Of europe. Early on, we saw the autos up more. 1. 36 ,os are only up 1. 42 . The german tenyear now catching a bit as well, negative 0. 44. David from Credit Suisse is going to be joining us to give us his technical picture about what is happening here. He is certainly very interested in how the markets close at the end of the week. David is coming up from Credit Suisse, the head of ta at Credit Suisse. That will come up at roughly half past the hour. ÷bthe u. K. Story today, very g. We are watching very carefully as the data comes in. Is it worse than anticipated . Today, a little bit. That was certainly the gdp weed. Basically, we wiped out 18 years of growth in the month of april. The new of england, governor of the bank of england andrew bailey, has just done a poll interview. What play a clip of that, the governor has to say. There is question about how much longterm damage that will be and that is what we have to be focused on because that is where jobs get lost and where damage is done to peoples livelihoods. We hope that will be as small as possible, but we have to be ready and ready to take action. Not just the bank of england but more broadly on what we can do to offset the longterm damaging effects. The governor of the bank of england speaking moments ago. 20. 4 gdp drop in april, 18 years of Economic Growth that has been destroyed. Our guest from Morgan Stanley is joining us now. Andrew, a lot of focus now on what the governor is going to do next month. Sorry, next week. And ultimately where the bank goes with policy. I guess the question that feeds off of this from a market perspective is, do you buy at this point . Are rates going to go lower . Do you buy on that expectation . We would not at the moment, but i think there is a good reason to believe that gilts are going to lag any broader move of yield higher as global data does improve. I think as you just highlighted, the u. K. Economy is really lagging other developed markets. It is clearly weaker than the eurozone at large. It is weaker than the economies in the u. S. And asia. 9ii think that weakness is a reason that we are seeing the price action we have seen in gilt so far and a reason why the bank of england is going to need to stay dovish. We dont think the bank of england takes its front and right negative end rate negative. We think that would be technically difficult but the bank of england could introduce some negative rates further out its lending programs to try to help the economy. Guy ok. Kind of floating with this idea as to whether or not we are going to see the bank going negative, but as you say, from a technical point of view it poses a significant number of problems and is hard to get out of. But it looks like we will get some extra qe coming through. That will have an impact on the market. There is talk of an extra 100 billion. There is a credit effect here as well. How do i position for that . I think with negative rates, again, what i think is important or something we think at Morgan Stanley is very important is, yes, there is a lot to focus on this, yes, the market has been position for negative rates, but if you take a step back, it is hard to say this is a particularly effective policy where it has been implement it. I think implemented implement ed. I think banks are aware of that. There is a reason why you can see the pound, like other currencies, expecting broader dollar weakness from our Morgan Stanley research view. I think the pound can be a laggard there. It goes to both the much weaker growth you are talking about, the underperformance of the u. K. Economy, but also that you continue to see a lot of uncertainty over what Brexit Strategy will be pursued and still no indication the government will look to extend that period, which also introduces some uncertainty. The pound lags is another way that we think fundamentals can work their way into market prices. Guy yes. In some ways, it is surprising the pound has been left relatively unscathed by all of this. You bring up brexit. Dnmonday, there will be a conversation about this. If it does not go well, how does the bank respond . What do you think the policy mix will look like for the bank of england . Andrew i think this is one of these dilemmas. I do nothing this is an issue that Central Bank Policy can really fix or address. I think the scenario where you have an exit without a deal is a very severe economic risk, one that cutting rates 25 basis point or what have you i think will not move the needle for. This is a challenge the bank of england has. It is not just trying to deal with this extreme economic fallout. It also has this other extra issue that it is attempting to deal with. I actually dont think there is a real clear path or a clear way the bank of england can address it. For some of those reasons, we do think the market can price in a higher risk premium to the pound than other currencies in the region. Does the boe and the markets have the same kind of relationship they do here in the u. S. . We talk a lot in the u. S. About the fed backstopping markets and the markets run the fed. Is it the same conversation over there or is that a little different . Andrew i do think at some level all Central Banks in the developed market have become more market sensitive. I think there has been a broad adoption of thinking about financial conditions as a key measure. Think that dynamic is also present here in the u. K. , but again, i think the bank of england is dealing with some particularly extra challenges. It has an economy that is underperforming significantly. And this overhang of brexit uncertainty is very serious because a lot of the centralbank policy is really geared at regaining confidence, getting investment going. Brexith the pandemic and are both events that discourage investment. You do not want to build a new factory or build out capacity if there is still uncertainty about when people will go back to work and still uncertainty about what sort of trade environment you will be in. Again, those are fundamentally very difficult problems for the central bank to address. Alix it feels like the