tv Bloomberg Markets European Open Bloomberg July 8, 2020 2:00am-4:00am EDT
♪ anna: good morning. welcome to bloomberg markets: european open. i'm live from london. matt: the markets say, can you keep up? chinese stocks continue to outperform as futures point to a second day of losses in europe and the u.s.. cash trade starts in just an hour's time. here are your top headlines from the bloomberg terminal. hong kong's banks in the firing
line. president trump's top advisors want to destabilize the peg in retaliation for china's tightening grip on the city. hsbc slumps after bloomberg learns it was singled out in the report. continental drift. futures point to a second day of losses in europe. the fed officials say their scope for more action and economic recovering, if it stalls in the u.s., where virus cases approach 3 million. soon ask spending plan. the u.k. chancellor set to unveil his measures to reinvigorate the economy. will it be enough to drag the u.k. out of it steepest slump in three centuries? we are just under an hour away from the cash trade here on the continent. let's take a look at futures right now. decent sized drops. 9/10 of 1% on ftse futures right now.
dax futures down three quarters of 1% as well. we also see u.s. futures falling. only 2/10 of a percent. what does the gmm tell you? anna: let's have a look at the gmm. it tells us a mixed picture through the asian session. if we look at the is in session, we're fairly flat. interesting dynamics going on. the australian market down around 1.5%, locking down parts of the state of victoria. cityalia's second-largest continues to have an impact on markets. you mentioned what's happening in china. the chinese market up for a seventh session. the csi 300 making gains. a mixed bag when it comes to equity markets. brazilian assets being hurt by the news around the virus. stocks selling off as bolsonaro tests positive.
losses for european markets. u.s. markets. onto fx. the taiwanese dollar making moves to the upside. -- we willng dollar have analysis of that. it doesn't seem to have captured the markets imagination even though it is very well on the bloomberg terminal. there's plenty of money going into sovereign bonds, even if we are flat on equities. such is the nervousness of the markets right now. and'ss near its highest 2011. let's get a bloomberg first word news update for you now. the white house has made good on its threat to leave the world health organization. the trump administration has sent a letter to the agency, giving it one your notice. donald trump says the international body has been too deferential to china and -- in its handling of the pandemic. virus cases in the united states
near 3 million. some advisors to president donald trump want the u.s. to undermine hong kong's dollar peg. sources tell us the proposal has not gone to the president or his senior aides yet. it comes as the administration is considering how best to moves china from -- for to chip away at hong kong's political freedom. boris johnson is warning the u.k. it is ready to leave the eu without a trade deal if the block will compromise. he made the comments in a call with angela merkel. negotiations are start. -- stalled on key questions. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. matt: asian stocks, mixed. chinese stocks putting up some
strength. european and u.s. futures are retreating as concerns linger over the economic impact of the coronavirus. let's get into the markets right now with laura cooper. especially on a day when we are 3%king about hsbc being down and the possibility of the u.s. trying to rex the hong kong dollar peg, why are chinese markets doing well? laura: at this stage, it's more a case of words rather than action. proposals will not materialize. there's a number of reasons for this. first, the technical difficulties of reaching an arrangement with the hong kong monetary authority. if we go to previous episodes, 1997 with speculator
kong selling, the hong authority is a powerful force in maintaining that. fact that the hong kong monetary authority has a tool to maintain the peg. tap intoalways tack -- the pboc. in the current environment, it's the fact that action could drop response from china. , spurring capital outflows from treasuries. that is something the u.s. wants to avoid. at the end of the day, china could still -- could still put the wanted to play. it could replace the hong kong dollar eventually. towardsld tilt back that direction. stage, these factors are
keeping markets from pinning expectations on this to come to fruition. anna: good morning to you. i want to get to the gold question. i've been reading a lot about financial depression over recent days. the extent to which central banks are going to keep interest rates low so governments can borrow at low interest rates. whelan governments money -- we lent governments money. that's the goal. you've been thinking about the gold price this morning. laura: absolutely. measuresal stimulus are flooding the market with liquidity. that's one factor that is going to keep that demand for gold going forward. brushing up against that technical, psychological level. it will likely be the case that we could actually see a breakthrough and propel higher to record levels. growth remains
sluggish. there's uncertainty in terms of the economic outlook going forward. at the same time, inflation fears haven't is a paid it. we're seeing inflation expectations climb higher. that they't any signs will be withdrawn. when we look at the strong relationship between religious rates in gold, we're seeing really just rates negative. rates negative. what could change the outlook is if we see a swift v-shaped recovery. clearly, that's not going to happen in the near term. certainly, gold does look to remain holding this risk on appetite. chancellor will
talk about what he wants to do for the economy over the long-term. clearly has implications for the markets. while could you say that would move markets now? laura: i think there's little he could actually say at this point. spending commitments are largely baked in to gilt and cable. it's a case of what the economic recovery looks like you these sprinkled and spasm -- spending measures today are unlikely to move the needle. tos all about expecting support the jobs recovery. less about boosting or injecting a great deal of stimulus. markets will take it in stride. we still have the brexit risk on the horizon. we are seeing this ballooning deficit. the current account deficit is climbing. the ftse 100 continues to
underperform its european peers. at this stage, there is so much uncertainty. --re is skeptic schism skepticism in the markets. nothing will materially change that outlook. anna: that is the big picture, isn't it? specifics, keep an eye on the house builders. we will see what happens. thanks so much for joining us. if you want to get involved in the question of the day on gold, what will be gold's peak this year? reach out to wes and the mliv team. this is bloomberg. ♪
markets, this is the european open. we have 48 minutes to go until the start of cash equities trading across europe. futures are down more than 1%. with the futures off as well as dax futures. more than 1% for a second day of drops. let's get the bloomberg business flash. these are today's top corporate stories from the bloomberg terminal. deutsche bank is paying new york's banking regulator $150 million for a string of compliance lapses related to convicted sex offender jeffrey epstein. the regulator says the bank failed to detect or prevent millions of dollars of suspicious transactions. deutsche bank says it deeply regrets its association with epstein and is cooperating with authorities. barclays has reached out to potential candidates to gaze their entrance -- interest in the top job as part of a long-term succession planning to replace the chief executive.
