Market Reactions, and try to recommend actions that actually catch up to it. What you have got in the trump ideah, among others, the that he is marshaling the full power of the government, the federal government and the private sector. What you have got is a situation where they are talking about greatly expanding liquidity. Happen, you make that and secondly, you ask u. S. Markets what they need and thirdly, you are backpedaling with chairman powell to figure out what the next steps are on Monetary Policy. Tom were you disappointed . Did you expect more specificity last night . Terry i frankly did not. As you point out, it is a different time, firstly. Secondly, there is not a lot the president by himself can do. What he needs to do for major is to as we saw in 9 11 could joel congress to act quickly. Cajole congress to act quickly. Congress is further behind the market curve than the president. I say that with no disrespect, but that is the case. They are talking about what to do with the payroll tax or not out, theulian points Market Reaction has gone far beyond that and there is an indication that many different kinds of policy tools are needed. Marketsmakers talk in ways that provide consensus about the policy actions that are needed, you see bigger action. From a washington perspective, you have heard a lot of cacophony but not a lot of commonality about those responses. Francine good morning. Do people in the u. S. Still believe this is nothing more than the common flu . Terry i dont think that is the case any case at all. I think that is not the case. There is a palpable sense that things are different. Sports leagues are suspending. Active discussions are taking place every day about how to school, childrens suspension of university classes, that sort of thing. I dont think this is being underestimated at all. Tom terry haines, thank you so much. Talks aboute helicopter money into the United States and maybe that is what we will see like we saw in hong kong. Julian emanuel, and futures in the bottom. 197. The vix at 62. We will continue this morning the discussion, Mohamed Elerian and the 9 00 hour. This is bloomberg. Tom another extraordinary day on the market. Lets do a quick data check and get the times right on the European Central bank. Futures 1. 40. 140. Dollar stronger in the last hour. The selloff sweeping Global Equities is gathering pace, putting a gauge of world stocks on pace for a bear market. There is hope and what the ecb can do today. I was speaking to the former treasury saying what is needed is a targeted ltro. That was your point this morning. Tom the liquidity note is coming out and as Julian Emanuel mentioned, it really shifted yesterday. We will do much more into the next half hour as well. An Important Note on the European Central bank meetings, because of Daylight Savings times for our american audience, get used to new times today. But 8 45 a. M. You will see the decision, and the press conference always at 8 30, right at the market open at 9 30. Just because of the time change, spring forward in america. We will see how much spring there is in this step of the president of the European Central bank. I want to highlight the challenges of liquidity in the market. This is bloomberg. Good morning. 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. Tom good morning. We welcome all of you worldwide. The ecb meeting coming up. Francine is riveted by the markets and the yield changes, and talking about the extraordinary moment as mark carney gave the bank of england to andrew bailey. Sitting to my left is Julian Emanuel and im supposed to say how about apple and amazon . Do we load the boat on john deere . We have got to go to the greek letters as well. The fundamental thing is you make a trade, you have a belief in a hedge fund, institution, whatever, and as you go out in time you have to reset or rehedge the trade. Did that happen this morning . Outthose parties able to go in stress or not in stress and rehedge . Julian the market as we perceived it yesterday and the last several days despite the chaos that was observable, was functioning. We have seen some of the largest share volume days of all time. The expectation is when volatility is here where we are that you have to have broader parameters and more patients, but there is patience, but there is liquidity. Tom the boeing announcement as they take their lines of credit, ofs is the Bloomberg Index u. S. Financial conditions set up on two standard deviations, and the horror of eight standard deviations of the lehman low. The stresses are not lehman low stresses but they are precedented back 30 years. What does that signal . Julian as i said, you are living in a time that only has a number of close parallels, and the thing that is most distressing is the speed at which we got to this point. If you look at the financial crisis, it was more or less brewing for an entire year before you got to the lehman low , and we are essentially a month into this in terms of the shop to the market. Shock to the market. Francine it feels different. What did we learn in 2008 that we can avoid in 2020 . Julian i think we learned that coordinated intervention in the markets can have some positive effect. Clearly, it took a while, but when you think about all the Government Programs that provided fiscal stimulus, it worked. It took some time to work. Part of our disappointment with what we saw last night is that the coordinated response, as difficult as it may be politically for both sides to reach across the aisle given what has happened in the last six months or so, it is absolutely vital. Francine where do you see the most stress in markets . Is there anything you think the market will not recover from . Julian we dont think we are in that nonrecoverable state at this point. Credit markets are really sort of the stress barometer, but market, look at the s p the two week moving average has held every selloff since 2011, the entire progression of the structural bull is under duress. Tom i want to go political