it was the worst day since 1987. alarm over the outbreak. ,utures hike -- fresh heights prime minister trudeau's wife tested positive. in washington, democrats and republicans fight over a relief package. pelosi says she is near an agreement with trump on a plan. announcement could come today. good morning. this is "bloomberg surveillance." i am francine lacqua here in london. tom keene in new york. a little bit of relief but not when it comes to italian yields. what look -- what christine lagarde did or did not do. how you measure the economic impact of the coronavirus. deflected dollar and cash, it was stunning. theve never seen it

velocity to the dollar and cash, it only have i never seen it, would say biblical times but i was not around for that. francine: i will have plenty more on that. let's get to bloomberg first word news. viviana: we begin in china for the first time since january the nation reporting new cases of the coronavirus in the single digits. a month ago china reported almost 15,000 cases in one day. it is a sign of viral outbreak may be coming under control. still the disease is spreading in the u.s. and europe. italy has more than 15,000 cases and over 1000 deaths. the u.s. is now up to 1500 infected. a state of emergency declared in new york city last night. to capitol hill and how -- house speaker nancy pelosi saying she is near an agreement with the trump administration on a

coronavirus bill. for paid sicking leave and more aid for those who will lose their jobs. policy hopes to have a deal today. investors looking to the federal reserve. the fed unleashing a trillion dollars but failed to help the stock market rout. next week or sooner. we end with canisters just canada's prime minister may be in isolation for 14 days. his wife has tested positive for coronavirus. she had been exhibiting flulike symptoms. justin trudeau's office says the prime minister is in good health. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. and vivian. tom: looking at the data, it is simple. there is so much to talk about.

of our best best on the fed writing on the urgency for action. futures up down here to futures up 515. there is the shocking numbers, this is correlated with the flight to the ultimate safe haven, cash. you want cash, you get out of bonds. the price goes down, the yields go up. the tens and 30's go up up up and yield massive steepening of the yield curve. onto the second screen, oil with a comfortable lift. in 2008. we are back down to 69 this morning. rinsing, i put down zero swissie which is stronger euro. it is amazing how resilient the swiss bank has been given all the gyrations. francine: it is amazing.

i know with a lot more input into what affairs have been doing u.s. futures climbed. that is something a lot of traders will take as a sign of relief. the one thing i wanted to point out, the italian 10-year yield up 1.82. for me, those are the two yields we should be watching out for today. tom: that is really important. stay on the screen. anthony.-- it is ok, it is friday. 2%., the 30 year bond was it came down and crushed percent . -- crushed. lower bond prices, how you yields, i need cash. if i need cash, i will buy the

u.s. dollar. right now, let's move onto the bloomberg up in canada. totally lost. this chart, i have never seen. this is the united states dollar as exemplified by the bloomberg dollar index. trust me, it is great math. that is not two standard deviations of band. here, francine, from down -- i am going to get this right. it is my first day. two dollar and go from here from go -- ind-trip is to have never seen that. francine: a lot of things happened yesterday that people had never seen. today, you will get stocks attempting to stage a comeback. bevan and now, james

paul donovan. thank you both for joining us. what a week. we have almost survived it. james sat down and told me, how much more volatility will be see on the markets. is there enough liquidity? james: it has done externally well. as to what lies ahead, we really do not know enough about the progress of the virus. perhaps more importantly, what happens with participants in markets. there is going to be a significant focus on what authorities do. francine: what is your take on the week? how are we measuring the economy impact? >> the issue is fear. it is fear in the wider economy. fear changes consumer behavior, corporate behavior and policymaking procedure.

that is the great uncertainty. policy seen a very good we have seen some mixed policy. u.k. did rather well. the bank of england and the government came out with a correlated plan targeting the damage in the near-term. the federal reserve has been good in the markets but not in the real economy. it is not doing anything to limit the damage in the near-term. the ecb yesterday came out with a very decent package for the real economy. it is sort of a rather hit and miss in terms of the market. tom: paul donovan, a great strategic reach. and james bevan here on the equity markets and ownership of companies that you still own or thinking of buying. this is a great pair to have.