sources tell us, no formal search is underway. increasing activist pressure to replace him as ceo. it is related to his relationship with jeffrey epstein. hsbc slumping on reports the u.s. may punish banks in hong kong and to stabilize the currency peg. bloomberg has learned hsbc may even be a specific target. the british lender makes more than two thirds of its pretax income from hong kong. hsbc recently backed china's new security law, drawing criticism from politicians in the u.s. and u.k.. that is your bloomberg business flash. anna? anna: asian stocks are mixed overnight. european futures point lower. concerns remain over the economic impact of the coronavirus. last night, the s&p 500's
longest winning streak of the year came to an end. is there still legs in the rally? should investors be turning to other asset classes? we are joined now by thomas kark . great to speak to you this morning. which asset classes excite you most right now? we spoke to an fx analyst who said, the action is not an fx. it is elsewhere. you see a lot of opportunity in fx right now. where you looking? thomas: yes. currency is part of our toolkit. we can deploy risk in foreign can sain -- exchange instead. that's what we're doing at the moment. we are more cautious on the equity rally. we had a steep drop in february and march. we had an aggressive rebound,
much of it fueled by central bank action and fiscal policy. the opportunity that opened up was quite quickly countered and suppressed. that doesn't happening currency. we saw dramatic weakening of several currencies in the emerging world to all-time lows in some cases. april, stocks rallied in some of these currencies carried on widening out and depreciating , in some cases into may as well. we thought that was a less distorted investment opportunity. sent morere we have of our risk in the last couple of months. matt: which are the currencies that you are most interested in right now? bet on we have no large any single currency right now. it's more preference in general for many latin american, russia, south africa.
even the brazilian reality. none of the positions by themselves are very large. for aactivate the market relatively high conviction position. anna: we've been covering a story overnight that suggests that some people close to the president in the u.s. want to talk to him about possibly trying to break the dollar peg. undermining access for hong kong banks to u.s. dollars. this has not got to the president yet. maybe the markets aren't taking it that seriously. it's attracting a lot of attention. is that the kind of story that you would see opportunity in? or does that strike you as frightening? thomas: i think it's more frightening than tiktok in the u.s.. the hong kong dollar peg is 37 years right now. there have been challenges to it
before. the market has worried about it before. whilst the peg hasn't broken, it has caused significant reaction, orher in the forward markets hong kong equities could suffer instead. prospect.'s a scary this has been intact for so long. -- the type of rhetoric that the u.s. administration does use repeatedly over the last couple years. it probably isn't on the cards at all. there are things that china can threat to the any hong kong dollar peg. the u.s. might be seeking to undermine it.
for what it's worth, we are short of hong kong dollars in the strategy, short a number of asian currencies as well including the yuan. this kind of thing would have a knock on effect the currency world. matt: interesting stuff indeed. you will stay with us for more. thomas clark from william blair investment management is our guest. chancellorthe u.k. is set to unveil his measures to reinvigorate the economy. will it be enough to drag the u.k. audited steepest slump in centuries? and more immediately important, what libby to markets? this is bloomberg. ♪
of european equity trading. futures look negative. a little catch up to do with the losses made on wall street yesterday. the u.k. chancellor gives an update on the economic response to the pandemic. he's expected to announce a 2 billion pound steam to create more jobs for young people. the treasury is supporting more than 12 million jobs. guest is still with us. let's come to you and your thoughts on the u.k.. the bank of england saying that as much as half as the u.k. workforce is unemployed or underemployed. we know that a substantial number of people are being paid by the treasury right now. this is underlying the challenge for the chancellor. how will the treasury stop unemployment from spiking? how do they prevent a cliff edge? is that the big question? thomas: yes.
i think it is. the uk's response to the pandemic, as far as the job retention scheme, it was quite aggressive, large, and was copied to other places as well. it was timely. andral months for the ron, this was always going to be the case. the issue is how to wean the economy off of this level of support which is clearly unsustainable. the emphasis have to shift from protecting existing jobs to helping firms and jobs to adapt to the pulse pandemic future. it is a difficult thing to navigate. been thatnt has not dramatically higher. it will go higher. are you able to take advantage of any kind of transformative economic moves?
there's a lot of talk in europe about more digital, greener economy. the support from the ecb and fiscal support will push that forward. is there a way to take advantage , if you see long-term valuations still as attractive in the u.k.? thomas: we do see long-term valuations quite attractive across the u.k., without differentiating between sectors particularly. today is reported to have a green impact. the u.k. has worked to do to achieve its pledges with respect to environmental emissions. it is in the spotlight this year. it will be hosting the climate summit in scotland. we've seen talk of environmental paths -- parts to this many
budget. the overall shift, the reason why we like the u.k., is the johnson government was moving to a significantly more fiscally expansionary start, even before the pandemic took hold. much of theve very government before that happened. the budget was already quite expansionary, for different reasons. that's likely to be continuing as we go forward. anna: it was supposed to be about infrastructure, wasn't it? rebalancing the economy geographically. but then the virus happen. boris johnson telling angela merkel, he's ok with the australian model. what many others call no deal. what is priced in for u.k. assets from this point? thomas: at least a one third
probability of no deal or australia, if you want to call it that. it is priced in. this is the start of the fifth year of the markets discounting brexit. they've had a long time to get used to it. we are no longer looking at deal, delay, or no deal. it's just deal or no deal, deal or australia. is it still more likely than not? it is in both parties interests. deal could berade coupled together at the last minute. matt: thanks very much for your time this morning. appreciate your insight on these markets. tom clark is a portfolio manager mark -- manager for dynamic allocation strategies at william blair investment management. we were discussing richey sumac.
