Government in a phase four plan. That is helping to lift equities. No surprise, you have the underperformers again starting to surprise. Nordstrom and the gap are the two strongest is in the s p right now. Those are the names rallying. You have to wonder about the efficacy of the rally. Priceslped by energy getting some stability in the u. S. Despite the fact we saw an and norma screwed inventory build of 15 million barrels. I had to actually look three times out the number because it was so big. You are seeing that risk on continuum, but i have to have doubts when you have nordstrom as the Top Performing stock in the s p. Guy lets talk a bit about what is happening in more detail in europe. We are trying to figure out what is going to happen next. Eu ministers are divided on how to finance the regions fight against covid19. Yesterday, 16 hour call. Tomorrow, they were doing again. Aance and berlin both saying deal is close. The question is, what are the sticking points, and how big are they . Joining us to try to answer that question, maria tadeo. Maria theres many issues happening, but it is true really that the core debate is what is going to happen with ease, and that conditionality with the esm and that conditionality. Esm is am line is the bailout fund, and anything that means credit usually does have position out of the. The wording off of that is particularly sensitive for a country like italy because this issue has become so politically toxic. The whole thing happening in brussels, and rome, Matteo Salvini was saying that if they were to take the esm credit line , he would be selling out the country to brussels. That is very problematic within the internal dynamics of italy. There are countries that legitimately feel that just what is on the table right now will not do it. We are seeing forecasts from the commission for people that have access to information, and they point to a big contraction for the european economy, perhaps as biggest in percent. There are countries that see we actualmething bigger, cash to stimulate the economy, but there is no agreement on that, either. Alix here in the u. S. , the way that some say companies have gotten around a stigma like banks is they all tap a fund. We are all going to do it so no one knows who needs it. We are all in this together. Is there any conversation around that when it comes to the esm . Maria thats a good point. In fact, this is something that countries have pointed to potential he. I am picking italy, but also , almosts been floating saying that this is a credit line that this should be available for everyone. It is not about pointing fingers. We dont necessarily want to tap into it because the European Central bank a lot of our debt, but we dont want anything short on the credit side. We want something that is big so that at the end of the year, we have the equivalent of a Marshall Plan for the european economy. We want something that is not designed to be a shortterm shock, but actually to deal with the applications. Potentially, italy will in the year in a big recession and with a lot of debt on its balance sheet, and they dont want to do that because they feel if the market were to turn against them, it would be in a much bigger position than before the crisis. Guy what is the view in brussels about what happens if a deal cannot be done . Europe is famous for finding compromises. What is that is not possible . Being, thishe time morning it was disappointing, i think. That was clear. But the french and germans were very quick to react to this and say they do believe there could tomorrowromise, and there is another meeting that has been scheduled. Theres almost a sense of is the seconde it time that ministers have come together and were not able to get a deal, and they are aware this is not a good look for europe on the global stage. If there is no agreement, this will has to be this will have to be escalated to the european leaders negotiating themselves. Alix there is a school of thought the talks about the fact that if there is a give to the peripheral nations, it is actually going to move towards a more antieuropean stance in the northern countries that have been more responsible with their budget deficits. Are we just going to be talking about a lot more protectionism and antieuropean feeling in the next six to 12 months because of this . Maria that could happen, and it is some big net has been floated to say that ultimately, we have to factor in these countries becauseople are dying this has also been an emotional shock to the country. It is not just economic, but a social crisis, and a Health Crisis on top of everything else. It should not be seen as the greek crisis, for example. Many of the other European Countries have gone the italian way, have gone into a locked down and have had to pick these measures which, just a month ago , everyone believed the Italian Government would not be able to deal with. But i do think that is something to be factored, and ultimately, the will look at this and say, this . Uropean union this is very fragmenting in europe, and it is very polarized. Alix no easy answer, thats for sure. We will be talking about this tomorrow, no doubt. Maria tadeo, thank you very much. We want to give you a deeper update of what is happening in the markets. With us now is taylor riggs. Taylor take a look at these equity markets. We know yesterday, we had a race we had erased the biggest. Neday gain to loss we are now climbing back up to about 1. 