with Julian Emanuel. This headline is extraordinary and i would say within the moment speaks volumes. This is a report from bloomberg. Says it was union not consulted on the president of the United States travel ban to europe. I find that absolutely unthinkable and yet, there it is. Francine the e. U. Is saying it disapproves of trumps unilateral travel ban. There were a couple of clarifications from the oval office saying it is not europe. I am not sure what is right and what is not, but the e. U. Seems angry at the fact it was not consulted on the travel ban before President Trump put it in place. Tom one final thought with Julian Emanuel what are you going to do today . You go to your office, you have your three bloombergs and your 12 screens. What will you observe . Julian there will be a lot less looking and a lot more talking to clients. This is a time where in our position, a large degree large degreelso a helping people think things through, psychology as well. You have to be there and listening. Tom i cannot say this enough, there is a difference between solvency and liquidity. Francine Julian Emanuel stays with us. Lets get straight to the bloomberg first word news. Viviana we begin with fox features plunging after President Trumps prime time speech. Even though the president said he was suspending all travel from europe, we know that the e. U. Has objected and says they were not in any way consulted. And Boris Johnsons government coming up with a status report. It is expected to say it is moving away from trying to contain the new coronavirus and trying to contain its spread. Bernie sanders says he is not up hisg, vowing to keep race for the president ial nomination despite a series of defeats to joe biden. Mr. Sanders speaking after losing four states to mr. Biden. 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 in case you werent aware, it is an election year. There is heat between the present test democrats and rip up democrats and republicans. Cirilli, i am more than certain that in the marble walls of the capital they will understand the stresses of the Interest Rate parity trade and liquidity crisis. What will they talk about . Kevin economic stimulus. Yesterdayapitol hill and interviewed senator Marsha Blackburn who has been working with senator menendez of germany on the issue of pharmaceuticals and trying to get access and research here in the United States away from china. I think it is going to be the first of a broader push for there to be much more bipartisanship on issues that are less controversial and less polarizing in what is shaping up to be a challenging shortterm. Senator distinguished from tennessee is a former chi omega from mississippi state. The Washington Post has the president in a tirade with a sophisticated secretary of treasury. How do you translate kudlowmnuchin specificity to the senator from tennessee . Kevin i spoke with a source at the Small Business administration who says essentially these meetings have been going on for several days, and so i think that, to answer your question directly, lawmakers of both parties want to hear from an administration, from the president s economic team, they want to hear a vision, a roadmap, cohesiveness, because as you mentioned on the issue of liquidity, it is not just wall Street Investors who were concerned. This has reverberated down to main street in a way that when you have schools shutting down across the country, everywhere. Italy,e if you look at you cannot have your cake and eat it too. You either sacrifice the economy or sacrifice lives. Do wewith this question, know what the president would choose . Kevin lives, without question. We have the Administration Meeting with Top Bank Officials and ceos yesterday. Prior to that, he had a meeting with airline ceos, and a forecast and foreshadowing to the travel restrictions. He had a meeting with the travel industry and they will be meeting with silicon valley. Withhave been meeting every sector in the United States this week alone. From a political situation, you will notice an urgency to depoliticize this as much as possible. That is going to begin later today. Tax,e issue of the payroll that will remain in the political space for now, but there is a large appetite based on my reporting for there to be some type of political vehicle in congress that would free up liquidity and loans and give regulatory forbearance to provide consumer and american confidence not just in the market. This is well beyond the market story, but on main street, to provide this. I would note with the developments of what happened with tom hanks in hollywood to the reverberations in american athletics, the comeback will happen then i think that eventually where the conversation will turn is when that show of strength and returning back to normalcy happens. Thereupon my reporting, is starting to be conversations for how to prepare for a more unifying economic message when eventually this is behind us. Francine kevin cirilli, thank you so much. America,on daybreak might swell. I am sure they will ask him about treasury yields and whether they will go negative. The ecb also coming up. This is bloomberg. Surveillance, Francine Lacqua in london, tom keene in new york. 126, market crisis, we thought we would pause and speak to the gentleman who has made the single greatest market call of our generation. We dragged him in from new jersey. Gary shilling is with us. Titledgle volume deflation is the single volume to read. Bring up the chart. This could be called the showing chart, the great moderation schilling chart, the great moderation. Inventing Merrill Lynch economics years ago, dr. Gary shilling has had the greatest call of lower yields and higher bond prices. You still maintain your call that weekend comfortably hold bills, notes, and bonds for yield . Gary my targets were too percent on the 30 year and 1 tom so you made a mistake. Gary we have blown through those. The possibility that we were in for we are in for recession and major deflation chart, you