matt: welcome back to the european open. 30 minutes away from the start of cash trading. we are looking at futures falling across equity indices by about 1%. with european parliament member and vice president katarina barley. maria? yes, and we are here because angela merkel is making this trip to brussels today to really pitch the recovery fund, symbolic because this is merkel 's first trip to brussels since the pandemic began.
we are joined by katarina barley, and mep and former justice minister. you know merkel. he worked with her. why has she shifted her priorities so quickly? ms. barley: it is the whole german government tied to a question like this. there have been discussions, quite vividly, over the austerity that was taken after the financial crisis, if that was really the right way to go. it is not that sudden. is aecond point, it completely different situation than in the financial races. -- financial crisis. here, the virus came and it was nobody's fault. the countries that were hit the most, such as spain, are still suffering from the financial
crisis and its consequences. i think there was a learning process, and it could signal also, especially now with the presidency being less, let's say egoistic, more european. maria: you could also argue that if germany does have an interest here, germany makes good products, but they have to sell them to other countries. is there an element of self-preservation? ms. barley: there is definitely an element of that. that was an argument in the financial crisis. the european union is by far the largest market for german products. that is what we convinced europeans keep telling german it is our the time, sound interest to also have a sound european union. maria: you mentioned the german public. for german voters, the idea of more risk being shared between
countries, that idea of more debt -- angela merkel now says taking on more debt is not a problem and is good for their recovery. how has that affected the german psyche? what has changed? ms. barley: it is important to see this is a limited program. this is not about old debt. the german public does not see the need or feel responsible for all debt of member states. but this is cost because of the virus, because of the current crisis. everybody feels the need for solidarity. is a: next week, there very important eu summit happening here. there is a lot of expectation built into it, but angela merkel wants an early deal -- can she get it by next friday? ms. barley: it is difficult to say. countries have different opinions. if you talk to everyone of them -- every one of them, i think they do see the need for moving.
in my opinion, the hardest part will be the dutch case, but internalhey have this rivalry between the finance minister and the prime minister about the next selections. it is always bad if internal affairs mingle into these european questions. i think with the swedish, danish, and australian my we can cope. cope. australians, we can the dutch might be harder. maria: it so you think it may take a summer negotiation. ms. barley: we might need another one. but i don't think they expected to be seen as the bad guys, which they are, i think, in most of the public opinion. maria: going back to mark, i know he has been criticized for saying this is not the time to play politics given the economic crisis we are seeing. how has this affected the relationship between the netherlands and germany?
do you see diplomatic tensions? ms. barley: no, this is the typical ongoing discussions between member states. i think it might be a backlash for the dutch government, because now everybody talks about their tax savings schedules and about lack of solidarity there. companiese, italian are paying their taxes in the netherlands. they probably don't even have any workers there. margarita -- take i know this is -- do you think playing the role of the bad guy? ms. barley: i think all of the governments have been well imposed. that is part of the crisis, the normal phenomenon of crisis. i just married a dutchman, so i know the netherlands quite well.
i know he is popular. i think that he might be the find a compromise. switching over to angela merkel to thunder line, how is crisis?ing with the i know there was criticism that howseemed overwhelmed with quickly things were happening. ms. barley: there was a lot of criticism. it started too late and there was too little effort at the beginning. you also have to blame the member states for that, because they, at the beginning, everybody tried to make a point, to show that they were public in doing something. -- were active and doing something. this is part of our problem in european politics.
national governments need to present themselves and make points, even if it would be better to shift towards the european union. yes, he could have done more, but the member states could have done more. and how synchronized do you think the two of them are in this? ms. barley: they get along very well. they have been working together for a long time. i think it could be useful for the european union that there are so many strong women around. maria: katarina barley, thank you so much for joining us, former justice minister with angela merkel, who actually does see a deal happening sometime in the summer. anna, back to you. anna: thanks very much. maria tadeo for us with that interview. perspective on the role
being played by the dutch, they and the rest of the frugal four. let's take a look ahead to what is happening. in a major speech later, the u.k. chancellor ricci's neck will outline plans to kickstart the economy. he announced re-billion pounds and made 1.6 billion available to the arts and culture sectors. retail sales figures were published -- will be published at 1:00 p.m. london time. the data in may is expected to show a partial recovery from the plunge in march. test 1:00,r chancellor angela merkel addresses the european parliament. she will debate priorities of the german presidency and set out her country goals over the next six months. later today, president trump counterpartxican
not taking demands to combat hate speech seriously. one report said facebook treated the call like a pr exercise. facebook says they know they will be judged by their actions, not their words. president donald trump says the u.s. is considering banning the way thep tiktok, one chinas looking to target in its handling over the coronavirus. according to a children's privacy advocate, the app is also facing a probe in the u.s. over its data collection practices. and the president's estranged nice is releasing a tell-all memoir next week. bloomberg news has obtained a copy. unit, mary trump says she watched as the president shredded norms and trot on the vulnerable. a white house spokesperson says falsehoods,full of
and the president's other brother, her uncle, had sued to block its publication. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. anna? anna: matt, let's talk about the banking sector. hsbc is sliding in hong kong trading after a report the u.s. may punish banks in the city by destabilizing the currency peg to the u.s. dollar. hsbc draws more than two thirds of its pretax income from the city, and bloomberg news has learned that it was specifically mentioned in conversations about this in the united states. joining us for more is annmarie hordern, focusing this morning on everything to do with banks. what is the outlook for hsbc following this report? i suppose we should not be surprised that they might be on the wrong side of things when it comes to the american viewpoint, after what was said recently about security law.