paul donovan, i love how you made your research note. forget about aggregate demands, you say it is a good old all-american demand shock. are you willing to call recession and what is the duration? paul: this is the problem economists have, recession is for you guys and the media. there is no formal definition. a bad going to have second quarter? yes, of course. are we going to have a negative second quarter? yes, and much of europe and the united states. inwe feed that peak of fear april or maybe even early may, then i think you can get a recovery or some kind of bounceback in the third quarter. need to see that peak of fear about that virus. i wouldn't describe it as a

recession. i would describe it as a really nasty but hopefully still relatively short downturn. tom: james bevan, which a bank reaffirming 100 deep rate cut. james bevan, do i take my portfolio and sit on it? do i recession proof it? james: tom, i think the single biggest challenge is a demand shock turned into a supply shock. if you think about what is going on, a lot of companies are finding it difficult so there are some signs there's already a supply shock in the making. people see the number of who have jobs in the u.s. getting to decline. i think we have a much nastier risk. on top of that, there's the issue of who is the buyer of u.s. equities. companies buying back shares

being the significant swing factor in pricing. there's a chance in the current credit focused marketplace, company say, we really didn't want to spend our money on buying back shares. we might need it to run our companies. to me, this is still an issue of sticking to quality. , thosees in the u.k. names will weather the storm well. i want to ask paul donovan about recession. let me ask you this, how bad will growth be? paul: we will get growth later this year. remember, markets, forecasters, universally underestimate the speed of recovery and after aimate recovery dominant narrative, after a really big narrative story. you always underestimate the

resilience of human beings. people adapt. i can remember, i was giving a speech when the earthquake hit and it was terrible. people were saying there was going to be no electricity in japan for years, and it is going to be 30% down. you know what happened? people put on their shorts and t-shirts and turned off their air-conditioning units. people adapted. people will be resilient in the face of this in the end. it is going to be a terrible three months. we are going to have that negative shock in terms of demand, induced by policy. adapt.ople will francine: thank you both. we will be back. coming up, and excuse of conversation with the bank of italy governor. that is coming up a 6:30 a.m. in

new york. this is bloomberg. ♪

>> the spread of the coronavirus as a new and substantial source of -- >> what matters is not the epidemiology of the risk to the economy. we saw a risk to the outlook for the economy. >> we decided on a comprehensive package of monetary policy measures. >> this is a big package, and a judgment was that it was sufficient. in terms of forward-looking, i

will just note the statement that the bank will take of necessary further actions. >> we will make use of all the flexibility embedded in the framework of the asset purchase program. >> it is turned out to be a global problem. when the problem is global, the need for resolution is so much more. >> central banks are doing what makes sense in their institutional context. overall, talking to each other. >> ambitious and coordinated fiscal policy response. ambitious and coordinated fiscal policy response is required to support businesses and workers at risk. tom: bankers ambitiously managing the message forward. what you need to know is every single expert i have read or talked to said it is not enough. the magnitude and scale of fiscal response has been -- even

people criticizing the united kingdom for not doing enough. these officials are learning as they go. we will learn from james bevan from ccla. paul donovan, economist with ubs wealth management. paul, last night j.p. morgan said this is ridiculous. the united states has to think in terms of 500 billion -- half of cholla dollars of stimulus. is it too small of an effort? our central bankers strapped because of fiscal people cannot their act together? paul: the trouble i have with the fed's response is that is great for the second phase. that is great for getting us in the bounceback. it doesn't do very much at all for the next three months, when the problem is small businesses are forced to close.

households having problems with their cash flow. that is the stuff we need to deal with immediately. the fed can do more. it can do more to facilitate, to encourage financial system support for the enterprises. we need fiscal policy. good news, the senate has said it will not go on holiday today. they will be prepared. the good news -- the bad news, what is being proposed is pretty small scale. we don't know the extent of the virus yet. we don't know the extent of the fallout. we know it is not going to be good. more would be quite desirable. tom: james, what is been your experience of great accommodation by any central bank and how infused in the stock prices? everyone has gone on the table for rate cuts. some say do it friday morning.

