The s p 500 really getting back to the record highs. What i really want to focus on nowne day, two days, and wednesday, we are giving up the yield surge of the past week, a profoundly for global wall street it profound week for global wall street. Francine i will never forget valentines day of 2020, i think it is the last time i traveled. [laughter] kind of like a milestone i remember. It feels it yields away. Lets get straight to the bloomberg first word news in new york city with karina mitchell. Corrina m a cuts have made it official and nominated joe biden covering up karina democrats have made it official and nominated joe biden for president. Meanwhile, the Trump Administration sees a path to a pared down 500 billion stimulus deal. Bloomberg learned the package will eliminate the biggest area of disagreement between democrats and republicans, would include money for the postal service, and money for businesses to keep workers employed. Pelosi suggested democrats might agree to a smaller deal. President trump is raising questions about the future of a trade deal will china, he says he called off last week and talks in beijing. He says he doesnt want to talk to china right now. Coronaviruse outbreaks in florida and california are showing signs of easing. In california, the number of numerous cases was 50 of the 14day average, and hospitalizations are down 30 from a peak in july. Global news, 24 hours a day, on air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. I am karina mitchell. This is bloomberg. Tom thanks so much. Equities, bonds, currencies and commodities. Lets go to the equities market. Weve literally did not move yesterday on the spx. 29. 64 on the vix. Futures are up 24. Nasdaq on a percentage basis is still leading. We had a relative resurgence in tech stocks out of what we have seen from smallcap over the last number of weeks, backandforth between the two groups. A key statistic, negative one. 036. 1 expectations, you get a big fat negative real ever, coming down to an greater negative yield. Nevertheless, a threeday reversal. The dollar is not playing today. Francine . Francine i think it is a fancy day for wednesday to check. Simple, european stocks are higher, u. S. Futures as well. Investors seem to continue signaling optimism in the postpandemic rally, after shower shares hit an alltime hh in the s p 500, and gold went ounce. An 2000 an speaking about inflation, your area, july Consumer Prices are down 0. 4 , a touch below estimates. Core prices are in line with what we were expecting, yearonyear at 1. 2 . To talk about inflation and some of their positioning, we are delighted to be joined by mark dowding, Bluebay Asset Management ceo. What do you see right now in the european yield . Where do you want to be in . Mark in many respects, it is a quiet summer, we are seeing markets in pretty benign fashion and risk assets climbing. Credit spreads tighter, and for the time being, easing toward owning assets where Central Banks continue to periphery, european owning Investment Grade credit is where you need to be positioned. But there is a sense that we have that may be some of the rest of the rally the best of the rally is behind us and that we have seen very strong months and a period where Economic Data has been getting better. The news flow generally speaking , whilen conservative Going Forward from here, we are wondering whether it ought to peter out to a degree. Francine tom and i are basically drowning in news every day. The market as you say is taking a fairly simple view of what is going on, kind of study as they go, because of what the fed and the Central Banks are doing. If they miss some of the fundamental shifts, for example the trade relations, or how they burden a biden administration, do you worry . Mark there have been a number of tail risks whether it is to do with the u. S. Fiscal package whether it is to do with the trade talks, for example. The tail risks that had potential to disrupt markets, but none have really metastasized in a nasty way. To really lead to a bigger market correction. So for the time being, markets seem to be still trading in a pretty benign fashion. If anything, it is kind of interesting and you have been highlighting this now in the course of the last few days, it almost seemed like a bigger threat that the value in risk assets could be coming from long dated Government Bond yields. That was linked in part to some concern that maybe inflation for the numbers was starting to build. Intrinsically, we think it is too early to be concerned about that, we are still in an era of yield curve control. Although the good news leading to higher yields could be anything that actually derails this rally for the time being, it is difficult to really project a really substantive move in yields at this particular point being is sufficient catalyst. Tom mark, good morning. Tom keene in new york. One analyst writes up on Bluebay Asset Management, on the highway securities and the idea of traipsing through bank stocks by using cocoas. Explain that strategy that Bluebay Asset Management was featured on. Mark the part of the credit market that we have really liked him course of the last couple of years and continue to like a lot is European Bank credits. In no way, in the last recession in 2008, we saw banks in the eye of the storm. They got beaten to bits. Banks took a lot of risk and they did not have sufficient capital. Banks were not a place it wanted to be as a credit investor. But in the recession we are seeing, we are looking at banks with very strong buffers in terms of nearterm ratios. We have seen them take a lot less risk than they used to take. A lot of the risk has now really been packaged off elsewhere. We actually think banks are boring. Barring is good as a credit investor. It does not mean we are bullish about, bank Equity Stocks however, buying these subordinated cocoa securities come it looks like a really good place to have