Not a pretty chart. How concerned is the governor of the bank of england . Governor is extremely concerned. We also had forecast this morning from the ob are, the fiscal watchdog, suggesting unemployment is going to remain extremely elevated and is likely to rise into next year. That will make the governors job in the chancellors job very difficult. The real question is, where does the stimulus come from . Does it come from the treasury in westminster, or does it come from the bank of england . I suspect it will be the bank that does the heavy lifting, not the treasury. Both will have to do some, but the onus is going to fall on the governor. Tom this is the theme of surveillance today. Now that we drift to the end of july, the middle of july, we begin to see gdp data from may and june, the change to Political Economic dialogue. In new york city without first word news come here is ritika gupta. Ritika good morning. Vice president mike pence told u. S. Governors to protect their citizens however they can. That came as 13 states reached an alarming rate of positive tests. Californias Largest School districts would offer Remote Learning only. Face coverings will be mandatory in all english shops starting july 24. The Health Secretary will make the announcement today. Those who dont wear masks can be fined. Labor unions, business lobbyists, and opposition politicians have been pressuring Boris Johnsons government about the masks. Joe biden plans to boost clean energy and cut the use of fossil fuels. Bloomberg has learned the democratic president ial candidate will call for setting a 100 cleaner electricity plus 2 by 2035, trillion would be invested in clean energy over four years. Senate Majority Leader Mitch Mcconnell says republicans will finish their own plan for a new round of pandemic relief next week. Oconnell is working with the white house on the plan once the Senate Returns to work next week, negotiations will begin with democrats. They have already come out with a 3. 5 trillion plan across the house. Global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more i am ritikantries, gupta. This is bloomberg. Tom equities, bonds, currencies, commodities lets get right to it with the pullback yesterday. What a good day yesterday, then kaplana sudden president on the dallas fed, down we go with a rebound. 1. 14. Tures up the get the vix gets my attention. Yields churn a little bit, a higher edge. Not much going on other than that gold 18. I guess it makes sense for the vix to rise. The question is, will it fall out of it . You and i are of the same mind to focus on the twoyear. In terms of where we sit right now with the chinese story, that is a lead indicator in europe this morning. It was negative. Copper is also down. Risk off. We had the euro area may industrial output, month on month out of 12. 4 month on month since april. Expectations index oming through, with two misses. It does point to european investors becoming a little bit less sanguine, tom, at a time when people are talking about maybe europe seeing a rerating. Lets talk about what is going on in more detail. Joining us now, jeremy stretch. Lets go a lot of stuff out of the u. K. This morning that we need to focus on. Good morning. The forecast is not pretty, particularly the unemployment line. The data on gdp not pretty, weaker than anticipated. Where do you see the pound going from here . Is it going to be the bank of england that does the heavy lifting, or will it have to be the treasury . Jeremy it is interesting to think of what happens to sterling through the course of last week. We saw unexpected resilience in the value of the pound, provided us with better opportunity to sell the currency at the start of this week. There was the realization that the data this week was going to be proving challenging. We have seen that in terms of the disappointing gdp report. That sets us up for a rather negative unappointed backdrop on thursday as well, even in light of the government saving roughly 12 million employees with furlough schemes. The headlines are going to continue to be challenging. I think sterling continues to retreat. Average last week, we will probably be heading backwards beheading upwards be heading upwards of the 1. 20 3, 1 point 24 from last week. 1. 23, 1. 24 from last week. Considering further rate cuts for the already low. More likely, i think there will be forced to consider expanding its Balance Sheets further. That is an interesting point, that when the bank added more qe, it slowed the pace of qe for the rest of the year, and i think that will be a situation that will have to be reversed. The bank will be back in the market much more aggressively this year. A wrong . Ndy housed jeremy in which respect, guy . Guy he says we are going to get a vshaped recovery. The data we have suggests the v will not only be deeper, but that it will be significantly less vertical than he is suggesting. Jeremy that is possibly true. He has been rather optimistic in a sense. Some of his comments have been validating his decision not to approve that additional qe last month, in the sense that he was trying to support the assumption that the market didnt require additional stimulus because the bounceback will be much more pronounced. I think when you look at the depthon the scale and the , the downside in the u. K. , the unfortunate thing is that it is uniquely exposed to the ravages of the covid virus, not least because of the sale of the fatalities, but also in terms of the reliance on the Service Sector and the reversal, the rebound in the Service Sector will be much more protracted. It is going to see significant levels of job losses, more so than the worstcase scenarios r. Om the ob a i think we will see unemployment in double digits over the course of the next few months, and i think that questions the scale