annmarie: certainly. last month, mike pompeo singled at the scene you over signing a petition supporting beijing -- singled out the ceo for signing a petition supporting beijing. a priority has been finding ways butunishing these banks, specifically hsbc was mentioned as a potential target. if some of these top advisors get their way with the administration, this could mean limiting the ability of hong kong banks to buy u.s. dollars. 2.8%.kong is down thiseep in mind that proposal has not been elevated to senior levels of the white house. it faces a lot of strong opposition within the administration. it is said it could hurt the u.s. financial system much more than it could hurt china. we should also note that hsbc declined to comment on this
story. matt: i want to point out that you are a very transatlantic reporter. you normally live in london, but you are american and you are there now. barclays has reportedly reached out to candidates to replace the ceo jes staley, formerly of jp morgan in new york, now at barclays in london. what is the story? annmarie: there is a lot of us transatlantians. reached out to central candidates. searchrd is using a firm, spencer stuart, to do what is known as market mapping, laying the groundwork to kick off a process. but barclays says there is no search underway in the search firm declined to comment, but people with knowledge have said previously that jes staley could
leave the bank as soon as next year. the chairman has been under increasing pressure to replace staley, especially from one activist investor. part of that comes from investigating staley's ties to jeffrey epstein. that leads to deutsche bank. they have really been in the spotlight when it comes to jeffrey epstein. anna: talk us through that link, then. there is another thread we need to pick up on when it comes to deutsche bank, and that is ties to jeffrey epstein. what is the latest on that? annmarie: deutsche bank has been in the spotlight for a while, but now they are going to be paying up. the new york banking regulator, they need to pay them $150
for financial dealings with epstein. the reagan later said, despite knowing epstein's criminal history, the bank failed to protect millions of dollars in suspicious transactions. the regulator really lays out how the bank sought epstein out as a customer after his conviction for soliciting underage girls in florida and then helped pay out millions of dollars in legal settlement and withdrew 800,000 dollars for what was known to be cash for travel and tipping expenses. but deutsche bank has said they have acknowledged their error and the weakness in their process, and they said they have learned from their shortcomings, but this is going to be one of of reputational damage, potentially, to the bank. matt: welcome back to london. annmarie hordern talking to us
about all the banking news. sticking with banks, commerce superill be holding its board advisory meeting at 9:00 a.m. u.k. time, 10:00 a.m. in frank for. -- frankfurt. minutes away from the open of cash trading as well. 12 minutes to be exact. we will bring you stocks to watch, including traton. this is bloomberg. ♪
but paring losses just a touch over the last half-hour so, not by much, just 0.9%. these are our top corporate stories we have been covering. theng has settled 90% of wrongful death claims over the 2018 crash of its 737 max jets operated by ryanair. -- lion air. boeing says it is optimistic the remaining cases will be resolved. barclays has reached out to potential candidates to gauge ,heir interest in the top job as part of a long-term succession planning to replace jes staley. fulles tell bloomberg know search is underway, but -- there was increasing activist pressure to increase in -- replace him as ceo. sent the new has york banking regulators $150
million for lapses related to jeff epstein. the regulator says the bank failed to detect or prevent millions of dollars of suspicious transactions. deutsche bank says it deeply regrets its association with epstein and is cooperating with the authorities. that is your bloomberg business flash. matt. matt: we are minutes away from the open of cash trading across europe and in the u.k. joining us to talk about what stocks you want to watch on what is set to be a down open is dani burger. deutsche post is up first. they were on "bloomberg daybreak" a little earlier. dani: and they are likely to buck the trend of the downmarket. daybreak on "bloomberg " talking about, after posting their daily figures, corporate earnings look like they are going to be strong, well above average analyst estimates.
recovervolume start to in the second half and a rise in shipments driven by e-commerce, one of the big winners from the coronavirus pandemic. those shares are about 1.5%. during that interview, deutsche post did say it with needless real estate -- would need less real estate. and they are paying employees a bonus to reward them for their efforts during the pandemic. danny, let's move on to the auto space must specifically be truck division of vw. vw is having its own management shakeup. traton's ceo says this is a surprise. the former ceo is going to come in as a replacement. there has also been a shakeup at the ma and mann truck division.
