We are starting to catch a bit bythe u. S. Back end, down 5. 7 basis points switzerland moving a little bit. The bond market starting to catch a bit. What are we going to be talking about . We have great guest lined up for you, we will be talking to citadel a little bit later on. We have an exclusive interview ofh joe mecane, head Execution Services at citadel. We are going to figure out exactly what we can take away from what citadel is seeing in terms of the flow right now. We have that conversation a little bit later on in the program. Joining us now to give us a sense of whats going on . Alix ashwin,t . Guy set us up perfectly. Big bombs, big tech, but now we have a market searching for the next catalyst. Which is it . Ashwin a reflection of what we are worrying about the most, the ironclad resilience being shown in an environment that is fraught with many significant macro risks. When a market like the current market appears to be pricing in a nearperfect picture, you have to be very careful taking too much risk, because the fact is that it is disappointing to over perform perfection or underperform perfection. Small wrinkles, the makeup of small risks that showcase themselves can lead to fear and disappointment when the benchmark is perfection. About what happens if we get a move lower here. What is the strike price for the fed put right now . With a 15 moved to the downside, im trying to understand the reaction function at the moment. There are plenty of negative catalysts coming up. Ashwin its an excellent question and i think the obvious answer to that that you are alluding to is we are in this environment of a bad news is good news. We have heard that time and time again. The governments, the Central Banks around the world have pledged unprecedented and aggressive support. You saw that a few weeks ago. Here the s p 500 fell within one day it was a 5 or 6 drop and a couple of days later powell, the head of the u. S. Fed , announced a program to purchase individual corporate bonds. I think the government will step in, particularly the Central Banks will step in quite quickly. Whatt is not clear to me the government will do. Will Government Spending pick up right away . That is a key nearterm risk that i believe the market is under appreciating, a risk to the next u. S. Fiscal package and it stems from the fact that unlike back in march of 2020, the government today is very divided due to racial issues, police issues. Lets not forget the u. S. President ial election is right around the corner and in march the government came together and unify their efforts to defeat arguably a common enemy, the virus. To give them all credit, a fiscal action was swift and large. But given the divisiveness in the Political Landscape today, a repeat of this efficiency is unlikely. Its somewhat of an oxymoron. Would argue but i that no one is going to purchase equities because they are waiting for stimulus from the government. No one will do that. If the fed has a backstop in the government does nothing, arguably the fed has to wind up doing more and why isnt that a take on more equity risk and purchase treasuries . Its a question of and one way you can look at this is what drove the equity Market Performance from the march lows . Roseximately the s p 500 800 points from the close to the bottom in march to about 3100 today. Riseuch of that 800 point in the s p 500 was due to monetary stimulus . Centralbank efforts . And how much of that was due to fiscal stimulus, Government Spending . We have done some work to try to quantify that exact the answer to that exact question. What we found, running a simple and empirical event study, approximately 50 of that 800 point rise in the s p 500 came from fiscal stimulus. From Government Spending. Should future fiscal stimulus disappoint because of political 500s, you could see the s p fall and corrected back to that 2700, 2600, 2700 range representing a 27 drop from todays levels. But i wouldnt underestimate the power that fiscal stimulus has in the short run and i would emphasize that if you believe in the data, fiscal stimulus to it historically only provides a shortterm boost. The fiscal multiplier indicated by the data is much less than one, indicating one dollar of Government Spending leads to less than one dollar of gdp growth and this multiplier quickly diminishes to zero over a short amount of time. These are the diminishing returns of Government Spending that are specifically true with the types of spending and programs that have unfolded so far that represent one time wealth transfers, onetime stimulus checks, unemployment checks, shortterm loans and grants. Without an add on the current stimulus, the benefits have completely dissipated. Thats a key risk in a big marketplace. Quick question on china, the price action is crazy, the ipo went up by over 900 today. We have seen it hit this value before. Is this a canary in the coal mine for the Chinese Markets and or whats happening elsewhere . Ashwin i think so. I think that this is once again irrational exuberance, not to steal the words of greenspan. Theres a clear disconnect between rationality and the types of valuations you are seeing in the equity markets hasally and now that shifted over into china and it is all being driven by the fact of what both of you indicated earlier on, the government is providing a free put. But nothing in life is free. There is a costs to everything. These costs are often not realized until well after a bubble forms and when those imbalances that created those bubbles disappear, you get very quick deflation of that bubble. Alix it seems that in relation to china it was the shadow banks that were in trouble, but china seems to have gotten that under control of it. There is a narrative that china is just coming back, like when you take a look at copper, it is still positive on the day. Why isnt that the real narrative . Ashwin china, today, from a financial and banking perspective, has improved within the bubble that grows quickly, but 2014 to 2015 time, china is also a net exporter and depends, a vast chunk of its economy is dependent on manufactured goods and supplied to the rest of the world. What happens if the supply chain becomes more localized . The virus shows that Companies Need to be more flexible. They cannot rely on these hardcoded supply lines. You need flexibility in those. Thats a big risk to china. Sure, Chinese Industrial activity, people look at the highfrequency data, it is back to where it was in january, but if you look at the consumer activity, its nowhere near where it was in midjanuary. Would youlse equal, rather have activity increasing actions orgovernment activity increasing organically because of consumer actions . You would want the latter, thats much more consistent and permanent. Once again, this is fuel that is coming from i dont want to just pick on china here, but it is all over the world. Governments interfering a tremendous amount in the Capital Markets, in the economies. Price discovery has disappeared. Its not exactly clear right now what types of risks are in the marketplace because the governments have taken risk out. Thats not the Capital Market the spirit of Capital Market is to transfer risk from one person to another person and get paid for the risk transfer. The government right now taken risk out of the system and that is a permanent artifact. Its hard for me to believe that that is something that can last permanently and can lead to a permanent, organic growth Going Forward due to the fact that historically when the government steps in, the private sector steps out. Guy we are going to leave it there. Ashwin alankar, thank you very much. Correction,ake a ahead of the interview on the seventh with the ceo of [indiscernible] we accidentally showed a photo of a different person with the same name. We apologize for that error. Whats coming up . Our exclusive headview with joe mecane, of Execution Services at citadel , a top market maker when it comes to Retail Investors. Looking forward to that conversation. This is bloomberg. Alix im alix steel with guy johnson in london and we are headed to the european close. Looking back to june, remember band,avid portnoy and his robin hood traders, remember that guy . The order of those guys goes through a handful of players and citadel is one of them, with 1 5 of total volumes daily. They are gaining with the daily share of flows with brokers getting more significant. Trade, larryshares to estimates that these have the highest rates. Joe mecane andis should ali bassett. And our reporter. Historically only 20 of the stock market is comprised of retail trading. How has that changed over time . Joe Retail Investors have been growing for years. A lot of the empowerment that has happened has been a trend for a while and we certainly saw functions over the last few 2019, where as said, in retail by our estimation, we handle 20 of the retail volume, we have a good sense of how much retail comprises the market. It was about 10 . Towards the end of last year with the zero commission changes that started getting introduced toket, we saw that increased 15 and if you fast forward to this year, with a lot of the covid related volatility that we saw, we never really saw the percentage increase more than the 20 and even on peak days, closer to that. Triggered. T has been how much remains remains to be seen but we can see Retail Investors becoming more significant liquidity in the marketplace. Alix does that sustain . What are they actually buying . What have you seen . Joe we are the largest options liquidity provider to retail and we have seen a significant increase in options activity for the retail brokers. Some of that is a reflection of the levels of investors and some of that is reflective of the more sophisticated tools that have been introduced to investors. Its a furtherance of that empowerment angle. A moment ago you talked about whether or not we would see this activity in the states. Has the liquidity gone elsewhere . Continue tonitely see High Investments retail. We dont know how much of that is driven by current market changes versus structural changes. And we have seen a decline at this point. Alix we have seen an impression that this is dumb money chasing smart money. Do you think that is wrong now . Hat the smart money is retail joe i think it is a misnomer. Ultimately, the market is going to price in all the information that it has at this point in time. Retail is clearly a significant force. They are not going to be the ones that are solely able to drive evaluation or market levels. So, i do think that retail can continue to get more sophisticated. They need to get more educated. They are one component to a broad part of the market. A lot of what drives the activity is the benefit that they get from participating in the marketplace. Its a significant amount of price improvements given in the first half of the year, 670 Million Dollars in price improvements to Retail Investors. That worked out to 7. 