of the vshaped recovery. Tom this is a really important conversation, but let me go back to ruediger dornbusch 101, the the basic idea that you have disinflationary tendencies as a general statement, and how is it that is expressed in a nations currency . Im looking at the two year told and i cannot take it logs because it is negative. That is a great chart there, folks. For those of you on radio, you cannot see this glorious chart that jeremy stretch knows quite well. Im sorry, jeremy, we are grinding on the u. K. Twoyear yield. As guy mentioned at the top of the interview, how will that be expressed in british pound . Jeremy well, as far as i can see, it is definitely going to be the case, achieving up in the value of the currency. Taking me back to my earlier days in learning economics, and therey i think the is an application that they will shock him dormers here that the shock absorbers here will provide an it posted the economy. We are going to see further expansion of the Balance Sheet for the bank of england, and we will see weaker demand for trade throughout this year, certainly relevant to many of its peers. I think as a budget shortfall, that also looks substantially worse than many of its peers. I think there are little reasons to commend value for buying market, in the current and the one point of potential support could come if there were to be some degree of resolution with some of those brexit negotiations. But that is a relatively small were talking about a that may alleviate some of the downside risk. Tom guy johnson, i think this is not only so profoundly important in the united kingdom, that in the United States because all of this hinged on gdp dynamics and labor Economy Dynamics filtering through to the markets. Yes. They are both highly exposed to consumers, both economies, tom, as a result of which come if you take a look at what is happening both in terms of unemployment consumern and spending, the consumer side of the economy, it does not look pretty. The u. S. Is a consumer economy, the u. K. Is a consumer economy. It is likely to put downward pressure on spending. People are not going to wear a mask to go shopping in the u. K. , it is tough to go out to eat. Nevertheless, these are big downward pressures on a significant path of the economy. Jeremy, given that, this is a question i have asked for weeks if not months. I am still struggling to understand how Consumer Spending sorry, how bank of england Monetary Policy is at this point going to get the u. K. Spending again. How bank ofrstand england support, fed support at this stage is going to help thank consumers with the economy. Mortgage rates are very low, the credit channel is being staffed, but im not sure that that is going to work in the short term. How has policy influence the consumer . Jeremy you are right to identify that as a particular problem. This is a classic case of pushing on a string, the issues we were discussing in the break of the financial crisis as well. Issue,nce is the elusive and in an environment where unemployment is going up and for those that are in work, there will be that fear of the specter of an employment coming down. You get into the keynesian paradox of thrift. It does seem fickle to see how the bank of that it does seem difficult to see how the bank of england it does seem difficult to see how the bank of england it can maintain credit channels and ultralow rates for the future, but then you come back to the realization that the government fiscal imbalance, which has blown up to the tune of 190 billion sterling this year in terms of measures that have been enacted, way not mark well the end of this process. The Prime Minister is talking a few weeks ago about shovel ready infrastructure projects. That does not immediately turn around the cycle, but were probably going to perhaps he further fiscal measures and further fiscal support to supply stabilized backdrop to financial recovery. Tom the persistency of a further negative united kingdom. We will continue with jeremy stretch of cibc. The gyrations of the market, lots of Central Bank Activity today. Also big bank activity. Coming up later today at 4 00 p. M. , the wells fargo chief financial officer, john shrewsberry. He and the management of wells fargo, with immense challenges. That will be an important conversation. U. S. Futures, s p futures come up 9. From a beautiful new york city, this is bloomberg. Tom bloomberg surveillance. Good morning from london and from new york. Guy johnson in london for francine lacqua. Tom keene in new york. Lots of action on economics through the week, but overlaying all of that politics, we saw yesterday some important shifts in the United States of america on the distant South China Sea. That fulls in the pacific rim dynamics, a good theme that folds in the pacific rim dynamics. A good theme to speak with jeremy stretch. There is such an interesting linkage to china. Explain to our audience i know you are quite good at this explain to our audience the profound linkage of australia through the South China Sea to china. Jeremy what we have seen over the last two decades is the increasing linkage of those economies because the australian backdrop is driven in part by commodities, and those commodities have been axtensively consumed by chine as the chinese economy has exploded over the momentum of the last two to three decades. Traveling tourism between china and australia. The signs that china has been recovering rather earlier from the ravages of the covid crisis have provided a much better backdrop for the australian dollar, and we have seen investors unwinding some short positions very aggressively. That had to encourage the aussie to have to be stronger over the last month or so, and over the last three months, up 8 over the u. S. Dollar. There is a preponderance of economic