It was uncorrelated. We will do that in the data check coming up. Francine longer data checks today. Lets get straight to the bloomberg first word news. Heres karina mitchell. treasury secretary Steven Mnuchin and House Speaker nancy pelosi are working to avoid a government before the election. They wont let the stalemate over virus relief legislation hold up a stopgap spending will. Allow the government to stay in operation through the new fiscal year. To , the president tried to get out of visiting graves of marines killed in world war i in france. He reportedly said, why should i go to that cemetery . Its filled with losers. He denies that account. Were trying to take michael right hold michael when theynto custody shot him. Report is outbs at 8 30 this morning. He economists project the Unemployment Rate to drop below 10 for the First Time Since march. Global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. Im karina mitchell. This is bloomberg. Tom thanks so much. Equities, bonds, currencies, commodities. You look at the bloomberg launchpad, and it is a blur of numbers. You try to see the correlations that are out there. The number one message is lets nights is last nights debacle was not correlated. Dow futures up 150. The vix comes in from a 33 level into 32. 34. 24, andat 21, and then exploded out yesterday to the 33 level. The real yield barely moves, which speaks to the domino inflation. , thet juckes mentioned Foreign Exchange market was shockingly stable yesterday. Some equity strategists suggest equities delinked from the rest. Francine a couple of things im watching. Its the noncorrelation we need to look at. I looking at gold, higher a touch. The dollar pretty much steady. The stoxx 600 was actually fluctuating. We saw losses, and that initial ins was a because banks spain are gaining on a potential merger between the two biggest lenders. Just an added story we need to look at. Stocks,pened in equity athey,et to james aberdeen standard director. What is underlying the selloff we saw yesterday . James good morning, francine. I believe that is an astute observation. The dollar actually a tiny bit weaker. Other equities across the globe not really reacting with anywhere near the same force. That tells you theres not really a macro driver underneath all of this. It looks like it was a very technical event. What we have been noticing in the days leading up to this was some really funky things going on underneath the hood, not just in the brought indices, but civic in that group of tech name we all know about but specifically in that group of h names will know about names we all know about. That was spilling over from single name into the broader indices. You saw things like the broad index going up on the same day that the vix was going up. You saw things like implied volatility in the nasdaq rising faster than s p implied volatility. Is you what happens than just get this air pocket. I think thats what we saw yesterday. I certainly wouldnt ascribe any macro narrative to it. Francine this is basically a removal of froth, right . If there were a warning sign, where would you see it . James in terms of where we go from here, you mean . Were looking at yesterdays move . Francine if something were to turn ugly in the market as a whole, where would you see it first . Where would that warning sign be . James you would have to look first and foremost at tech because the divergence between big tech and indices has been a feature of this market for quite some time. I think in order to see a real shakeout, first and foremost would have to see some further really negative performance from big tech, knowing that has been a popular position, and a popular position really amongst a broad range of investors, but also because concentration in the brought indices has been getting so high. Even passive investors are buying broad indexes heavily exposed to tech. That might be our first indicator that we might see something a bit more longlasting and a bit more brutal. Tom i really like that ideal. We are not there yet. Smartest note i have seen in the 122 hours, the purpose hours, muggle 12 rves ofmichael pu tallbacken. He goes on to say, days like today might feel like the beginning of a massive bear asket, but we think of it simply a reflection of investing and trading in a highly ednancial eyes financializ market. Worldnancialized is your where derivatives have taken over the cash market . James it means Different Things to different people, but broadly speaking, it is not just about the instruments that are being used by investors and speculators and traders, such that derivatives dominate the cash market. The types of strategies which people are engaging in. It is also the behavior of the companies themselves and the extent to which that Business Model has become financialized. They are borrowing to invest in their own stock, not to invest in their own businesses. That has been a feature of the market for a number of years, and helped to propel what he markets ever higher, such that it reinforces that market psychology that equities can only go up, valuation no longer matters. And bill ackman i am sure are on the same page on this. The fundamental financial eyes leaves financialization no clue how you stabilize