on thea headline bloomberg moments ago that the cuts. considering further how does that filter into your world? james: once we get back to business as usual, the forward-looking equity risk premium is way to elevated. the way i looked at this is to calculate the problem before cash flows that investors will receive in markets. i take a rate which is required to discount cash flows back at today's market level and i get to a number close to 8%. that is in the context of what i think is fair which is just over 6% based on a combination of credit spreads. the ifn some sort of proxy. on that basis, i think that next move is a long-term by. where cash flow

yields can be secured with growth, people will play -- pay very high prices. francine: what happened yesterday, does the ecb have the tools or does it want to support italy? ecb is supposed to prevent disorderly markets. it is supposed to make sure the financial system is functioning in a normal, reasonable manner. i think, yes, ultimately, that does mean if you see disorderly markets pushing out the italian spreads, the ecb should take action. that is what it is supposed to do. i think what happened yesterday lagarde doesn't have a background in economics.

the focus of her remarks was more political. we are not bailing out the italians, rather than economic. we are not going to allow disorderly markets. tom: we will continue. paul donovan and james bevan, thrilled they are with us. it is accommodation friday. widely expected. we will see that from the spread -- from the fed. accommodates. a couple of program notes. we have some guests coming up. brutal on germany earlier this week. also, with all of you at home on the terminal, check us out at tv . this is bloomberg. stay with us. ♪

francine: we just got breaking news. pboc joining the central bank chorus as the legs, with measures of pboc cutting the rrr for some banks. they are cutting it to one percentage points. aftertom, of course comes we had cuts from the region's central bank. it doesn't feel like it is correlated, but you are seeing places around the world trying to do more to prop up the economy.

let me do a daily check. yes, it is a better take after this today but let's have some humility. futures up 90. figuresis in seven big with 68 on the vix down from that historic 74, level 2008. 81 compared to 74 and the vix is down to 69 as well. but we are really seeing interest in the bond market, the linkage into an ever stronger u.s. dollar. looking at the u.s. dollar, i still have fractional dollar strength on the blended major dxy index. 97.50, but it is right up against strong dollar. what we are going to do for the rest of the hour is frame for you. francine?

francine: global equities headed for the worst week since 2008. there you go. the italian yield. this is significant. stocks are slightly up, but there are some any questions about the efficacy of policy response as cases in the coronavirus continue to grow. restrictions on people and businesses. a lot of questions on the ecb press conference and whether the ecb will be able to defend italian atp. goma sex global head of commodities will talk about -- global sex global head of commodities will talk about oil. ♪

[ fast-paced drumming ] [ fast-paced drumming ]

♪ a friday, francine and tom. we say good friday to you. this historic week.

coverage, looking toward special coverage tonight. now what their first word news. viviana: on capitol hill, nancy pelosi says she is close to an agreement with the trump administration on a coronavirus aid package to mitigate some of the economic damage. democrats are holding out for paid sick leave and help for the unemployed. ine areas are shutting down the u.s. because of the pandemic , disney closing its theme parks. in new york, the shows will not go on, the lights no longer bright on broadway. the sports world is going dark too. college sports, major league baseball are the latest to be put on hold. theu.s. giving roche

coronavirusest a test. toallows health care workers identify the infected and quarantined them. in china, an official pushing a conspiracy theory, writing the u.s. army may have had a role in spreading the coronavirus. tradingntries tit-for-tat claims about its origin. global news 24 hours a day, on air and @quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: it is about central banks. the bank of china moving towards accommodation in a widely , the fed,d action speaker pelosi and others to the rescue. it comes down to investments, and too often we talk about

bonds and the dollar, maybe brent and west texas intermediate but not enough about the ramifications of all of this on stocks. and paulan is with us donovan as well. what is the elasticity sector to sector of companies to cut costs? if the airlines crater, the ground the pilots, this and that, but what about the rest of the s&p 500? james: there are three ways costs can be cut. shedding labor would be bad news for the u.s. equity markets and u.s. economy. cutting back on capital spending , we should expect this to be a bad year for capital spending. the third is trying to cut corners and reduce sales and obviously trying to book cash flow forward to pay the bills.