u. K. Government itself has come under a lot of heat for their handling of the virus, particularly when it comes to reopening. Do you play the reopening trade in the u. K. . How do you think about that . Andrew i do think within the u. K. Something over equity in a lists have focused on is a lot more desk analysts analysts a lotocused on is more cyclical stocks. The market has priced in a lot of the uncertainty and concern around a slower reopening, but i think that is a reason why i come back to the currencies, we feel like a very ready instrument if markets wanted to express the idea that the u. K. Economy will lag, that it has struggled a lot more with combating the virus than its neighbors in europe. In a scenario where brexit was worse than the market expects or where Health Conditions are worse than expected, both of those could reduce the amount of investment into the u. K. , could we strain the recovery of the u. K. , and ultimately be currency weak. Alix e are familiar we are familiar with all of that. What do you do for feeding the earlier rally . This is bloomberg. It is a combination of just valuations made him vulnerable to bad news and bad news the market cares about has been hitting. It has been such a huge run that it has discounted risks to the reopened. We got really lulled into complacency on the buy risk. This is still a problem and is still going to be some thing we need to grapple with is coming back to the forefront. This is also about the value and momentum trade. And just how far and how he did that rotation has been. We have also seen an incredible rally from the bottom. The idea that investors may be looking to take some profits here is certainly part of what is driving this all. We should not be surprised by a reprieve after a parabolic rise. I do not think it is not surprising that we are taking a step back. And i would not necessarily think this is a sign of panic either. It could in fact be a healthy thing that the market either marks time sideways or drift lower. This is the reckoning that a lot of us are waiting for. We waited a long time. That was our guests weighing in on the forces that drove the selloff yesterday. Have we hit some kind of bottom . Can we bounce from here, or will we roll over . Joining us now is abigail doolittle. Abigail certainly a very volatile week to say the least for stocks right now. The s p 500 headed to its worst week since march 20, basically around the lows of the earlier bear market this year. Speaking of volatility, but it did not start with stocks. Is started with haven assets. Had japanese we yen futures also higher mysteriously midmorning. Fnsame thing with 10year nots moving to beasley higher monday morning. Simultaneous to another asset, oil falling on monday. That is risk off even though stocks were up on that day. That trajectory continued into tuesday and wednesday and really set the stage for the stock selling on thursday that we saw. Reasons,mber of those strategists talking about valuation, too far, too fast, parabolic moves. We take a look at a chart in the bloomberg terminal. This is the put to call ratio. When that goes down, that told nr g and calls buying. That speaks to the complicity and fragility of the state of the markets right now, quite frankly, and it really makes possible for the kind of selloff we have seen. Speaking of selloffs, it is the worst week going back to march 20. We take a look at the losses on the week, it is just ugly. The nasdaq 100 ironically earlier this week put in an alltime high, a record closing high, down 1. 8 . Outperforming even though it is down because the stay at home trade is working better this week as the cyclicals selloff. You can see that the s p 500 is down more, down 5 . Dow transports getting pummeled, down 9 . The Kbw Bank Index also getting hammered, down 12. 5 for the worst week for all these indexes in almost three months. Pretty ugly. As for whether or not it continues, indexes hitting their 200 and moving average. Will that hold . Mixed signals, perhaps a bit more bearish. Guy yes. Starting to turn a little more bearish now. Are down by 0. 2 , 10 on the week. Ofll with us, andrew sheets Morgan Stanley. What did you make of yesterdays price action . If we do not get a significant bounce today, what does that tell us . Andrew i honestly dont think i would read too much in any particular days price action. Obviously it would be technically better if we can hold gains today. That would be a better sign for markets, but over the course of june up until yesterday, we have gone up very far, very fast. Another way of thinking about what happened is we have effectively gone back to where we were at the end of may. We have taken out those gains very quickly. But big picture, i dont actually think much has changed. I do think we have turned a corner on global data. I think that is getting better. One thing i would note is that while a lot of investors rightfully were waiting for some sort of pullback after these very rapid gains, i dont think Investor Sentiment is close to euphoric or extremely happy. I think there is a lot of skepticism of the rally. In my conversation with investors, and of fear that farngs have moved too ahead of fundamentals. Fundamentals is a supportive thing for the market because i think there is a lot of doubt out there about the market that has reduced positioning, that has reduced how optimistic people would otherwise be, and limits the amount that we would selloff in this correction. Alix i just want to bring in, too, earlier we saw florida cases rose by 2. 