through the fixed income market over to some form of ratio valuation of equities. How blind are we going into the end of the year . James completely. I wouldnt say the bond market is more distorted than the equity market, but the bond market is the direct means that Central Banks have first and foremost, and then relative valuation sort of flows out from that distorted value, so i completely agree. Price discovery, the notion of Capital Markets as disciplinarians, all of these concepts have gone completely out of the window. The psychology of markets is broadly speaking a trader psychology come always and everywhere at the moment. Is reallyor community not engaging in attempts to derive fair value, and that obviously includes Treasury Bonds and sovereign bonds as well. It is more a question of stimulus. What are the actions of the Central Banks . What are they distorting . How much are they distorting . Where am i being incentivized to take risk regardless of the price . Francine will we ever go back to oldschool correlation . James i think we will. Humanity, cognitive bias, we have a tendency to believe what is true today will continue to be true. It is called the status quo bias. We have short memories. In reality, monetary policies have not always operated this way. We go through paradigms where operates aolicy certain way, and then we have to reassess. I think in the next few years, theres going to be a massive and fundamental reassessment of exactly what Monetary Policy is trying to achieve, and when that occurs, that absolutely will change some of these relationships. That being said, i do believe theres a limit to which markets can continue to pay up, ignore the premium they are paying for future cash flows purely because they believe there is a central bank there to support them. So i believe there is a confluence of the events in the coming years. I think it is likely that inflation is the most obvious trigger for that to occur because Central Banks are limitless in their actions unless and until we get inflation above the tolerance. At that point, you have to reconsider whether Central Banks can continue to provide stimulus, and that might not be good for assets. Tom james athey, thank you so much. A terrific brief at the top of the hour. Ey with aberdeen standard investments. To 8 30 this morning and the labor economy of america, without question, this is the greatest mystery, the single greatest months of deep mystery. Jonathan ferro will get perspective from mr. Kudlow of the trauma ministration in the 10 00 hour the Trump Administration and the tenant on our. Stay with Us Administration in the 10 00 hour. Stay with us. Tom good morning, everyone. Bloomberg surveillance. What you need to know in the american five unlock our americans 5 00 hour, 10 00 london. Is awaiting 8 30 this morning. Litz is at ts lum ts lombar lum bard ist. Heir chief u. S. Econom steven if you just do the simple math, you are adding about 8 million or so grossly new jobs. That is a mystery. But these things get solved over time. Lets compute it right now. Policy institute was brilliant yesterday, combining the published claims number with the pandemic adjusted claims from all of the different federal programs. Are you going to have to go through that exercise this morning of taking me normal ash of taking the normal report and adding in all of the other of taking the normal report and adding in all of the other data . Steven yeah, but theres really only one number i am keying in on, the number of people who say the jobs they lost were permanent job loss. That number has crept up. It is just under 4 million. It didnt move much last month. That is at a mild recessionary level. That number peeks at the end of a recession, not at the beginning. So youve had this, as we know, this temporary job loss, which is what the big surge was back in april. The temporary number has come down a lot as the economy has reopened. It is the nontemporary number that has crept up. That is the number that is going to indicate, when we get into the Fourth Quarter, what kind of economy, what kind of a growth we really have. We know the second and Third Quarter is going to be 20 , 25 , Something Like that. 4 , 6 , apeat a percent growth number . Adp shows we are stuck at 10 , below the highs of the beginning of the year. Every hard to see 6 growth in the Fourth Quarter in that environment. Francine what kind of shifts are you seeing . You talk about these distortions to make sense of what we see in the last couple of days, but what are we going to see come christmas if there is a second lockdown . Steven i dont think we are going to see a second lockdown. The distortion, it is the unwinding of the distortion i am looking for. Mainly that this has been a loss of employment that has been heavily borne by people who work in these industries that are locked down. Finance, the end of limit rate is 4 . For most the Unemployment Rate is 4 . Lockdownpeople, the and pandemic has been a lifestyle change. , if this for million number starts to creep up, you are going to see a broadening of unemployment across more Industry Sectors that look more like a typical recession, and as a result, the christmas season, lockdown or not, will not be particularly good. Francine