Markets could hit that Circuit Breaker limit. It is incredible when we think about the volatility. It doesnt seem like the Federal Reserves jay powell has calms kets by any has combed has calmed markets by any means. Francine lets get straight to the bloomberg first word news in new york city with viviana hurtado. Viviana we begin with the most extreme effort yet to slow the march of the coronavirus in the United States. The cdc recommending events of 50 people or more not be held for two months sports, weddings, parades, concerts. All of these are on a twoavoid list. The economic slump in china is worse than analysts feared be the coronavirus leading to factories, shops, restaurants enclosed across the nation. Industrial outlets plunging 2. 5 . Retail sales were down more than 20 . Now the first oneonone debate between president ial hopefuls joe biden and Bernie Sanders. They sparred on ideological lines over how the government should respond to the coronaVirus Outbreak. Mr. Sanders says it has been made worse by a lack of the singlepayer health care system. Mr. Biden says government needs to respond like it is at war. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, viviana hurtado. This is bloomberg. Taylor . Francine . Francine this is what youre markets are doing. It is clear the while that while the other central bankers are trying to stabilize liquidity, investors are reacting to the Global Economic outlook. Over the weekend we had nike and apple announcing mass store closures. It is a very clear risk off move, taylor. The european stoxx 600 down 7 . The u. S. 10year yield at 0. 79 . 106. 08. I want to look at gold, 1535 is where we are. There you go. That is what i wanted to show you, taylor. You look at pound, at 1. 2338. The italian 10yuri yelled at 2. 0 the italian 10year yield at 2. 03. Taylor there is more fallout into Market Reaction from the Federal Reserve, jay powell there. Take a look at the futures market. We know that 5 is the down limit on that. You are getting some euro strength crude barely holding in, about 30 a barrel. You are getting the vix that is elevated, off the highs of 75 last week. Anything above 40 frankly gets my attention. The bloomberg dollar index, i cannot wait to get some Expert Opinion on this. Curious to see if it will be , given a safes haven. Francine the Federal Reserve swept into action sunday, cutting the benchmark interest pointy a full percentage to near zero. Response to this challenge will come from our Health Care Providers and policy experts. Economic policymakers must do what we can to ease hardship caused by the disruptions to the economy, and to support a swift return to normal. Is thee joining us now actionrg economic correspondent. Has the fed acted too strongly and too soon . Are people panicking because they have done so much . I dont think people are panicking because they have done so much. The list of things that you were just talking about is why the markets are panicking. Italy is shutdown, france, germany, spain joining them, and the u. S. Is starting to shut its economy as well. Although all the bars and restaurants in new york city will be closing tomorrow. There is reason to be concerned because if you are discounting future Revenue Streams, you have no idea what those Revenue Streams are going to start to resumed when those Revenue Streams are going to start to resume. Jay powell said last night he is not doing this to help the average person in the street because they cannot reach them at this point. The fed stimulus will help once all this is over. Their goal is simply to keep the markets functioning. That is going to be an interesting thing to watch. It is not clear, from the analysts i spoke to, that prices are flocking anything near reality. Last week we started to see some friction in the market start to develop, and the fed is addressing that. Going back to the 2008 playbook, saying we know what happens when markets freeze up, but we dont want that this time. Francine michael, have we avoided worse . With what the fed has kept on saying, the markets kept on saying, is that the crisis does not turn into a financial crisis. If you put a floor under risk assets and try to support recovery, can we avoid a financial crisis . Michael we dont really know because there is a completely new playbook. As jay powell said, it will depend on the epidemiology, the progress of the disease. But at this point, they have done just about everything they can do to keep markets functioning. They can ramp up mom purchases, do more if that is necessary, and they may put in place some special lending programs, particularly through the commercial paper market. But at this point, they are turning everything like a fire hose onto the markets to try to keep them functioning. They cannot prop them up, but they will at least try to keep them functioning. Taylor are we finally calling this qe . Michael jay powell said last night that we do not care what you call it. It is hard to separate this out from the moment from Everything Else they did, but over the period of time they are doing it, it will help hold out, particularly longer maturity. Taylor are negative rates in evitable at this point . Michael you get into a debate about that. In terms of market rates is where you might see, especially in the short and, negative rates in the United States. Since i left here last night and came back this morning, rates have gone up a little bit from where they settled after the fed action. But negative rates are probably not going