your low yieldingally environment. This was an area we wanted to focus on in terms of searching for value in a very low yield landscape. Tom what the analyst nailed in this article, it went viral in the fixed income community, is the idea of, is it too late to take part . Mark, we are in august and heading for september, with a record highs in the equity market. Is it too late to take advantage of these relatively sophisticated tragedies . The american phrase is the boat left the dock. Yet. Not as i investor, youre always looking for relative value in the assets and asking yourself, or has the value gone so far . Where is it extended and where is it a pleated . While there are still pockets of value relatively speaking, we see Bank Securities as being cheap. We think that cocoas are very interesting relative to a lot of other assets in the fixed income space at the minute. We speak to investing more in the mediumterm than in the shortterm, but we still see a lot of value in these sorts of assets. Francine when will they no longer be cheap . I dont know whether there is a point where you say, enough is enough . Mark these junior securities, the cocoas, or what we call tier one securities, we look at the valuation of the next most senior securities up the value chain. Exposed senior securities would two securities, and if we see the spread between tier one and tier two securities tighten, there is not much value relatively speaking. At the moment, that gap remains elevated. Even if the recession does its worst, we think there is a low risk of cocoa debt being written down. Thattually, for the risks one is taking come but we actually think it is a smart place to be investing for now. Tom mark, thank you so much of that briefing. Mr. Dowding of Bluebay Asset Management. Look to bloomberg bond coverage out of bloomberg. Com and on the terminal. The story was really industryleading, two days ago i think it was. Coming up, always interesting, our guest from the world bank. There is a pandemic out there. Front and center for mr. David malpass and his bank. Features advance up five. If you want a president who defines the job is watching hours a day watching tv, he is your man. This trusting and the great if you are trying to entertain, but in a real crisis, it collapses like a house of cards. Covid just doesnt respond to any of it. To beat it, you have to actually go to work and deal with the facts. Tom the former president messaging the message over. I really wonder for a global audience for to hillary, the play of the zeitgeist in america is extraordinary, do we go back to a traditional convention when the pandemics are over . Cirilli,tin and kevin giving Us Convention coverage. Absolutely extraordinary, whatever your politics the last two nights, all of this with a new way of messaging. Almost fascinating to see where we are for years from now within the Convention Strategy of the two parties. Right now our strategy is to get smarter on fixed income. With us is mark dow dowding of Bluebay Asset Management. I hit my head against the microfame here, talking about cocoas. Lets do something basic as well. Help me with the nominal yield of four facing credit debt, what is it going to do in the coming year . Mark in terms of looking at the absolute level of yields we need to start by understanding that we are in a world where rates cash rates are lower than where they have been. One has to look at the years level, which seems to be defying logic im sure, too many of your viewers, but in the context of the level of cash rates which are preventing and maybe an expectation in markets that cash rates are unlikely to go up. The fed or the ecb may be for the next five years. In this world, we have to get used to low yield for a long time to come. Indiceslook at credit and the yields on credit benchmarks, they are probably going to be edging slightly lower over the course of the next 12 months. Maybe we see government yields start to move a little bit higher, but in this world, we should see returns which are better than cash, albeit much less exciting than we used to receive in the past. Tom basically as mr. Gross of is financial regression he said that a few years ago. The money question this morning, what does your world due to the stock market . When we finally get through this, do you perceive a stock market that can manage its way out of this bubble or whatever you want to call it, or is there going to be shocks in the equity market linked off of what we see in fixed income . Mark i think you are moving into a world where, effectively, the shortterm risks have been mitigated in equity markets as a result of policy action but you are potentially storing up problems for the future. Clearly, if you end up in financial regression, driving very high pe gracias, at some point with us the driving rations, atpe the point, if you see the discount rate for the bondi of go up, it can only mean the equity market is likely to go in the other direction. I think in the here and now, it is, enjoy it while you can as an equity investor. Financial regression is clearly driving stocks and highs buting stocks to new highs, in the course of their years to come, we are likely to see a pattern of increased volatility unsavory terms for equity investors. In the world of 0 interest is kind of a bit inappropriate to expect equity markets to go up 10 every quarter as they have done. Tom francine, that is a surveillance exclusive right there mark dowding saying we are not going to see 10 up every quarter. [laughter] that is important on a wednesday. Francine mark, what would be the catalyst for this change do you have to see inflation and you have to really have strong, rampant inflation. Or does a touch of inflation change anything . Mark a touch of inflation will not do very much, because if anything, Central Banks of the time being have been saying they are happy to sit behind the curve and hold rates steady. In order to be