should we measure things a bit differently because of the severity of the pandemic . Do we also need to think about the people that are just not making it . I dont know if you look at food banks, but it is the people that are really struggling and will struggle a lot more in the next year or two. Steven look, the human part of me does absolutely. The loss of the 600 a week for these people is a critical amount of money, and it is one of the reasons why trump stepped in, and whether it was successful or not, to stop evictions. Week, andt 600 a retail sales continue to roll along. Its exposing an unfortunate aspect of the u. S. Economy, ofely that the top 10 , 20 wage earners where this pandemic has not really impacted, because of the jobs they have, that is also about 80 of discretionary consumer spending. Their spending, because of the money they take in their confidence, ties much more closely to the s p 500. Tom i think this is so important. How do guys like you and fancy People Like Us that are looking at a fancy market, fancy finance, fancy investment, how do you fold in the tangible hardship we see out there . Isven well, it unfortunately happening to someone else. Extendedhave an expansion that we have, whenlly the higher end you get threatened in terms of your income and things go bad, and actually caused because of the pandemic, you buy less leisure. The spending that has gone down has been in a sense luxury spending. You are not going to a restaurant is often. But when you look at the growth employment that helps drive down minority unemployment as much as it did during this cycle , and has all been during these during these servicesns that are for higher income people. Losing that leisure spending is very difficult obviously in certain industries, but more ,roadly for the u. S. Economy you see how fast manufacturing has stepped back. You see how fast the economy has snapped back. It is unfortunate. Im not a politician. I dont want to get on a soapbox here. But it is the reality of the data that we look at. Tom thank you so much. Futures up 12, dow futures up 145. Coming up on this interesting day of economics and the market activity, the laureate from nyu paul romer will join us in the 10 00 hour. Stay with us. This is bloomberg. Karina this is bloomberg surveillance. The Justice Department reportedly plans to file antitrust charges against google in the next few weeks. Attorney general william barr overruled career prosecutors who said they need time to build a strong case. Some are said to be concerned the barr wants to announce case this month for political reasons. Malaysia has dropped criminal charges against Goldman Sachs and the one dbs gamble in the 1mdb scandal. Billion and 2 guaranteed the return of 4 billion seized from 1mdb around the world. That is the Bloomberg Business flash. Francine thank you so much. We wanted to talk about who is with abu dhabi with alibaba come but they are in talks to stilleys to sell a stake in the firm that has come under pressure. Some of to negotiate the abu dhabi firm. This is bloomberg. Look here, its your very own allinone Entertainment Experience xfinity x1. Its the easiest way to watch live tv and all your favorite streaming apps. Plus, x1 also includes peacock premium at no extra cost. This baby is the total package. It streams exclusive originals, the full peacock movie library, complete collections of iconic tv shows, and more. Yup, the best really did get better. Magnificent. Xfinity x1 just got even better, with peacock premium included at no additional cost. No strings attached. Francine this is bloomberg surveillance. We know the campaign to leave the wto is well underway. There couldnt be more at stake. Joining us now is liam fox, wto andctor general candidate former u. K. Director for international trade. What is your strategy for making it through the first round of cuts . Youve been speaking to representatives of a lot of countries. How many of them given your support . Liam the process is very confidential, so i wouldnt break any confidences on that, but i think the wto is a Great Institution with great technical capability, great people, but what it doesnt have his political weight. The problems that we have in the Global Trading system tend to be political. Weight, andive that i think an elected politician with a lot of International Experience is wellplaced for the job. We also need to reconnect ourselves to the concept of a multilateral rulesbased system. The lack of commitment i think politically is one of the problems weve had in recent years. Francine if you look at what the reelection of President Trump would do for the wto, if he does get reelected, is that a good thing or a bad thing . Liam if you look at the editorial that ambassador light has a road for the wall street journal a couple of weeks ago, setting out the fact that if the multilateral system and we get changes, america remains committed to the system, i think most people in the wto took that as an olive branch. I think that is how it was intended, certainly how it was received. Even those who dont like the wto and have contemplated like without it had found that the alternative is even less palatable to them. To the rising tide, your wonderful book from years ago, what is rising tide of today . What is the rising tide that can get us back to a multilateral world . Liam i think that we need to reemphasize the case for free trade, the case for comparative advantage in economics. The fact that if we have a genuinely open global economy, it is going to help spread prosperity, and therefore security. It is how we help people trade their way out of poverty. What has surprised me is that during this process, the number of people who have said to me it is great to have someone making a case for free trade, which has caused me to pause for thought. If the director general of the wto is not making the case for free trade, who is . I think there is a strong need for us to make that again because you are right. 