2 or so. You are seeing similar moves to the downside, going over into europe and london trading, where they are seeing bigger losses then we are here within the u. S. We also know that yesterday we broke 12 Straight Days of 1 or more in one direction. Or more in any one direction. It looks like the dollar is settling into a firmer range. Going forward, you are seeing some of the fx volatility start to fall a bit, so it could mean smaller moves for the dollar. We also know we are awaiting more fed minutes today from their emergency rate cut meeting, so that could perhaps move the dollar as well. It is also moving bond yields if you take a look at the next screen. We are seeing some steepening of the yield curve, with two year yields coming down, followed by 10 year and 30 year yields rising, so that twostens is now steepening by about four basis points or so. That got to 48 basis points. I was reading another strategy note here from mr. Mark grant. He said, forget six feet of social distancing viviana the bond markets of social distancing. The bond market is looking like 26 feet of social distancing. Some of the biggest movers we saw to the downside are some of the biggest gainers we are now seeing to the upside. This is all about retail. In the last five days, you had nordstrom, kohls, l brands up 30 to 50 , even after the retail index is only up 8 or so. Nordstrom today trying to tempt junkbond investors with a 10 bond yield. They are perhaps seen as a discount retailer that can do well in a recession. Luxury has been hit a lot harder. Guy absolutely. It is going to be interesting to see at some point whether or not people see some value at the more risky end of the highyield market. Those yields have got to go a little higher. Coming up, we are going to get more insight into the markets and a failure of European Finance ministers to reach a similar deal. Our guest is this woman, steven major, global head of fixedIncome Research joining us man right is this here, steven major, global head of fixed Income Research joining us from hsbc. This is bloomberg. Guy live from london, im guy johnson, with alix steel in new york. This is the european close on Bloomberg Markets. Italy has said it wont except a bailout unless it comes with some degree of european debt mutualization. Italy went into the crisis with a debt to gdp ratio of over 130 . Joining us now, steven major, hsbc global head of fixedIncome Research. Do you see debt mutualization as a realistic prospect in europe . Of it is think some happening under the table. I always thought it was borderline inevitable. We just have to understand how the various institutions work. It is only a baby step necessary for the markets buying into this a bit more. I am not saying we are going to have fullblown mutualization. That isnt how it works. You know very well because youve followed it yourself that the btp balance sheet, the better part of 6 trillion, is mainly a central liability. That means each country is in it for itself. The italian btps, such as the bank of italy, our dinner five by the italian treasury. But what happens in the longerterm . What does the ecb reinvestment strategy look like . What do they buy . How do they finance their position . They create huge amounts of reserves, some of it they are paying zero rates on. It goes to the banks. That is an asset for the banks. It is a aaa asset as well. Theres a kind of stealthy mutualization if you incorporate all of the eu institutions and how they are involved. It has been building up. The picture today is completely different to 10 years ago. Thee was no bomb of c2 scale 10 years ago. If you look at it in a kind of game theory, i think that the payoffs are changing towards the nt where both creditor ad both creditor and debtor will move towards some sort of cooperation. The direction is clear. Guy youve talked about the fact that the market only needs baby steps. Say we get a baby step tomorrow. How would you see that playing out in the market . Steven i think the italian market will like it. I think theres already one trend you can see, bunds vs. Sw aps. Thats been tightening since last september. That is when the ecb cut down to tiering,uding the which i think was a big deal. Bunds over the next months and years, i think they are going to glide towards swap yields and supranational yields. I think they will gradually lose the benchmark status. In the near term, any baby step or clarity, all it takes is a working group to be set up to discuss this. It doesnt have to happen today. Anything like that is good for the btps, great bonds, portuguese, spanish bonds. Btp spreade bund pushing towards 200. Alix would you be recommending taking position to reflect that kind of you right now . What would that look like recommending taking positions to reflect that kind of view right now . What would that look like . Steven i think the floor has been seen for bund yields. Twice in the last six months, youve seen twoyear bunds 90 and 100. Thats close to the reversal rate, where if you go any lower, you are tightening financial conditions. So it is irrational to buy something on the reversal rate, unless of course you have inside information that the euro is going to break up, but that isnt going to happen. That is not a plausible scenario here. To me come of the floor has already been seen. The tiering system, moving towards more cooperation and integration, that to me gradually chips away at the bund benchmark status. I think it is difficult to imagine bund yields at 90 to 100 again. The floor is in. Alix is the floor in for treasuries . Steven not for the treasuries. We seen 30 points intraday. I doubt we will see that broken. I dont think we will see it again, to tell you the truth. If you had a 30 basis point in your treasury again, it is like saying that the policy rate is going to be at zero for most of the next 10 years. That is how the discounting works. In japan, the 10 year yield is zero because the policy rate has been zero for the last 20 and probably will be for the next 10. So the 30 basis could stick in the u. S. I dont think we will get there on a sustained basis again. Our forecast for q2 is 60. We are probably in the range of 40 to 90 for now on the 10 year treasuries. To your question, we have seen possibly the intraday low. We have probably seen the floor for treasuries with 30 basis points as well, yeah. Guy you think we are heading in the direction of the fed using curve control. Walk me through how that would work. Draw upon what happened in the Second World War , and in japan currently and australia. I think the short answer is they will look at the front end, first of all. Maybe some ramped up forward guidance. Can you imagine what the new dot plot might look like when they bring it back out again, if they do . Know, maybe they will focus more on the jobs side. But the point is they may need a tool to guide the expectations for rates. I think it is very difficult to cap the 10 year when it is so low because it is not a credible cap. It cap has to be credible and workable for a 40 year period, and yields down here at 70 basis points are difficult to hold. 2 the yields were at 1. 