had the courage to be in equities all through your historic bond call. Can you acquire equity shares today and hold the conservative portfolio . Gary we are short heavily the s p but have small liquidity positions to manage that are defensive. Some are staples and utilities, but we are overwhelmingly short the s p and have been the last month. Francine how low can the s p go . Gary your guess is as good as mine. We are down now 20 . If this is a major recession, we could be down 40 . That is not unusual in terms of recession. You have a complete reordering of the world, disruption of supply chains, disruption to businesses, consumers, so on and so on that could make a deeper reception and very disruptive. Francine can we avoid a recession . Do,here anything anyone can be it companies, government, the bank, to avoid recession . Gary i dont think so. The fed will probably move all Central Banks but what are they going to do . Will they reestablish supply chains by Monetary Policy . Will they do anything by encouraging people to come out of their houses . People are stocking up, we have a basement full of toilet paper and there will be an industry drawdown when we get through this. We will get big fiscal stimulus in this country, probably infrastructure. Nobody cares about the deficit anymore. That is called monitored modern Monetary Policy. Like after 2009, it will take a couple of years for the fiscal stimulus to be effective but politicians will take credit for it now. Tom futures 129. We look at the great strategists of another time and place, edward hyman still very active, Henry Kaufman as well, and dr. Gary shilling as well. You were weaned on these guys. What is the value of the brave, long calls of the style of hyman , the acuity of kaufman, and the giant market call of a guy like shilling . Julian there has been an in normas amount of change in the financial industry enormous amount of change in the financial industry. It basically reinforces this idea that if you have the singular paradigm, you need to stay with it. That is the way longterm profits are made. Ask warren buffett. Tom this is so important. What people want to know is do disinflation and bring it over to a fed that has been behind . Gary i dont think the fed matters. World in an excess supply , more production then consumption. There is a savings glut and when you have more supply than demand, prices go down and enter trades go down. The correlation between treasury bond yields and inflation is 60 . Inflation,right on you have the leg up on treasury yields. That is the end of the game. As long as we are in a disinflation and moving into a deflationary world, we have downward pressure on yields. What happens when you get to zero in this country . That is another question. Francine we will spend a lot more on what does happen when the u. S. Goes to zero. Gary shilling, thank you so much, and Julian Emanuel. Stay with bloomberg. We have live coverage of the ecb decision. Because of the Daylight Saving changes in new york, this decision 8 45 new york time followed by Christine Lagardes News Conference at 9 30 a. M. In new york. This is bloomberg. This is bloomberg surveillance, and later today the ecb will reveal its policy response to the coronavirus outbreak, Christine Lagarde under pressure. Joining us is paul gordon who heads our coverage for western european Central Banks. What exactly is needed . People are saying what you need is liquidity and relief for consumers and companies. Questionis a complex and one that was addressed somewhat by the bank of england when it came up with the rate measuresasis points, for companies and banks and coordination with the government. That is not likely in the euro zone. The ecb does not have room for a big rate cut so the focus is on action, but exactly what remains unclear. Probably most people think a boost tof some kind, a quantitative easing and a lending package to banks that motivates them to lend. Communicateicult to for Christine Lagarde. Francine talk to us about timing. Market commentators have said the ecb is behind on this because we have not heard from them, but is it wise to see how this develops and what happens in italy . If you move too quickly, does it disservice you in the long term . Paul on the one hand, you want to see proactivity and the ecbs chief it get economist is saying you need preemptive action from the central bank. The question is should it be Central Banks or governments . The bank and europe, we know Christine Lagarde spoke to ecb leaders and said if we do not get coordinated action we risk something that will remind you of the great 2008 financial crisis. She said the ecb will do its part. That is a precommitment and very unusual, but tells you how serious this situation is. Lets wait and see what they come up with before judging too harshly. Francine paul gordon in all ofrt, he oversees our information about the Bank Including president lagarde telling e. U. Leaders the bank is looking at all tools and they will act. European stocks are under severe pressure. U. S. Futures hit the limit for the second day. Currenciesand haven are rallying. Coverage ofor live the ecb Rate Decision at 8 45 this morning followed by Christine Lagardes conference at 9 30 a. M. Pres. Trump from entering our shores, we will be suspending all travel from europe to the United States for the next 30 days. Alix no trump put. President trump fails to deliver stimulus investors want and offers a travel ban from europe instead. Markets in freefall. Bear markets wake up around the world. Analysts earnings outlook, and the fed throws money at the repo market. Christine lagarde under pressure to deliver stimulus after a surprise rate cut from the fed and the boe. The spotlight now on supercheap liquidity. Welcome to bloomberg daybreak on this thursday, march 12. It is going to be a painful day if you are long equities or you are trying to find a bottle in the market. , p futures hit limit down which mean they were down by 5 . Take a look at european equities