2019, Fourth Quarter of global trade contracted in value, and that has become worse by a number of protectionist mechanisms. But that is the tip of the iceberg. If you look over the past 10 years, back at the end of the financial crisis in 2009, only 0. 7 of g20 imports were covered by restrictive measures. That ballooned to 10. 3 by the end of 2019. Tom i want to speak to the general practitioner from glasgow right now. Real simply here, in the United Kingdom, in the united states, how do we solve the reticence to go back to the office . Do we need to wait out a vaccine, or can we do it sooner . Liam i think that inevitably, was going torgency lead to acceleration in the change of a veer, where more people were already working from home, and i think a lot of businesses have actually found that they can cut their costs by not having a lot of staff in and only having the staff in that they actually need. I think in all pandemics, you get a change in social circumstances and social behavior, which tends to be an acceleration of an existing trend, and that may be what we are seeing now, and we may not go back to where we were before. Francine where do you see trade in the next five to 10 years . How is it going to change given protectionist stance, given a lot of countries wanting to look more inward to give their citizens a better chance . Liam i think looking inwards is exactly the wrong way to deal with the problem. I understand that in the covid emergency, people look for resilience. I think you get resilience and security by greater supply. The more options we have to choose our supply, the less likely we are to be disrupted by problems in any one part of the Global Supply chain. So i understand why people who want to, and the shortterm, look at some of these measures. But we have to ensure the shortterm measures are exactly that. My fear is that after 28 years in politics, ive come to learn that very often, there is nothing more permanent than a temporary restriction. Tom thank you so much for joining bloomberg surveillance this morning. He is the wto director general candidate, former United Kingdom secretary of state for international trade. With our first word news in new york city, heres karina mitchell. Karina theres an informal agreement to avoid a u. S. Government shutdown at the end of the month. Bloomberg has learned treasury secretary Steven Mnuchin and House Speaker nancy pelosi will work to keep the government from closing right before the election. That reduces the chance of market turmoil at the end of the month. It den drew and express drew an explicit contrast with President Trump in his trip to kenosha. He spoke with the family of jacob blake and promised sweeping changes to fight racism if he is elected. The president has focused on the rioting and looting that has at times overshadowed peaceful protest. Pressure is mounting on germanys chancellor Angela Merkel to drop support for that controversial gas pipeline from russia. Merkel is waiting to see what moscows response is to the poisoning of an opposition leader. Merkel is no longer repeating her previous stance that the nord stream 2 pipeline and the case should be treated separately. In france, the government could extend the Furlough Program it created to extend jobs during the pandemic, according to finance minister bruno le maire. Authorities are willing to spend more than 119 billion included in the next stimulus plan. They said the economy could perform better this year than forecast. Global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. Im karina mitchell. This is bloomberg. Francine thank you so much. Up next, we speak with nicola mai, pimco Portfolio Manager and sovereign credit analyst. We speak about the linkage going forward, and we will get european fixed income. This is bloomberg. Valuations, particularly in the technology landscape, have got to pretty extra near levels, so i think it is not a surprise. Devaluation discrepancy between growth and value stocks has been on the table for a while. So valuation names havent been able to hold and significantly coming to favor where they stay in favor. Stock prices intech continue to go up prices in tech continue to go up. Their volatility goes up as well, which is not usually true. That may be nervous. The craziness in this 2020 summer of love for investors was getting out of hand. Then of course theres the robinhood shenanigans that have been going on. So it wasnt really a surprise. If you have too Much Technology in your portfolio, this is the