to happen in the United States. The fed does not want to do that. They do not think it is particularly well even in europe, and they do not think it will work in the United States because of the money market system. We have so many money market funds that will not be able to open if the fed went to negative rates. Mckee, on topael of anything that Central Banks are doing. Lets get straight to the berenberg senior economist, and jane foley, rabobank. Lets kick off with you. Just said i amn baffled and upset with what the fed announced and what it did not announce, baffled because measures were targeted and actual potential market failures are more effective at this stage. Is that why the market is disappointed . Jane i think in terms of what the fed does, it is what it did not do that is beginning to worry people. If we look at the coordinated intervention that we saw from the fed, we saw that coordination, the g7 Central Banks the bank of canada, the bank of japan, etc. Ecb. But you are not looking at swaths me of the the swaps lines to other parts of the world. What about china, emerging markets, the dollars that they need . Clearly since the Global Financial crisis, there has been a Significant Growth in emerging markets. Significant increase in dollars needed or dollars demanded. Dollars remaining theme the only transactional currency, a huge amount of dollardenominated debts in emerging market spirit some of these countries are likely to be struggling, some of the corporates in these countries could potentially be struggling to get their hold on dollars. If we go back to the Global Financial crisis, the fed has commercial paper funding facility. That was announced in 2008. I thinkon to 2010, and that enabled liquidity of dollar throughout the world. They have not yet done anything like that. That does not mean to say that they will not, but it is reassuring to think Something Like that in the announcement yesterday. Francine do you agree with that . If it were more targeted, they be less of shock and horror, would it have helped to the markets . Callu at the moment we are learning how significant the economic and Financial Market is with the financial with the coronavirus. I am not sure that they impressed markets with anything it could have done. Fundamental difference now versus a decade ago, there was a great crunch spilling over into the economy with cash flow problems. This time the problem is in reverse. You have cash flow problems linked to the containment measures to stem the virus, which could have a fundamental problem in credit markets and it could cause a credit crunch. From Central Banks, i think what they are trying to do now is get us through the week in the Financial Market. What we need to see is on the fiscal side governments start to do pretty much whatever it takes to convince Financial Markets that firms that run into cash flow problems will be able to enjoy the financial backstop from the government. If the markets can be convinced that the cash flow problems will not emerge in a severe way, i think that is the thing that will put confidence back into markets and put a floor under the selloff. Fundamentally we will stop the severe dislocations and credit markets. Taylor we just heard Michael Mckee, who said jay powell does not want to do negative Interest Rates. I wonder at this point, is that almost inevitable . Jane i dont think negative Interest Rates are inevitable at all. In the last few years, another thing learned by negative Interest Rates, if we look at the experience of japan, at the experience of sweden, there has been a lot of criticism about the knockon effects. One of the Academic Studies suggest that negative Interest Rates might work as a short treatment, but they could there could be byproducts. In sweden, they are concerned about the impact it had on asset Price Inflation and the impact it had on households. Households, property prices are higher. There is a lot of debt as a potential of exposed blue income. Look at the banks. In japan, they have been operating for the last few years at negative Interest Rates were a cute qe policy with real curve control with a cute qe policy policy, with a policy to encourage banks to lend. Curve is flat, we try to steepen the back end. So that they negative and should rates, or the low Interest Rates can be pushed on into the real economy. It is a lot of problems with negative Interest Rates. Australia did a study, that really the bottom for them would not be 0. 25 . That is similar to the u. K. Of difficulty with the u. K. Turning profit. Possibly the fed, it is the same analysis that is true. For many Central Banks, they would rather use that quantitative easing programs when rates get to a certain point. For now, we can probably conclude that that is the way the fed would go p reviews the Balance Sheet is a big monetary tool. That is what we are seeing now or that is probably what we will see with the fed. Taylor i want to pick up on what you are talking about earlier, expanding on the fiscal stimulus that you would like to see as monetary authorities are what would you like to see in the u. S. On the fiscal side . Kallum they are running out of ammunition. If they are willing to accept dollars and still the euros and centralbank create the question is what kind are we facing and do Central Banks have the right the reason the rates are not the appropriate tool, you do not want to penalize banks who do not want to lend to the markets. Understandable that the banks would not want to lend in