8 yesterday. We are getting the fed semiannual testimony as well. I want to redo headlines. The data showed an alarming picture of Small Business health. Sector vulnerability will be significant. This echoes what we heard from jay powell on thursday. Basically saying he needs to be media trained some said so he does not sound so bummed. Having a substantial bid. Guy absolutely. When he talks about the fact that the bulk of the job losses and the pain coming into the lower economic strata of society, this is something that will become more and more important for the fed to think about. When the economy was roaring ahead and we had low employment, there was an argument that finally Monetary Policy was good for that portion of society. It is going to be interesting to see in a low inflation world whether the fed pumps up asset prices and we get the recovery people are talking about. But the fed continuing to pour cold water on this, and i wonder whether this is my what we are seeing in the market right now is starting to accelerate to the downside. Alix andrew, it is hard to answer that question daytoday. But overall, it does matter whether or not we are in able market or had a bull market with any bear market. That means whether you buying value encyclicals or stick with the growth oriented sectors in safeties, where are you in that spectrum . Andrew we think we are enabled market. A bull market. We think we started a new cycle. The fed identifying the weakness in the data is absolute the correct. The u. S. Economy and Global Economy is still in and in quickly week place. I do think it is very important to acknowledge that markets usually lead the economy. A lot of the markets better gains have come in periods where the economy is weak but stunning to get better and some of the markets worst performance have come when the performance is good but the data is getting worse. Trend matters a lot more than the level. Your point on a rise in case count is important. That is a real risk we need to watch over the summer because i think as you guys were mentioning before, you can debate whether or not it would be a second wave or just a continuation of a plateauing first wave in the u. S. Big picture, looking out, we do think we are in an early cycle environment and thus we do not think we are starting a new bear market. Guy does it feel logical to you that we are seeing the most beaten up stocks bouncing in the way that they are . I am not going to get you to comment on individual stocks, but hertz is able to raise money in the stock market despite the fact that it is technically bankrupt. Does that sound like a properly functioning market to you . Andrew obviously, i will not comment on any particular company, but i actually do think the pattern of performance that we saw over the last month where you had small caps outperforming, more cyclical stocks outperforming, that is very normal. Often when growth is very weak but not getting any weaker, which is where we are, that is often a time when those smaller and more Cyclical Companies start to do best. In many cases because they have just done their worst as data was very weak. I thinkm that sort of early cyce pattern i think is much more normal than abnormal. In some ways, the oddest part of this market was that some of the same stocks that had been 2019, athroughout 2018, lot of this largecap quality growth had worked in an environment where growth was sloping and yields were falling. Markets wereked as declining and markets started to rise again. I think some change in that leadership is healthy. I think that would suggest a more sustainable shift in Broader Market patterns. Guy yes. Andrew, thank you today. We greatly appreciate it. Andrew sheets of Morgan Stanley. This is bloomberg. 23 minutes past the hour, it is friday. Normally, a lot of people would be about two set up shop in london and get on trains and go home. Huge numbers of commuters pour out of london every day. Probably a little more relieved at the end of this week than they normally would be. What we are getting as a result is a huge number of them saying, you know what . Actually, we want to keep working from home or want to do it our time. 4 5 want to continue working from home when it comes to european banks. Even greater among stockmarket professionals. Part of the reason where we may be able to see a shift in the hours as well. People are actually ok with this working from home malarkey. Alix malarkey. On the flipside, you say, you want to go to the office and generate ideas likezi watercoor cocy; . J n were generated, but there was a great article on the uber got talks about banks in europe reopening. Italy, itare doing in does not feel like that is the open aired, good for chatting conversation world that will be there. In madrid, their cafeteria looks so sad. These tables with one chair. You are nowhere near anybody. You cannot talk at lunch, guy. Guy no. I think it will be interesting as well. Corporate culture is a really important factor. I think it will become increasingly important. How you instill Corporate Culture into people if they are not coming into the office i think will be one of the key challenges. I am not sure the permanent work from home will become a reality. I think people will have to go in. People have been surprised at a corporate level and a risk level that this has worked as well as it has. People would have normally said there is no way i will be working from home. Why do i want to be isolated . That can be bad for my career. They have actually found that it works. That is a real shift. I think that is something that will take a really long time for Corporate Culture to ultimately catch up with. I think getting the balance right will be really tricky. Alix yes. I totally agree. Especially if you work at home for four days, take a meeting, call it a day. Guy ok. Lets talk about where we are. We are four minutes away from the end of trading in europe this friday. Turning a little more negative out there. We will get technical with david from Credit Suisse. The dax is now down by 0. 6 . This is bloomberg. You say that customers make their own rules. Lets talk data. Only Xfinity Mobile lets you switch up your wireless data whenever. I accept 5g everybodys talking about it. How do i get it . Everyone gets 5g with our new data options at no extra cost. Thats good. Next item corner offices for everyone. Just have to make more corners in this building. Chad . Your wireless your rules. Only with Xfinity Mobile. Now thats simple easy awesome. Switch and save up to 400 a year on your wireless bill. Plus get 200 off a new Samsung Galaxy s20 ultra. Guy european stocks are closing. A