time to start taking it off. It is not surprising that tech has a little more of an outsized Downside Movement here. We are looking for rotation out of the outperformers, although we are actually looking at sea stocks at pc stocks. We havent really seen a dramatic pullback. Uncertainty is the enemy of markets. Withine bill ackman there other market commentators. We are also getting headlines from Michael Saunders of the bank of england, a member of the Monetary Policy committee of the bank of england, delivering a speech right now, saying there is likely additional easing from the bank of england that would be appropriate. He also says the risks to growth forecasts are on the downside. To talk about gilts, to talk about fixed income overall in europe, we are joined by nicola mai, pimco Portfolio Manager and sovereign credit analyst. Thank you for joining us today. Does the bank of england, given the deadline with brexit, given all of the rhetoric about negative rates, does it actually have the hardest job amongst any central bank . Nicola thank you. I would say that if you look at the gdp print for the second quarter, the u. K. Print was among the worst in europe, and that was really for a protracted lockdown and a slowdown in mobility, at least initially. So it is a difficult state for the u. K. Economy. We expect a deal to be signed sometime later this month or in october, but still it is a challenging outlook. When it comes to easing, we do expect a little further step up about 50 toogram, 100 billion perhaps, on top of 300 are really delivered the 300 already delivered. You have seen mixed comments from the bank of england. You have had other members of the Committee Earlier saying that they are more skeptical about qe because of monetary Financing Commission financing conditions. They see it is more effective during. Periods of market disruption. We do see a bit more stimulus on qe, but not that much beyond that. Francine when you look at the european space, where do you want to be invested in . Nicola when it comes to europe, i think the euro zone when it comes to sovereign bonds is relatively attractive now. Btps 150ook at points over bunds, we have seen a policy response that was fairly convincing. With its Double Program announcement actually anchored sovereign markets. Weve had a Recovery Fund which is important for symbolism. It is the first in terms of having crossborder transfers funded with common issuance. I would say that with a very deep crisis, europe has ultimately stepped up to the plate, so we see some value there. Apart from that, we are pretty selective when it comes to european rates. Lets remember that the banks, while the corporate swear levering up while the up,orates were levering they were deleveraging. Tom good morning. Tom keene from new york. Pimco has had a great call, really successful on a dampening of Interest Rates and dampening of economic growth. I want to go back to the great call for grinding lower Interest Rates. Is that victor still in place stillat that vector in place of a nominal yield that grinds ever lower . Nicola i think so. The socalled new neutral predicated on an excess of saving overinvestment due to demographics, high debt levels, and generally speaking, caution after the financial crisis are probably going to be deepened by this corunna crisis. If we look at this corona crisis. If we look at global saving rates, they have been going higher and higher, and that andls and that levels debt levels have been pushing higher and higher. If anything, i would say Interest Rates are here to stay very low in nominal terms, and couldinal terms, they fall to even lower levels. Tom what is the european ramification of dampened, hugely negative real yields . Nicola one of the ramifications is the effect on banks. Bank profitability is being squeezed. That is not really affecting the which stillbonds, have some cushion from the equity side. But when it comes to bank equity prices, they will probably remain under pressure. I think ultimately, if you keep rates low for a long time and you have fiscal stimulus continuing beyond the nearterm once the economy has normalized, eventually you could have a rise in inflation, which could actually help with the debt levels. We see that is more likely in the u. S. Than in europe. Over time, the inflation risks will probably build. Tom thanks so much. Greatly appreciate it. Good fixed income brief there. The 10 year yield, what a change from that 0. 70 level. Lower yields, higher note prices. Digits. Go to two ,n the 10 00 hour, john bolton the former National Security advisor. Much to talk about, including the article in the atlantic, the talk of the nation last night. Stay with us. This is bloomberg. Karina this is bloomberg surveillance. Im karina mitchell. Chipcom predicting a rebound. It runs the biggest mainframe computers. The chinese banks are planning near record bond sales this month. Banks such as icbc want to replenish capital levels to struggling businesses. They raised almost 29 billion. That would be the secondhighest bond sale ever in china. Virgin atlantic plans to cut hundreds of more jobs. The cuts could result in a 40 reduction in the workforce since the start of the pandemic. They are likely to be announced today, a day after Virgin Atlantic final approval for a 1. 