is there a succession in place, or is this just leaving and there is not really much of a strategy there? we have seen shares down about 3% market on trade date today. danny, we were talking a boohoo, thebout seller of an expensive clothing and accessories. what is their supply chain? factory ine was a leicester, u.k., not practicing social distancing, paying employees less than half the minimum wage. boohoo saying they are launching an internal investigation into their supply chains. it is not surprising they are doing this, because overnight they have walked a lot of different markets that normally sell boohoo clothes. at around 1:00 a.m. london time,
amazon comes out and says they are not selling boohoo, so this is obviously a big hit to the retailer. they have said they saw inconsistencies in the report from the sunday times that came out over the weekend, and they are going to terminate their relationship with the suppliers in question. this is definitely a moving story, one to keep an eye on. anna: certainly a moving story. an analyst saying the esg project at boohoo is a work in progress. dani burger, thank you. coming up, it is the market open. futures are pointing to the downside. ftse futures down by around 0.8%. perhaps we have a little catch up to do when it comes to the u.s. trading day of yesterday, when losses were slightly greater. in the last half-hour, i should point out as futures have been moderating a little bit. turnaround the
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♪ a minute to go until the start of cash equities trading for this wednesday morning. hong kong's banks in the firing line. president trump's top advisors want to destabilize the peg in retaliation for china's tightening grip. hsbc was singled out in the report. futures point to a second day of losses in europe. the scope for more action as the ryo can -- reopening stalls. u.s. virus cases approach 3 million. the u.k. chancellor is set to
unveil his measures to reinvigorate the u.k. economy, but will it be enough to drag the u.k. out of its deepest slump in centuries? matt? matt: let's take a look at european futures right now. we have seen them down about 1% across-the-board over the last hour. they are getting a little bit better as we go into the open of cash trading. indexes to watch the pop out of the gates, let's pop up the global macro movers screen. you can see each index as it starts to trade. the ftse is already up -- or down, i should say. benchmarktoxx 50 european index is down about as much as well. the ibex in madrid opening down more than 1%, now 1.3%. c in paris down 0.8% at the open. typically, we get the aex out
now and a little bit later, the dax as those indexes take slightly longer to open. ,e are seeing this trend really losses of about or around 1%. in franceain, less and far less in london but european markets are generally lower. that is after the ferocious rally in stocks that we have seen since really the bottom in march. starting to show signs of fatigue. meanwhile, bond yields remained depressed. joining us now is steven major, fixed global head of income research. let me first ask you how you gauge the markets in general. you know, we saw a real risk on sentiment from march 23 until the beginning of june. it kind of leveled off, popped
up again, now it seems to be coming off. how much of this is related to isid and how much of iit related to other issues? steven: the bond market tends to look through a lot of the near-term. i guess you could say the same as well for stocks. with bonds, the pricing mechanisms are quite robust to the interest rate mechanism. i never believed that we had anything more than a rebound. we have to be very careful not fastnfuse evidence in the data of rebound with recovery. because rebound is not recovery. recovery has to get back to the previous low. i am sure you are aware of this, it will be very difficult for the next couple of years to see a full recovery back to the previous level. it is quite noisy, the data. a more realistic view looks
ahead to next year and the year after. that is why bonds are behaving in such a calm fashion. the trading ranges are very tight, the volatility is very low. for the stock market, i think it moves around on the news flow. it is driven by some of the themes going on in the sectors. anna: good morning to you, steven. so rebound is not recovery. what does that mean for your expectations for u.s. treasuries and where we go from here? future dout into the you expect treasury yields to remain solo? -- so low? steven: we try and forecast five years out into the future to forecast one year into the future. that this year, the yields will be 50 basis points by year end on 10 year treasury.
that is an old forecast. i looked at the bloomberg consensus. i think the number for the median is close to 100 basis points. the forward is just about 70. our forecast is probably the lowest one that you have got. that is because we see rates staying low for a very long time. i find it very difficult to see how they are going up in the next few years. other people have different views on this. reflation case for and inflation risk has to be made. isfar as i am concerned, it very, very weak evidence at best . the extent of the demand shock is so great that all of the supply-side anecdotes we are f potential cost push inflation are not enough to outweigh the impact of the demand shock. think about wages and the level of unemployment. how is this going to be closed
at any time? it is going to take ages. do toso what would you close it? what do you think we should hear from people like rishi sunak specifically,him but governments and central banks in order to deal with this thing as well as possible? of all, nol, first one cares what i think, matt. you should remember that. matt: we do. steven: central banks are well served by giving an optimistic outlook. they are well served and somewhat complicit in the process. they have to talk up the recovery. they can hardly say, it's not going to work. they are not going to say that. i will look at the track record back over the last 10 years and i will look at the forecast that have been made and i will make
that judgment based on the whole. there has been na over optimism bias -- an over optimism buys for quite some time. more of the same -- bias for quite some time. more of the same does not do it. we are in this for the long haul. that is why the bond market is priced more and more like japan. everything has converged onto the bottom right-hand corner on one of those charts. that is u.s. treasuries coming bunds, gilts, jgb's. banks may wish for something else, but frankly, there is no silver bullet. there is no magic potion. let's just be realistic. we are in for the long haul. anna: ok. where does that leave the debate
around the yield curve control? you have talked about how a lot of these yields have already converged at very low levels. we have experience with australia and japan and how they can shape their curves. do you think this will be a growing phenomenon as we look at what this does to japan and australia? is this something that other central banks are going to be doing? steven: the charts that you put up shows the 10 year segment and the fomc sat down to a presentation back in june and we can see what they thought about that in the minutes. it was a little bit disappointing that there was not some discussion about forward yes, they looked at the australian three year yield curve target, they looked at the 10 year target in japan. the only nugget of insight that i got out of the thing was that perhaps that they are looking at bolstering the forward guidance with a commitment to buy a stake.
that is referring to the idea of a short and yield curve target. i imagine it could be up to as much as the five year, for example. that would make sense to me. but only a minority of the fomc seem to be in favor. i would argue for a risk management approach, to be proactive rather than reactive. the price of failure is high. because they do not want a situation where the market actually judges that there might be an inflation risk. as i said, there is so much uncertainty. it could be that they are fighting to keep the yields down. at the moment, there is a risk of complacency because there is no inflation expectation. it seems the market agrees with what i have said to you about low for longer. so there is a danger of a kind of hubristic behavior are they actually believe they do not have to do anything because the market is doing all the work for them. i would say putting in place
some kind of mechanism to stop the yield going up becomes an imperative. the challenge in the future is the debt overhang. there's too much debt. how do they manage the debt over the long-term? you asked me for a solution. i don't have a single solution. the imperative of the banks and the governments is to manage the debt overhang. they have to manage the financial repression for the next decade or so. yield curve control is really important. anna: thank you very much. really interesting and we do care what you think. and no doubt, others will be listening. steven major, hsbc global head of fixed-income research. coming up on the program, the path to eu recovery. german chancellor angela merkel heads to brussels today to back about 750 billion euro recovery fund plan.