50 a ticket. It used to offset the costs of the commissions. That goes literally into the pockets of investors to help them save, funding their retirement. Its a really attractive component of the market. With so many brokers driving it down to zero, what type of money is there to be made . Joe from our standpoint we are a large liquidity provider that interacts with 20 of average daily trading volume, are retail part of our business that does overall model that we have. Broadening that two other asset classes. We have been able to partner with a lot of our clients to broaden out the benefits that we ring to the marketplace. At the same time, from the need tostandpoint we do verify consolidation through asset classes. Continue to people find innovative ways to empower investors and bring Innovative Products to the market. Joe, you make money, though, when volume goes up. We definitely saw both of those happened a couple of months back. Markets,re looking at we are trying to look out for where it comes from and im wondering if you guys are anticipating if we see another bout of volatility. Done withnk we are the Current Situation . Or do we go back to that kind of choppy market that we saw a couple of months ago . Joe only time will tell. Its the right question and i think a lot of people are wondering about, if you go back , theoriesier comments around markets and pricing in current information and where valuation is, clearly the markets have been normalizing and taking a bit of a view that the outlook is positive. That said, i think that to the extent that any new information negative, positive or or unknown at this point, it gets incorporated and certainly we could see heightened volatility as the market digests the new information that comes out. At this point we are waiting to see how things evolve as a marketplace. Volatility this year has really benefited the upside. When things get choppy to the downside, will it dramatically affect how Retail Investors see this market . Joe interesting question. Our role is to make sure the clients and Retail Investors can buy what they want. We as a market maker are there to fill the other side of their orders. Our role is making sure that they have a very smooth experience. Impressive when we look back at the volume we saw this year. Volume level that we for marchverage was, alone, was 3. 3 billion shares. I think a lot of people take for granted how well the market worked at how well it functioned in times when not only the market went up, but when it was going down. A lot of focus is value add. Wherever sure that to make sure that they have as smooth an experience as possible. Alix can you give me a sense of the earnings season coming up . Can you tell me anything about that . Joe we do see expansion through the option instruments. It has been a single leg focus on products with more index products. We have seen them expanded through more contacts complex order types. The impressive part of the with a range of impressive. S with a broad exposure to the market. Guy we saw a chinese ipo go up over 100 on the star market. Im wondering whats in the pipeline now. Is it a good time to bring stocks the market . Joe we have the largest designated stock exchange. The market has been interesting. Ver the last two years there have been two interesting ways that have been developed for companies to go public aside from the straight ipo. We have seen demand for Interesting Companies, handling the ipo from last week that was very strong in demand. Are comingngs that to market, we have spoken about that. There has been good resection with Companies Like spotify and slack, a nexus to go public in a marketdriven way. Seen acently we have the amount ofe in specialpurpose acquisition withnies that go public the intent of taking a private company public. That has been about 40 of the issue this year. The notable one from last year was from social capital. We used the vehicle to take Virgin Galactic public. More recently you might have pershing square. Quare Tontine Holdings its a 3 billion issuance that could go up to 6 billion. It should go up to market soon. It has the stated intent of taking some large retail Oriented Company public. We have seen headlines around Interesting Companies here. Andill be Interesting Companies are definitely looking to access the ipo markets in coming months. Really looking forward to hearing about it. Joe, thank you for joining us today on bloomberg. Ok, european stocks are wrapping up the day, we are nearly done in terms of trading. 30 seconds to go until we get to that point. A selloffwe have seen this afternoon. Less over here than the united states, but we did see a negative yesterday for the euro in market and we started out with positive numbers coming out of asia. In terms of what we are getting right now, let me run you through the details. This is the selloff we have seen. The market down to near session lows, down around. 8 . ,he main markets around europe the ftse, the dax, and the cac 40. A lot of dax companies have exposure to china. Interesting when the chinese equity market is doing significantly better the dax is kind of holding in. That is worth paying attention to. The ftse is down 1. 7 . British american tobacco. Cac 40 down over 1 as well. In terms of the sector breakdown , a lot of negativity on the market. That has been decelerating as we make our way through the session. Sector andry single negative territory. Down, utilities down, media down, carnival having a less bad session and it has had quite an eclectic mix at the bottom. Sap had acks, relatively good day. Revenues look relatively good. Sap has outperformed significantly. The tech giants also helping the sector. Continues to find the world challenging at the moment and these stocks taking another like lower. Also General Electric it will have job cuts. Will start again, apparently in august. We are watching developing and we wonder if the plans will change. A little bit on both sides of the atlantic. More ofke a little bit a look at what is happening with sap. Here with our stock of the hour is scarlet fu. Sap for you can thank keeping the dax and the green and not falling completely. Rising as much as 8. 5 and closing a record high. We give so much attention to the big cap tech names. Lets look at one of the biggest european names. Resultsrted preliminary the official results will be at the end of the month. The story overall is that Software Deals ground to a halt for most of april because of covid19. Things gradually improved, and the highlight for sap was wed demand in asia talk about how demand is unfinished for technologies,. Ervices and products je