this environment. That is nothem going to work. What banks need is confidence that if the issue credit they will get paid. So when it comes to fiscal policy, this is where things can become much more effective. You can guarantee, for instance, loans of small and mediumsize grants. You can make sure that households get tax breaks, get direct handouts of cash if they need it. You can introduce like they have and germany, which is essentially employment protection insurance, which makes sure that those that through the downturn, those will give the institutions the confidence that if they need loans they will need they will have it. This is ensuring that they will get paid. Here is the absolutely key point it is a question of confidence. The longercan the Credit Institutions have the confidence that governments will provide the financial backstop, they will give them the incentive to hold down labor and they will prevent defaults, and essentially the taxpayer covers that over a fiveyear or 10year period. Authorities much more scope to focus on the real problem, which is the fundamental Health Crisis at hand. Kallum pickering and jane foley both stay with us. Coming up on daybreak americas, a former Federal Reserve bank president. We will have an interview with him on negative rates. This is bloomberg. Laura you are watching viviana youre watching bloomberg surveillance. British airways is cutting capacity the next two months by at least 75 . I ag is also looking to cut operating expenses per the company says coronaVirus Outbreak is happening at increasingly negative impact on demand. 28 giant u. S. Banks during the coronavirus pandemic, they will focus on supporting clients and the nation. Jp morgan is one of the banks. America,e bank of morgan stanley, bank of new york mellon, and state street. Aramco is cutting gets Capital Spending target by as much as 24 . It is the first sign that the price war and coronavirus are aiding home in saudi arabia. In 2019, profits falling 21 . That is the Bloomberg Business flash. Matt Horton Annmarie how dohocking that they keep oil at 30 . Annmarie this is why they cut their capex. Those are the two biggest headlines. They obviously want to keep that dividend rolling, switch we will see a lot of oil majors not able to do, especially when you see where oil is trading at. Today i think they will face a lot of questions because aramco is the tool for the kingdom, and the kingdom and the government decided they want to bring up maximal sustainable capacity. To do that it will cost tens of billions of dollars per the Energy Minister said in 2018 if you want to go from 12 to 13 you will have to spend 20 million to 30 billion. How do you do that when youre holding back on your capex spending . They have a call at noon london time. Islor the capex reductions, that a secondquarter issue or a 2021 or a 20202021 issue . A 2020 issue in general, but there are so many questions about bringing production up to 20 Million Barrels a day. All of it is under review, which says to me this could be an issue for the years to come. Long will the oil price rage on . If you look at timing, how long can the saudis continue to flood the market . At some point, does it become too painful . Annmarie that is a really good question, francine. Analysts are saying that saudi arabia is going all in on this. Part of the strategy might be that they flooded so badly that russia at some point has to say to them, we want to come back to the table. But when you look at every major producer in the world, cheapest barrel of oil will come from saudi aramco. They are the ones that will be able to sustain a Lower Oil Price in terms of aramco, but the budget is going to start taylor what are we trading on brent . Annmarie nearly 30 a barrel. They will start to fear the pain to feel the pain. Francine coming up later this money, the bp chief financial officer. He will be on daybreak americas peer can dont miss that interview. Bloomberg. Omberg pete francine this is bloomberg surveillance. Taylor riggs is in new york. U. S. Equity futures tumbling, european indices also down. The fed and other Central Banks have dramatically stepped up efforts to save Capital Markets and liquidity. Investors trying to does to digest his ceaseless bad news from companies . The stoxx 600 is down 0. 7 , gold is up. Taylor i want to take a look at where the u. S. Markets are. The futures,own on sp y down more than 9 . If we open at these levels, we will hit the third Circuit Breaker limit for the third time in just the last week. We know the story with the fed, coming in you have 30 yield 30 having your yields down 30 basis points. Today on later bloomberg television, the nasdaq ceo, going back to my world of tech. This is bloomberg. Markets reeling despite action from the fed and other Central Banks yesterday. Lets get to jane foley. Callum, i know you cant see the chart but we can see us. It basically shows the probability of a u. S. Recession is about 50 . Earlier, we were talking about with the fed did and could have done. Are not at work right now, so what are the tools the fed can use to try and make this economy better . Can they suspend mortgage payments and loan repayments for three months and pick up where we left off . Those of the kind of policies which can help. I think it is inevitable now that at least a major policy advance we will see a recession in the first half of the year. Best tocies to the contain the spread of coronavirus, the limits to daytoday life are a huge and Unprecedented Demand