thedax is down only 1/3, cac is down a little more than 2/3 right now. those are generally what markets look like this early in the session on this wednesday morning. these are today's top corporate news stories from the bloomberg terminal. hsbc shares are slumping on the reports that the u.s. may punishing banks in hong kong and reports also that there is a balloon floated about the possibility of de-stabilizing the currency peg as well, though traders have dismissed that idea. ofc may be a specific target u.s. anger or concern. the british lender makes more than 2/3 of its pretax income in hong kong. china's newy backed security lock, drawing criticism from politicians in the u.s. and
u.k. to 2200s to lay off up u.k. staff members at jaguar land rover factories. unite,ng to the union about 40% of staff at the plants face dismissal. the logistics company owned by deutsche post linked about half of the reductions to lower car production. announcementr's that over 1000 contractor jobs would be cut across its plants. civil rights advocates have criticized facebook after a meeting with top executives, including ceo mark zuckerberg. the groups say the social network is not taking demands to combat hate speech seriously. one said facebook treated the hour-long videoconference like a pr exercise. facebook says it wants its platform to be hate free but knows that it will be judged by its actions are not words. that is your bloomberg business
flash. anna? hsbc,steven major from global head of fixed-income research is still with us. i want to talk to you about corporate credit as well. we face some really interesting developments in that space as earnings season approaches. we have a chart that shows u.s. corporate credit. the u.s. corporate bond index hitting a record high in recent sessions i had of a very uncertain earnings picture. the fed is all over this market. what are your expectations? steven: yes, the fed has given a backstop, though they are not buying very much compared to the ecb, for example. the returns on credit are fairly good since march. if you look at the chart closely, you will see that the market is grappling to get back to where it was. if you bought government bonds this year, if you bought treasuries or gilts, you would
have had close to 10% positive return when stock markets have been in deep negative territory. corporate credit is something that is seen as between those two levels. i suppose that intuitively with low for longer, picking up 100 basis points or more in good-quality corporate credit makes a lot of sense. i can understand that. the problem is when you go down the credit curve into the high-yield, and that is where our team is being very cautious. it seems inevitable that you are going to get other reorganization and restructuring and refocusing of the global economy. that means companies are going to fail. some companies will survive and others will fail. you have to be careful. there is a reason that the riskier credit is lacking -- lagging a bit behind. our strategy is to be very selective and go up in quality.
we apply that across the global credit markets. matt: you know, we have heard warnings about bankruptcies to come from economic luminaries like joe stiglitz. i think it is fair to call him a luminary. he is a nobel laureate. we also heard a lot of countries , here in germany, the economy minister trying to do a deal to save the small and midsized companies. why do you think we are seeing a lagging of bankruptcies? a lot of experts warning, you are going to see the bulk in the second quarter, they are coming q4.q3 and steven: there is a couple of things underlying this. meanspan experience the availability of credit keeps some companies afloat for longer than they would have been
otherwise. oductivens you have unpr debt stock in the system as well. the debt is still there and inefficient companies are still around. the policy response is designed to try to build a bridge, isn't it? keep people in work and keep companies turning over. that is why you may not get a natural evolution of the default profile. so i think that is why it is logical to think there is kind of a delayed response. investors have to decide now. they cannot be so cute as to time the default wave. this is the challenge that we have, is that you can look at traditional fundamental drivers and find a pattern that does not really apply when you have got so much liquidity available and government direct intervention
into some companies. an analysis might predict certain default levels they will not be reached. the peak will be reached later than it would have been otherwise. anna: we just do not know for how long that will be backstopped by governments. really good to get your perspective this wednesday morning. hsbc global head of fixed income , will be steven continuing his conversation with matt and i on bloomberg radio. you keep telling people to go from tv at 9:00 to bloomberg radio but that's where we go anyway. ceo -- indeed, listen to our program on radio. the deutsche post ceo says it may reduce office space in the future. we bring you our interview with
points. postin germany, deutsche has issued guidance for 2020 after it announced second-quarter earnings that rose, despite the pandemic. the german logistics company be betweennings to 3.5 and 3.8 billion euros for the year. spoke tofrank appel, bloomberg about the shape of the recovery expects. frank: it is definitely possible that we will see a very strong recovery. we have seen already in the second quarter starting a recovery. in very much depends on how well the world contains the virus. at the moment, it looks in europe pretty good, in asia as well. , they wereicas behind the pandemic anyway and
they are still more impacted. overall, i think we see clear signs that we can potentially get a fast recovery this year. but that is not given. that is the reason why we plan different scenarios, even the scenario that we get a very strong second wave and lockdown. >> when i first saw the release, given theto myself, conversations we had earlier this year with various executives, there is so much uncertainty ahead. i understand you have outlined three different scenarios through to 2022, but how useful will this guidance be to investors? do you not think you will have quarter? it every tell the market, even in
the worst case scenario, we're pretty confident that we can , even with health measures, improving year after year going forward. i assume that investors will like that kind of discipline. if we get a fast recovery, they can have a little more, if we have a modest recovery, they still will deliver a very good result. even in the worst case scenario, the company will go through and that is thanks to our great workforce we have around. that is the reason why we gave them all a bonus of 300 euro flat for everybody who works in our company because they have done an outstanding job in the last month. i trust them that they will continue to help the world get back on track. these people have worked
relentlessly in this crisis. of course, we have given them enough protection so that they stay healthy and safe but they have done an outstanding job. anna: that was the deutsche post ceo, frank appel, speaking to bloomberg earlier this morning. let's get to some of the movers this morning. we have a number of stocks in focus, including electrolux seeing a smaller loss in the second quarter than previously anticipated. u.s. is considering punishing hong kong banks so that is weighing on that particular bank. keep an eye on a nokia. verizon will switch to samsung as a major 5g radio access network supplier. lots to focus on in those stock moves.
