He accuses the social media giant of stifling free speech. Welcome to bloomberg surveillance, everyone. I am Francine Lacqua in london. The markets are trying to guess how much tension there is between the u. S. And china and how that will halt the economy. This is what is playing out in the markets. The stoxx 600 gaining some 0. 3 . Crude oil before 34 per barrel. 71599. I the u. S. Considering a range of sanctions to punish china for its crackdown on hong kong. The Trump Administration weighs whether to declare that the former colony has lost its autonomy from beijing. President trump says he will announce action against china before the end of the week. Meanwhile, protesters in hong kong cured up for what there could be their biggest day of unrest in months against chinas increasing control of the city. Lets get straight to our chief asia economics correspondent. This has certainly ratcheted up quite a lot in the coming days. How big are the protests right now . We have had hundreds of people gathering in one of the key shopping districts here today. That triggered clashes with police. A very heavy Police Presence right across central parts of hong kong today. There was a bill that would criminalize for the Chinese National anthem. We have a very heavy Police Presence. Hundreds of protesters are on the street. Buteast 16 people arrested that number will likely grow as the day goes on. There are key tensions here in hong kong and no signs of easing. Francine how does this end . I know we were trying to go through it yesterday and he explained it briefly on whether beijing was now trying to minimize some of the fallout. On whatijing back down they announced because the u. S. Is escalating it . Kong isu say, hong caught in the crossfire. H the u. S. And beijing are beijing sending a firm message that it will push through with this National Security law on hong kong that protesters say will erode freedom of expression and speech. The u. S. Is threatening to retaliate. It might involve sanctions against chinese officials. We know the u. S. Has an option of revoking some of the special trade status it already grants to hong kong. At the moment, there is no sign of either side backing down and no sign that beijing will back down. By all accounts, tensions are ratcheting up in hong kong. We have the key anniversary coming up in the coming weeks for the events of last year. We were heading towards local election in september, which seems to be a real focus point. No sign of beijing backing down. It looks as though the trajectory for tensions in hong kong are going ever higher. Francine what will happen the next couple of days . How do you see this playing out . The big thing will be how the u. S. Response. Sanctionsonsidering on chinese officials. We also have to see how the report comes out on hong kongs autonomy. By extension, whether or not the u. S. Revokes special trading status towards hong kong. Thats a key metric to keep an eye on. Ands feeding uncertainty considerations about whether or the rule of law will be to the point where the stat us of hong kong as a Financial Hub will be questioned. We know that the u. S. Is set to retaliate. Beijing is showing no signs of stepping down. Francine thank you so much. Endall have an update with throughout the day. Thenderstand that legislature in Hong Kong Holding a debate. Business sentiment improved in china but will tensions with the u. S. Hinder an already tepid recovery . The opinion of jean boivin from the blackrock institute. This is bloomberg. Francine economics, finance, politics, this is bloomberg. Rveillance chinas economy has continued its slow recovery from the coronavirus slump this month. Early data indicates that Small Business sentiment has improved with production and new orders higher. Lets get the view from my guest, jean boivin. Hes part of the Blackrock Investment institute. As always, thank you so much for coming on. How do you see this panning out . This is more tensions in a geopolitics coming to the front between the u. S. And china. At a time when we are expecting more stimulus across the world. Jean good morning. Thank you very much for having me. Markets essentially focusing for now on the restarting. The signpost we can get from china about how he can play out elsewhere. That is the driver at this stage. It is a pretty strong driver. We have seen continuing support to risk assets throughout may continuing this week despite tensions increasing. I think the good news is we see signs of ability to recover after big shutdowns. We get to learn also about which part of the economy are easier to restart versus others. News. S the good on the other hand, it is going to be a very gradual recovery, as we can see from the way it is playing out in china. On the background, there is the tension, which you mentioned, which is in the minds of investors and we are watching. At one level, this is adding to a trend that was already in place leading up to the u. S. Election. Escalation of the u. S. China tension was already at play. If it were to intensify, that could be a risk to markets. Francine this is our question of the day. Basically, we are trying to figure out why are real and financial world diverging . How difficult is it to put that into perspective . Jean the one way to look at things, which is there is a disconnect between what is happening to the real world and activity in the economy and what is happening to financial markets. I am not sure this is necessarily the right way or only way to look at this. The markets have moved a huge amount in february and march, anticipating a very significant shock. We saw moves in line with what we saw in 2008. Since then, things have been recovering. I think you can reconcile that by the fact that the trough and activity we believe will be in in activity we believe will be in april. A lot of the bad news is behind us. On the back of this, it creates an environment where