in that part of the cost cutting, reducing the amount of money that goes out to buy shares will be in the crosshairs of companies. tom: what do corporations need from economists? if these people are going to be resilient and try to keep written test revenues going, what -- revenues going, what do they need from the fed? paul: the larger companies don't need so much from the fed at the moment. it is the smaller businesses. if you are running a small business, typically you are one bad month away from closing because small businesses are operating on tight cash flow. it is not the profitability, it is the ability to pay the bills. that is where assistance as with the bank of england or the ecb, that targeted assistance is useful. 50 billion from the federal government is not enough, not

for an economy the size of the united states. it is not even around enough, so that sort of business for the mom-and-pop stores, that would be helpful. avoid the problem james was highlighting about the risk of having job losses, which one person's employee is everyone else's consumer. that we do not want to see. we want to mitigate the negative impacts of the next three months and trust in a gradual normalization after. francine: well that be enough to placate markets? a problem is always because you have to have the grandiose gesture which comes from the headlines but you need the details to work. markets have different concerns. they are worried about the liquidity. if you come up with a comprehensive, joined up plan which shows there is economic leadership, that is useful.

one could say that over the course of this week, we have not seen that much economic leadership in the united states. it has been a confused policy. we have had that in the press conference from the ecb and that is not ideal in convincing investors that policymakers know what they are doing, have a plan, and will follow it. francine: our markets concerned because there is no commonality concerned because there is no commonality, the bank of england getting it right and the markets were not 100% behind that either. paul: i don't think you need a coordinated response in terms of the g7. is coordinated fiscal and monetary response, but this is not like 2008. yes, we have a common enemy but it is hitting different

countries at different paces at the same time, and we have different reactions in different countries. the reaction in the u.k. is different from the reaction in china is different from the reaction in italy. sense that to have a global policymakers have a plan and are following it. certainly until very recently, that has been something that has not been apparent to the markets. the u.s. president was calling it flu very recently and his son was saying now is the time to go along equities. that lack of coherent, sensible, we know what we are doing and well go that direction on a global level, that is troubling for investors. of: that intraday chart yields up is extraordinary, the outlier italy has become. we always go back to ibbotson.

back 80 years, the depression in the lower left, the guadalcanal low and the beginning of world war ii. what is fascinating on this log chart is here is itty-bitty 1987, the financial crisis, and it is stunning to me that on the 80 year trend we are just back to the mean. we have reverted to the mean mean, i get that, but do you assume that more value we need to drop below that mean like we did in 2008 and the so-called carter malaise of the 1970's? had iswhat we have immense valuation support from the compression of yields in cash and bonds. equities become better value. i would urge people to look at the shiller price-earnings divided by the bond yields and dating back to 1960, we have markets at record cheapness.

this is a long-term buying opportunity if you can buy good quality companies that will stick around and not have stretched balance sheets. thecho the point about sector in the state, there is not a lot of leverage and in servicing that leverage, the economy is slow. we have a risk that a difficult market turns into a credit crunch. tom: i have to get this question. paul donovan, would you suggest that mr. powell will act today? should viewers look for a fed action, a rate cut or cuts? paul: rate cuts i would find disappointing because rate cuts are dealing with the third-quarter, not the second quarter. rate cuts don't work now. i don't care if he cuts rates 50 basis points or 100, i am not stepping foot on a cruise liner.

it will not change my demand. what we need now is the integrated thinking, the comprehensive approach which recognizes, the self-employed have got a problem, the small business sector has got a problem. a rate cut, absolutely great the third-quarter, wonderful, i would be cheering wildly, but not now. tom: i will go away for a week ,n the "surveillance" princess cruise liner. francine: alone. in a bubble. tom: that is it. james bevan and paul donovan, we will continue. on fiscal, there is no greater expert then vitor gaspar. arguably our most important conversation ever, really looking forward to that in the next hour.