talking about in materially different environment, you probably need to reach a point where the output gap is being closed, and we are sort of projecting a more robust growth environment. This may not be the case until at some point in 2021, this is a factor we need to be concerned about, but sooner or later, we will reach a point where highyield will be problematic for equity investors. I do think that is going to be the issue in the here and now, if anything, if there is a forlyst in the shortterm equities to struggle, it may be more from disappointments rather than from the idea of high inflation. It is just too early to get bearish on inflation or bearish on Central Banks. There will be a factor over the medium to longterm but it will be a factor over the medium to longterm. Francine mark, thank you so much. Bluebay Asset Management chief investment officer. Coming up, a conversation on markets and fixed income with head ofklock strategy. This is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash. Ket the pharmaceutical takada pharmaceutical is finalizing a deal to sell part of its business to blackstone. It has been in investment mode. This company has agreed to pay 533 million if it fails to buy Virgin Australian airlines. The unusually high breakup fee helped win over the air than administrator. Virgins creditors will vote on the deal in september. In the Worlds Largest container shipment has restated its fullyear guidance. Aersk reported secondquarter ibitda that beat analyst estimates. It says it was able to serve customers under very difficult circumstances. And that is your Bloomberg Business flash. Tom thank you so much. You are on a surge that the euro is on a surge the euro is on a surge. Hearing 115 on the euro. Francine . Francine tom, if you look at european stocks, they are trading higher with u. S. Futures. They seem to be following the u. S. Futureshim. I think there is a correlation as you rightly said, with yields and equities, gold back below 2000 an ounce. We had betterthanexpected news when it came to inflation in europe. We also had some lingering questions, which is why the market in europe certainly was a little off this morning on futures. The u. S. China trade pact. After President Trump said he called off last weekends trade talks. We will talk trade, equities, u. S. Politics and advertising with sir martin sorrell, he is coming up shortly. This is bloomberg. Francine this is bloomberg surveillance and joe biden is shooting down the president s attempt to be a puppet of attempt to paint him as a puppet of progressives. Day watchingours a tv, he is your man. If youreg is great trying to entertain but in a real crisis, it collapses like a house of cards. Covid does not respond to any of that. To beat it, you have to go to work and deal with the facts. The Trump Administration is considering tighter sanctions on venezuelan oil, which could asia. Crude swaps in venezuela cannot produce its own gas because of widespread mechanical failure at refineries. We will hear in days from the postmaster general about his decisions. He will appear before congress on friday and monday. Arabia keeping up the pressure on opecplus nations that have been exceeding targets. They called the president of nigeria about the importance of complying with limits. Nigeria, iraq and other nations consistently fall short of levels to limit output. 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. Im karina mitchell, this is bloomberg. Tom greatly appreciated. The interview of the day if your life has changed by the emptiness of our city. We have seen this sheer global emptiness of our cities. Sir martin joins us today. I have been dying to ask you this question. Martin am i an old martin now . Tom your wellpreserved. [laughter] is the office dead . Offices,housands into creating that energy. His work from home the future . Martin there has been a change. There is controversy. Real Estate Developers do not like to hear this. People. 2600 we increased s4 since the beginning of covid, 2400 to 2600. We are hiring. Jettisoningies are 50,000 people. Ipg, 500,000 square feet. Our workforce is young, despite the fact i am 75. I am the senior monk, as they call me. Age,ve 2000 monks, average 32. A lot of them tend to work from home from their parents or as couples or with kids. Those people probably are more reticent. Directly, to answer people want to spend 24 days in the office, living in more dispersed parts of the country, whether it be the u. S. , the u. K. We are in 30 countries. Given the level of connectivity we have, our people are not just digital first. This is breadandbutter for them. Before covid, they were working from home in a flexible way. Flexibility on commuting. At 6 07ng to come in a. M. Or go home at 8 00 at night. Tom i have to cut you off. Francine wants to get in. Francine wants to go in another direction. What is a government policy most efficacious . What do you need from Prime Minister johnson, the next u. S. President , whatever that may be what moves business forward prevaccine . Martin vaccines are important. Q2 next year, we will have a regulated and vaccinated population. It buts a question about to come back what needs to be done. Hardware and software infrastructure. Reeducation, rescaling. Covid accelerates what is happening and makes those Publicprivate Partnership critically more important. Article this morning, 750,000 job losses in the last couple months in the u. K. Come off inre october. We will see acceleration of unemployment. Technology destroys jobs, in my view. Simply, there s4, is create jobs in our industry, at a time when our industry is shedding jobs and real estate, what we are trying to do is employ more and give them encouraging careers. Yes, francine . How much advertising spending is there . What Sectors Companies are ready to spend . Martin vshape sectors, tech, gaming, online shopping. Established retailers online. 1 3 of the u. S.