initial, big response from markets, adverse response. We see some market recovery. I dont think there is a disconnect. There is a question of whether the market is factoring too much at this stage. It is not an issue of disconnect. It is an issue of maybe being too positive on the nearterm trajectory. Francine are you expecting a correction because of that . Jean not a correction. We find it hard to have conviction on directional in the nearterm from here. On the one hand, you have seen a pretty significant rally. That makes you cautious on the one hand. New other, there is going to come. As we see more economies restarting, i think that creates comfort on the ability of activity to globally move in the right direction. There is such a high degree of uncertainty around all these variables that one way or the other, it is very difficult to be heroic and make a directional call up or down. That is why we are neutral. Say whereicult to things are going in the nearterm. Francine when you look at all of the stimulus out there, we are expecting Something Big from the bank of japan. Is the danger that we do not know how Central Banks will unwind all of these extraordinary measures . Jean yes. Have seen nothing short of a policy revolution over the course of a few weeks in february and march. The scale and size were unprecedented. We are now adding slowly to what was already big. The announcements are all in the same direction of adding more. I dont think the big risk in the near term is about how we from this. I think it is a significant question a mediumterm and for longterm investors. For the nearterm, i think the question will be more about whether we risk running into policy fatigue. Its one thing to make these big announcements, it will be another thing to execute on them and make sure they reach the entities that the cash flows support. We are more worried about fatigue in the nearterm. When you look at overall, you know, the kind of recovery that we will see, you seem to think that actually the recovery could be much quicker than predicted at first. Is that because the lockdowns ended before we were expecting them to or because you are expecting the rebound and consumption to start back pretty soon . Jean it depends on where we benchmark our initial expectations on this rebound. Clearly, the rebound will be a few,ore gradual and over a many quarters than was anticipated when the virus first hit. I think we have all been our forecast in the next couple of years very materially. That is a starting point. However, we have been talking lshaped. , the alphabet framing was within a couple of quarters. Now, we have the same alphabet framing, but it is within a couple of years. Even the most bearish forecast right now is still expecting some recovery by the end of 2020 two level us to level us to a level before the shock. This is a very material shock that plays out, very gradual recovery. That is still a lot smaller in terms of cumulative impact than what the Global Financial crisis was as a benchmark. Given all the price moves we have seen and where we are now, logices some reasonable to expect risk assets to be well supported on a five basis from here. Fiveyear basis from here. Francine what does it mean for how you diversify your portfolios . I know you like u. S. Treasuries, i think. Jean one of the Big Questions is, how do you get resilience and diversification in your portfolio in this environment . What has happened over the course of the last few months is structural but these are very material. Hand, as a general statement, because of the innovation that Central Banks have done with putting new ways which are now at the lower bound with putting new rates which are now at the lower bound everywhere and Central Banks conducting some form of yield curve control, the role that government bonds plate, portfolios, is being questioned pretty fundamentally. We are less keen on government bonds playing a central role to protect portfolios for downdraft on equities. That is one aspect. Where do you get resiliency elsewhere . Emerging markets, countries that are exposed to china growth could provide more of that resilience. They have higher yields, more room for rates to go down. A bit more diversification may be coming from there. It is less about government bonds, diversification going forward, and it will be more finding elsewhere. Francine thank you so much. Jean boivin there from Blackrock Investment institute stays with us. Let us bring you uptodate with what we have heard from Christine Lagarde. She says the euro area economy is actually facing a contraction this year in line with the european Central Banks more pessimistic forecast. What they had given is basically a range. In the last couple of minutes, madame lagarde saying it is facing contraction in line with the most pessimistic forecasts. She says output in the region is likely to be between 8 and 12 . That is the latest. The ecb is also due to update its official projections for growth and inflation next week. The governing council road to recovery. Jp morgan cheaper jamie dimon sees a good chance of a fast economic rebound in the u. S. What are the potential risks to the restart . We discuss that next. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets focus on the road to recovery. Blackrock says the cumulative hit to Global Growth from the Current Crisis is likely to be lower than in 2008. Woarn warn that the main risk is if failed to deliver policy in a timely fashion. There seems to be such a pushback in going into negative rates in the u. S. Doingany good come out of negative rates in the u. S. . Or do they have other tools that could achieve just as much, if not more . Policymaker, you never want to completely close the door on a tool that you have at your disposal. Negative rates is one of those tools. You never know, right . We might have a second wave down the road of the virus and they will need to be there will need to be some active response coming from somewhere. If i were in their shoes, i think thats the way they would do it. You dont want to completely close the door on any of those tools. I think they are pretty far from or the bar for them to consider that is pretty high. I dont think this is a central bank that has shown or embraced to negativemovement rates and have instead emphasized the potential downside. That is my own view on these things. The effective see efficacy of negative rates has been compelling. The main way by which negative rates can help is by signaling lower rates for longer but we are already in this world anyway. I dont think there is much traction to be gained in terms of stimulus by piling on and going further into negative rates. Sufficient is about negative rates and a starting point in the u. S. That is already pretty skeptical. That makes it pretty unlikely. Ishink a more efficient way probably to provide more stimulus. Those are by moving more decisively towards yield curve control or more specific ordination with policy or coordination with policy or going more direct. I dont think it is impossible but i dont think it is likely. Francine the European Commission is presenting its proposed Recovery Plan today. How important is it that there is something in there that shows solidarity . Well, certainly the news flow of the last couple of weeks have been encouraging. We have seen compromises being made by germany and france. G to showtial thin some verity is that there is a significant part of this program that francine we have to leave it there. Hopefully we can get you back on. Soon. This is bloomberg. Staying connected your way is easier than ever. Youre just a tap away from personalized support on xfinity. Com. Get faster internet speeds with a click. Order xfi pods to your home in a snap. Or change your Xfinity Services with just a touch. All in one place. Youre only seconds away from all of that on xfinity. Com. Faster than a call. Easy as a tap. Now thats simple, easy, awesome. ,rancine economics, finance politics. Lets get to first word news. Twitter has started Fact Checking president donald trump. Yesterday a pair of the president s tweets making unsubstantiated claims about mailing voting. Thes readers to a president says the network is stifling free speech. And the plan includes incentives to buy electric cars, cash for clunkers, to encourage consumers to trade in older models. Billion euros 8 in nissan and renault have announced a rebound to their alliance well each company will focus on key strengths. Nissan on a thomas driving, renault on electric cars. On autonomous driving, renault on electric cars. The move could deliver savings as much as 40 . That is your global news, 24 by 2700day, powered analysts in 120 countries. Christine lagarde says there will be no euro debt crisis after the coronavirus seeing the impact on the euro area economy will likely be between its medium scenarios. The ecb president has told us policymakers are committed to fragmentation. Take a listen to what else he had to say. The emergencyt to program, they have to say that it is going to be an emergency situation and it will be temporary. In that, we are doing that, so thewe have seen that movement of markets has been positive. But are you open to abolishing . That i can assure you capital keys have reference. Not only in terms of the assets we purchased, that we buy, but the timing of the purchase, that is sometimes much more relevant. The solution of markets is much more quiet. It is now, but we dont know if there will be a second wave. There is also a chance of a surprise, a shock. One thing that you have not announced his reinvestments. This is something that a lot of people expect has got to happen. Does it have to happen . Luis the program lasts on your end, we will see. We have not decided anything on that yet. But i suppose that we have time. Paul we dont know if there will be a second wave next winter. Luis there is a variable. , a solution of the pandemic. But a sentiment of the markets is much better than it was a month ago. That has to do with the evolution of the pandemic, the flattening of the infection curve. I dont know what is going to happen with the potential second wave. Detrimental. Very market inws of the the recovery of the economy. The worst of the pandemic is over. I think this is going to be important for everything. Financialiced in the stability review that low. Nterest rates are a burden now there are reload rates for longer. It erodes the profitability of banks and threatens the insolvency of some insurers. In terms of Monetary Policy, you have to stay away from more Interest Rate cuts and focus everything on purchases. Luis our approach with respect to the impact of the loan for longer in terms of Interest Rates is the real cost and the real drivers of the low profitability of banks is not our Monetary Policy. It is much more structural. There are structural reasons behind capacity. Atthat even when you look Monetary Policy, our Monetary Policy was positive with the provision of the banks because sothe recovery improvement when you put together in a the council for Monetary Policy, you can see that at the end of the day the policy is not the real cost of the paul it is acknowledged that the longer those rates last, the bigger the problem becomes. In terms of the programs of our Purchase Programs, in terms of the liquidity that we are positioning, giving to them today. Paul but will there be cutting rates more . Luis we are focused on delivery of the liquidity to the banks in good conditions. As well as our Purchase Program that i think well have a real impact on market conditions. Francine that was luis de guindos speaking with paul gordon. Now, pernille henneberg. We ares pecking this recovery fund. What exactly will be the proposal . We spoke yesterday to the swedish finance minister, that she said they dont really