♪ matt: welcome back to "bloomberg markets: european open." we are 30 minutes into the trading day right now and looking at some slight losses on the international or the national equity indexes. here is the more international stoxx europe 600 benchmark. you can see it is down, but now only about 0.3% or one point. most equity index groups are down. this is the grr page on the bloomberg terminal. banks down again today. you have also got real estate and insurance falling, but
gainer, as well as food and beverage so it is not all a loss today and the losses are not all that big. let's get the bloomberg first-order's -- first word news. the european central bank will likely keep policy unchanged at its next meeting. that is after its massive emergency stimulus helped calm markets. times,g in the financial christine lagarde said measures from the central bank demonstrated their efficiency and effectiveness. the governing council's next decision is in just over a week on july 16. the white house has made good on its threat to leave the world health organization. the trump administration has sent a letter to the agency giving it a one year notice that it plans to go. president donald trump says the international body has been too deferential to china in its
handling of the pandemic. the move comes as virus cases in the u.s. near 3 million. some advisors to the president want the u.s. to undermine hong kong's dollar peg. the proposal has not gone to the president or his most senior aides yet. that comes as the administration is considering how best to punish china from moves to chip away at hong kong's political freedoms. traders say the idea is "wacky." global news 24 hours a day, on-air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. anna? anna: the wait is nearly over. the u.k. chancellor of the exchequer is set to unveil a recovery program in today's summer statement. it will pay the wages of over 200,000 young workers as rishi sunak tries to pour the u.k.
economy out of its deepest economic slump in centuries. here is dani burger. dani: no doubt, jobs will be front and center. unemployment in the u.k. is on the rise. rishi sunak is likely to focus on bringing those jobs back into the market. but the big risk is that the demand recovery is not strong enough to get the furloughed staff brought back when that scheme starts to wind down. you can really see here by the worsening productivity picture. output per worker has plunged more than output per hour. the furlough program has capped the level of unemployment steady but the actual output given by those workers has fallen dramatically. recent reports have also surfaced that sunak is considering cutting vat with the hope of getting consumers to spend again. but consumers, they are likely cautious. this graph is the level of savings. predicts that it will
be difficult to get consumers to spend. the impact of the virus in the u.k. has been stark. sunak's efforts will cost more than 130 billion pounds, according to estimates. that has already pushed the national debt above the size of the country's gdp for the first time since the 1960's. that is also likely to be in focus. matt, anna? matt: all right, thanks very much. dani burger talking about what to expect later on. joining us now is our senior u.k. economist at bloomberg economics. dan, what do you expect we should hear -- well, we will hear from rishi sunak and is it what we should hear from rishi sunak? dan: good morning. i think we will hear two things from him today.
the focus on jobs and youth unemployment. i think the second thing we will hear, we have had a bit of a the weekend over where he announced a package for the arts sector. he is going to focus on sectors. i think it is likely that he could announce some stimulus measures to the hospitality sector. we know that the hospitality sector opened up over the weekend but it is operating well below capacity. i think it is going to be targeted stimulus measures. we are not expecting a big blanket measure. it will be targeted measures. that's an interesting approach, isn't it? and one that may be in contrast to what we heard from germany. matt and i have talked about this many times, the way the germans came through with one big announcement with a big number attached to it, a big
commitment to invest in green technologies or at least to try some greening of the german economy. we don't see that big approach from the u.k. treasury. >> that's absolutely right. the bestunak believes way to stimulate the u.k. economy is to get it open and open safely. has definitely done a significant amount of furlough schemes. he is waiting to see how the economy response. there is a big question about consumer caution. onconsumers remain cautious the economy is opened up and we are at some sort of near-normal come the winter, there might be an argument for the germans to package.a stimulus
he wants to limit the damage to the labor market. ands really a stopgap here look again in the autumn. matt: we were talking with steven major just now but others have also brought up the problem biefying small and medium enterprises, keeping them afloat, even though some of them should be left to perish. is there a problem for u.k. businesses as well as other problem fors that a u.k. businesses as well as other nations? >> i think so. we had it as well in 2008 in the u.k. and arguably, it is one of the reasons why the u.k.'s productivity performance has been so weak with the low interest rate environment keeping zombie firms alive. and all these loans that have been made and all the support that has been given has kept th
ese businesses that should have otherwise gone out of business in business. you need to let the economy just. you need to let -- i just -- adjust. i think that is something that sunak is keen to avoid. continually pumping the economy with stimulus delays the process of reallocation, the process of going through some creative destruction. i have heard some critical pieces over the last few days over plans to cut vat, people at might not be the right stimulus at the right time. should we expect neither of those things today? vat, it could be
that sunak looks at a targeted the hospitality sector and tourism sector as well. i don't think a blanket tax cut is likely at this point. i think the big problem is that announcing more, having these rumors in the press means people hold off thinking about moving house because they think the tax cut is coming at some point. i think it is more likely than not that he will announce something to prevent any seizing up in the housing market, because that is the big risk. forcedt have his hand and may up announcing something today. matt: thanks very much for joining us. talking to us about what we can expect, what we should hear from rishi sunak,
♪ matt: welcome back to "bloomberg ."rkets: european open we are 42 minutes, 43 minutes into the session right now and looking at losses. the ftse down 11 point. in paris down 0.5%. let's get the bloomberg business flash. deutsche bank is paying new york's banking regulator $150 million for a string of compliance lapses related to convicted sex offender jeffrey epstein. the regulator says the bank failed to detect or prevent millions of dollars of suspicious transactions. deutsche bank says it deeply regrets its association with epstein and is cooperating with the authorities. out tos has reached
potential candidates to gauge their interest in the top job. long-term part of a succession plan to replace chief executive jes staley. sources tell bloomberg no formal search is underway but jes staley couldn't leave the lender as soon as next year. there is increasing activist pressure to replace him as ceo for, a monger things -- among other things, his previous relationship with jeffrey epstein. boeing has settled 90% of the wrongful death claims over the crash of its 737 max a jet operated by lion air. the company did not say how much it paid the families or estates of the passengers and crew killed in the crash. boeing says it is optimistic the remaining cases will be resolved. that is your bloomberg business flash. anna? chancellor angela merkel goes to brussels today. is her first trip outside of
germany since the coronavirus crisis started. she will back the 750 billion euro recovery fund ahead of a crucial meeting between eu leaders next week. for more on what we can expect, let's get to maria tadeo outside of the european parliament in brussels. good morning once again. angela merkel wants a quick deal but can she get it? maria: well, that is really the question. tellis what she will the european parliament today when she makes the case for this 750 billion euro recovery fund. merkel is really expected to repeat the same argument she has been saying for two weeks, that this is the best way to go about and this is the best way to ensure a fair recovery for the single market. and this is also good for the german economy. ultimately, germany depends on exports.