6 billion rescue package. That is the Bloomberg Business flash. Tom thank you so much. It has been an extranet 24 hours, with a an extraordinary 24 hours, with a measured pullback. We were very fortunate yesterday that vonnie quinn had an extended conversation with William Ackman of Pershing Square capital management. Lets listen. I would say we are coming up on one of the more uncertain periods in american history. We have a very divisive president ial election, coupled with a virus thats had a huge impact on the economy, and the markets have been remarkably strong since the third week in march. So is not surprising. Technologyin the landscape have gotten to pretty extraordinary levels, so i think it is not a surprise. Uncertainty, like a reelection in 60 days with a toss about who is going to be an next president election in 60 days with a tossup about who is going to be the next president. Uncertainty is the enemy of markets. Vonnie you have said that it wouldnt change your investment decision, no matter which person was to be president for the next administration. Are you changing your thoughts on that now . Do you think there would be widely different policies where there to be a Biden Administration rather than a second trump term . Bill i dont know that it is completely knowable. I think bidens choice of a Vice President suggests a more moderate as opposed to Progressive Democratic administration, to the extent that biden is the winner. But i think they will have different policies and different approaches toward taxation, business, etc. Harrish i do think biden is a more moderate camp than a arrenw administration, for example. Vonnie tesla down 8 today. Is that closer to the real valuation, or a fair valuation in this environment . Or could there be a lot more to go . Bill i dont know enough about those businesses to know whether that is a fair price or not, but when i speak of some of the more highflying companies, a lot is predicated on what is going to happen in the future. What is interesting is when you have a world with almost 0 Interest Rates, the discount future, are very low. The companies which are growing can get to very high valuations, although the problem is small changes in your assumptions can lead to a very different outcome in terms of what a business is worth. I think those small changes in assumptions can relate to someones confidence in what the future looks like. I think it is hard to see the future in an uncertain political environment and inherent uncertainty about the virus. Cdc told states to prepare for possible distribution of a vaccine november 1. If there is a real vaccine distributed in scale before the end of the year that has a meaningful impact, or if there isnt one until the second half of next year, it has a meaningful impact as well. When you factor in your risk premium, it should go up when there is more uncertainty. The risk premium relates to the discount rate. Rapidly growing companies, you cant justify the value of placing a multiple on the years earnings, which has been the convention for many more mundane businesses. You have to make certain expectations about a company to become profitable to justify the collective values of where many of these companies were trading. That inevitably leads to more volatility. Tom the ups and downs of mr. Ofman, recently very up, Pershing Square capital. This is a wonderful story. Theres the employment report out in the market gyrations, and there is also harkening back to 1851, one of the great merchant houses of history. Louis dreyfus has been taken out. Says drayfus. Im sorry. They have reached out to abu dhabi. Capital. Ooking for new that will be a story to watch, particularly for the continent here in the coming days. We have a story to watch, and that is jobs at 8 30. We are thrilled to bring you Catherine Mann of citigroup. That will be most extraordinary on this odd jobs report. Futures now up 20. Stay with us. This is bloomberg. So youre a small business, or a big one. You were thriving, but then. Oh. Ah. Okay. Plan, pivot. How do you bounce back . You dont, you bounce forward, with serious and reliable internet. Powered by the largest gig Speed Network in america. But is it secure . Sure its secure. And even if the power goes down, your connection doesnt. So how do i do this . You dont do this. We do this, together. Bounce forward, with comcast business. Tom this morning, do the math. Was it a rout, was a pause that standard and poors 500 is cratered, i say, 4. 5 , back to where it was eight days ago, just near the prepandemic, valentines day peak. Well, if you are in cash, now what . Do the math. Well, you cant. Disagreeing economists. They agree there is mystery in this mornings jobs report. Catherine mann in moments. And lineup the losers, from marines across a wheat field in france to a navy pilot midway to a guest at the hanoi hilton, President Trump must confront the military amputees. Good morning, everyone. This is bloomberg surveillance. From new york, from london as well, in washington, francine, there is no other discussion by Jeffrey Goldbergs essay last night, released by the atlantic. It created an
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