5 to , it would do. Guy we really need to see some inflation into the system. How would that affect the way the policy works . Theres an expectation we are trying to keep yields low across the curve. Once inflation kicks in come up with the fed become double still doing that kicks in, would the fed be comfortable still doing that . Steven most of us would agree that governments and Central Banks need to Work Together to manage a long period of financial regression. You noted in the introduction debt to gdp levels. They will go up in many parts of the world just in the next few months. To make this affordable, it needs to be managed over a long period of time. Having inflation above the negative real yield would help. So yes, i think that is part of the process. Could not with a straight face articulate to you how i think inflation is going to go up. I could give you a bunch of stories and call it narrative, but im not sure i believe any of them. That is coming from someone who struggled with the inflation argument for most of his career. So we can make up stories about how wages might go up in some sectors, but we can tell you some others that are going to fall. I think of Financial Services being one of them. [laughter] wages surging of and being a bubble for Central Banks in the nearterm i dont see being a big problem. I think right now it is about jobs, getting money to people, households and corporates. At the moment, inflation targeting seems long gone. Alix really great stuff. Always enjoy your perspective. Steven major of hsbc. We want to get you caught up on what is happening with the rest of the world. Here is mark crumpton. Leaders inratic Congress Want at least 500 billion of stimulus in the next phase. Democrats also want money for hospitals and state and local governments. Dr. Anthony fauci says the start of the turnaround against the coronavirus could come after this week. The Infectious Diseases team told fox news that now is not the time to pull back from efforts such as social distancing. Dr. Fauci also said the Trump Administration is discussing how to reopen the economy, but says that doesnt mean it will happen right now. British Prime MinisterBoris Johnson is stable and responding to treatment for coronavirus. That is the word from his spokesman today. The Prime Minister is still in intensive care. Foreign secretary dominic raab is stepping in for Prime Minister johnson. The Worlds LargestOil Producers are inching closer to an unprecedented global deal to cut output. Saudi arabia and russia are debating terms before tomorrows virtual opec meeting. Meanwhile, the u. S. Sees production falling almost 10 this year. 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. Im mark crumpton. This is bloomberg. Back to you. Guy thank you very much. Coming up on the halfhour, the latest Economic Forecast from ifo. We will talk to this gentleman, timo wollmershauser, putting out a very bleak forecast. We will get they details next. This is bloomberg. Guy welcome back to Bloomberg Markets the european close. Bernie sanders over the last few minutes announcing that he is suspending his campaign for president. We have obviously weighted potentially for this moment to come. The path now seems a little clearer for joe biden. It is also worth noticing that governor cuomos briefing is starting. If you want to pick that up, there is a top live running on the bloomberg. Let me show you some final numbers as we come through into that close as we head into the auction process. Most of the european markets are down. The dax outperforming a little bit. The close is next. This is bloomberg. The 30 seconds to go until end of european trading. Thursday is last day of the week effectively. Lets look at where we sit with the session. Climbedless, we have from the lows in europe. Not down as much as we were midmorning. We are climbing back up. We have not made that positive line. In terms of what we have seen around the individual market, it is dependent on the mix of the market. The ftse 100 suffering. The oil and gas sector has traded softer. It is the worst performing sector in europe. As a result we are seeing that dragging the london market lower. Some of the insurance stocks have been pushed lower. The dax outperforming. The cac 40 in paris on par with what we have seen in germany. Lets look at the sector breakdown. It tells you what is going on. The top end of the story when it comes to sectors, travel. Travel has been getting a decent rally over last few days. Clearly the most beaten up sector. Maybe a dash for trash underway. The bottom end of the market is the oil and gas sector and the insurance sector adding downside weight to the market. You can see that in the individual stocks. Lets look at individual names. We have seen pressure for the insurance sector. Certainly here in the u. K. The regulators have been putting pressure for dividends to be withdrawn. That is happening. Bp down 2. 38 . Look at what is happening with daimler. Daimler coming out with positive statements in terms of the fact it believes the Current Crisis will accelerate its restructuring. It finds itself in a fairly good situation. Dime lurked catching a bid. The car sector trading strongly relative to the market. , but relative. 3 to the market outperformance coming through. The biggest story may be european equities being lowvolume. Different than what