dynamics which are fueled primarily by the commodity spectrum through natural gas and some of those metals involved in the process can in the processes. The talk about reaffirmation of the government in singapore as well, the complete opposite economy. Is there an opportunity in seeing dollar because of the tumult of the South China Sea . Jeremy there is a possibility there, and i think that is one of the issues that i think is going to be one of the broader dynamics to play out over time, this question of what is going to happen in the geopolitical sphere. It is very much the case that the political temperature in the South China Sea is starting to u. S. Erate, with the relationship with china because of the South China Sea raising the possibility of looking to deliver that by Trading Opportunities in the region. Minean old friend of just sent me a note ecb coming up later on this week. Is the euro the new safe haven currency . Jeremy it is a very good question. I think one of the obvious factors which you require for a safe haven currency it is not a reliance on Foreign Investors in play, so the euro has some impetus in that regard. One of the benefits that zero zone is starting to show signs growth is exogenous showing signs of recovery. We are seeing the unshuttering of the southern european countries, so that will improve things on the tourism side. There is scope to say that the euro zone is somewhat sheltered from the ravages of the extent of the crisis, and i of foreign inflows being required to sustain the current valuations, it probably has the merits and virtues of a safe haven, and i think we gradually will see progressively a euro appreciate in value. I think it is going to be an appreciation that needs to be kept in context. I have been around long enough to remember the heavy data, the peaks in the euro, and those that are calling for 1. 25 and higher in eurodollar may be ambitious. But euro i think definitely has positive virtues going forward. Tom jeremy stretch, greatly appreciate it. Coming up, we will move forward with the conversation, particularly on equity markets. We are doing a lot of this, trying to reset where we are after this huge move in the equity markets. Futures up nine, now up 13. Dow futures just above 26,000. The vix at 30. 85. This is bloomberg. Good morning. Ritika this is bloomberg surveillance. Lets get the bloomberg . Advanced talk to invest up to 4 billion in indias geo platforms, the Digital Business of alliance industries. Bloomberg learned the deal could be announced in the next few weeks. Google would join facebook and a number of private equity firms that have invested in jio. Chinas is set to ban Huawei Technologies from its 5g networks. To protect Critical Systems from security threats. Pressuredtrump has the u. K. To ban huawei. It would be a major reversal from the earlier position. That is the Bloomberg Business flash. Tom lets look at the data right now. We have a rebound off that difficult afternoon yesterday. The vix 27, back to 32. Now 39. 89. Dow futures up 1. 12 as well. 26,080ts dell futures at , a remarkable level. The twoyear yield is positive,. 15 . Guy european stocks pricing in the california bond use from yesterday, which knocks u. S. Bonds lower. You have been highlighting this throughout the morning. The chinese equity markets were lower, confidence trading down today. And little later on, we will have an interesting conversation. A ceo will be joining alix steel and i. Bottom can kids at the bottom of the socioeconomic scale have access to Digital Learning . We will talk about that. This is bloomberg. 49. 50 i found you good job. Now im gonna stay here and you go hide. Watch your favorites from anywhere in the house with the Xfinity Stream app. Free with your xfinity service. Now any room can be a tv room. Stream live tv, on demand shows and movies even your dvr recordings. Download the Xfinity Stream app today to stream the entertainment you love. Xfinity. The future of awesome. Tom good morning everyone. Bloomberg surveillance, thrilled you are with us today. Tom keenen in london, in new york. Ritika President Trump fauciaying risk with dr. Telling reporters he gets along with him well. White house officials tried to discredit the doctors work on coronavirus who says he is not seen the president since last month. Deescalating on another front, announcing claims from beijing to the South China Sea as unlawful. The usc is trying to step up a campaign in the region. Top aides to the president have tech,out undermining considering a move on a way to punish china but they dropped the idea after opponents said it could have hurt the u. S. , andell last quarter singapores biggest quarterly contraction on record, worst on record. Global news, 24 hours a day, on air and on quicktake from bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy thank you very much. The Trump Administration rejected beijings claims to large parts of the South China Sea, reversing washingtons previous policy of not taking sides in territorial issues in the area. Chinaspeo is saying claims are unlawful and this could have implications for further trade disputes between the nations. Our chief asia economics correspondent at bloomberg, this is beginning to feel like containment. Policy ist how u. S. Evolving in the South China Sea, what has happened with taiwan and other policies in place. The Trump Administration likes to put everything in the same the military and economic side of the equation. How should we think about the paradigm the u. S. Is operating under now when approaching china . Markets are trying to figure out whether there is another lady in the trade dispute or are we going down and more military channel . A more military channel. Reporter this is now being fused together with human rights, economic, and territorial claims. That econ