they need to sell things to other countries. nonetheless, i would say there is still a lot of division happening here. we know the frugal four still believe there should be a more traditional bailout cash for reforms and they want to see those countries come forward with reform programs. it is unclear. angela merkel will defend that line here today. she has decided to come here to butsels, her first trip, also throw her entire political capital behind this recovery fund. matt: the commission also signaled that it is worried about a slow response to the crisis and the possibility of an uneven recovery, right? maria: yes. those numbers that we had yesterday from the european commission did show that this is going to be a deeper economic contraction than the one they were expecting just two months ago. we are expecting an 8%
contraction, a full percentage than two months ago. there is clear divergence between the north and south. and that, when you speak to politicians here, they say it is even more reason to get this recovery fund approved quickly because you don't want to get ed recovery when you look at europe but the numbers point that way, that this is not going to be even -- an even recovery across the european union. anna: maria tadeo joining us from brussels. some advisors to president donald trump wanda euros to undermine hong kong's dollar peg in retaliation for tightening -- for china's tightening grip on
let's take a look at the movers this morning. boohoo is the clothing maker reviewing its supply chain after a report that its factory pays 50ff in england three pounds an hour. off as bloomberg has reported that the u.s. is considering punishing hong kong banks, but especially hsbc as it lawed the chinese security for hong kong. nokia was cut to neutral from overweight. verizon will switch to samsung its major 5g radio access network supplier. you've got some big movers in a market that is overall coming back to little change.
anna: yes, indeed. there were some interesting things to think about -- to talk about with simon flynn. my interest in particular goes to what is going on in hong kong , or with regard to hong kong, not necessarily because many in the markets think that much is going to come of it but because it is a really well read story on the bloomberg. that perhaps the trump administration could consider limiting banks in hong kong's ability to get dollars. others have said it sounds wacky. what are your thoughts on the hong kong dollar peg and where that goes? >> it is a really horrific idea on the part of the u.s., to cast down the peg. there are three really big problems with it that i can see. first of all, it would hurt the through significantly
damaging the hong kong economy. it would accelerate demise of the u.s. dollar as a global concern -- currency. pegsly, it would put other across the world and doubt -- in doubt. a really terrible idea. matt: of course, traders have told us it is wacky and unlikely to happen just because it would be so expensive for the u.s. to try and do. the chinese also could've just switched to the yuan, and they have trillions of dollars of u.s. treasuries that they could just flood the market with. how likely do you see this, simon? simon: so, everything is more guess,than you think, i with the trump administration. i would still put the probability at less than 5%. it really is such a poor idea.
as you suggest, the risk of reprisal could be very significant as well. though, i don't think it would be particularly easy for hong kong to switch over to the renminbi. i think in practice, it would be exceptionally difficult for hong kong to change. anna: one thing we need to keep in mind, of course, we are heading towards the election in november. i know that your focus is on emerging markets. what is the connection between the u.s. election and emerging markets? what is your expectation for how em assets will perform through that? simon: the result of the u.s. election will be super important. right now, the best markets have
a joe biden as a favorite. thatnk if he does win, would probably be very good for emerging markets. the general point is that he is much more predictable and he is more likely to be engaged with the world and that reduces risk in the world in general. more specifically, i would expect him to approach the chinese with an offer to roll the tariffs. justcould be very good not for china but emerging markets as a whole. matt: simon flint from the bloomberg mliv team. you can check out the work of him and his colleagues by typing mliv go on the bloomberg terminal. anna?
anna: remember, you can join the debate, get involved with the question of the day. we have been asking about gold. reach out to us and the markets live team. we have been talking a lot today about what is coming up in the u.k. about how rishi sunak, the chancellor, is going to be giving a speech later on today. we will bring you coverage of the u.k. chancellor, rishi sunak 's, speech. that is coming up later. stephenbe speaking to barclay, chief secretary of the treasury, on the summer statements. matt? matt: that is it for the european open. stay with the bloomberg television. if you want to catch "surveillance" with francine lacqua and tom keene. as you know, if you want to hear more from anna and myself, and
♪ francine: sunak's spending plan. the u.k. chancellor set to unveil his measures to reinvigorate the u.k. economy but will it be enough? o.e u.s. kisses the w.h. goodbye. cases in the u.s. approach 3 million. america may target the hong kong dollar. top of president trump's advisors want to undermine the currency's dollar peg to punish