this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance," tom and francine from london and new york. chief lane, the ecb economist writing on a blog post saying the ecb will not tolerate risk to pollard -- policy transmission and will make sure that wide spreads do not affect policy transmission. let's go straight to james bevan and paul donovan. mean theybasically will defend italian btp's, and how? paul: this is an economist

response to the question yesterday. if we have a person in the ecb who was an economist we would have built this response. lane is a chief economist who should be listened to. francine: are you listening? paul: yes, they can provide support. just offering verbal support at this stage is probably helping in the reassurance, but if we need to in the future, the ecb through its quantitative policy can look the way of offering more support. do they keep the capital keys? do they focus as much on corporate bonds as they were suggesting or did they look to acquire more government bonds? there is lots of things they can do and hinting on that may instill an element of column in the markets. tom: i look at what the ecb wants to do and they are

backtrack, but what is the action play this weekend for the ecb? do they get the rate cut done and move on? paul: the problem with a rate cut from the ecb is i don't think it helps. negative interest rates are a tax on the banking system and savers. you do not want to be making taxes worse. the ecb was right to leave rates alone yesterday. no one in the governing council, and goodness knows there are enough people, no one proposed cutting rates. it is how do we practically help the economy. tom: what did you see from carney/bailey? it seems like ancient history, but that was something to stop time, and organized, cold it -- cogent approach. maybe it was not enough. was it enough? james: we have to have

coordinated policy and we are in a better place than we would have been. this may not be the only measure taken. this is not a once and forever strategic approach to dealing with coronavirus. it will be part of a rolling package of measures that will play out over the months ahead depending on how this develops. this could be over by the middle of the summer and we could get a second half recovery. additional measures would run the risk of igniting inflation in due course which we do not want. directionally consistent in supporting demand but not all or nothing at this stage. francine: what happens to deficit target? should it be abandoned? paul: it should have been abandoned from the word go. they will not abandon them and the german certainly will not abandon them, but they will be allowed to flex.

every day, let's have another billion here and there. italy is facing a humanitarian and economic crisis so it should be doing this. what will be interesting is after the heat of the panic of the crisis, do we then have an intelligent discussion in europe what happens with deficits and fiscal policy in the future? how much will germany spend? paul: that is too difficult to say because germany has not really been hit by the virus. the fear is building but germany is behind. we know this gets worse and we know from a medical profession the action it takes. fear in the population provides them with cover but certainly merkel's language, she is having positively -- and yes we can

break this rule and do what it takes. we are moving in the right direction, but it will be something we will have to see how big the fear in germany gets over the course of the next few weeks. francine: james bevan and paul donovan stay with us. withclusive conversation the bank of italy governor ignazio visco after italy disappointed the market at 6:30 a.m. new york, 10:30 a.m. london. ♪

♪ everyone.morning, futures up 90, the vix 68. tryof the things we really to do is keep socially distant from wolfgang munchau. he joins us from somewhere in the united kingdom and we are thrilled he could join us. essay wasyour blistering on germany and stimulus. april -- you take it ecb.00th percent of the

wolfgang: the ecb has a different view reported by a policy decision yesterday and most of the effect is through remarks by the president. the governments are not doing much. italy is acting because it has no choice and for the other moment countries are waiting until the crisis gets worse and i presume they will do something, but usually it will be too little too late. tom: that is the heart of the matter. you have been using the word "delusion" to speak of the politicians. what do they need to do today to get through the weekend? there is anticipation of a fed gdp seemsut 8000% of like the politicians are not attuned. are they delusional? wolfgang: it is an ideological

predisposition in germany to stick to the artificial target of a small fiscal surplus. there is nothing in the european or german law to compel them. for political reasons they are not using it because of this particular barrier, it makes no economic sense. what they need to do, they need to come together that they should have done last week when they had a phone conference with e.u. leaders, agreed to stimulus , 1% to 2% of gdp. we will get that in italy. every country i presume except maybe germany will pass the barrier. italy will all exceed that barrier by the end of this year, not so much because of the necessity and the profit of spending, but the

italians will need to compensate because they need to compensate employees. we had a bloomberg story yesterday which basically said the ruling cdu was ready to to -- ditch balanced budget battle the coronavirus. does it make a difference it wasn't discussed seven days ago? wolfgang: what i suspect will happen is that there will be resistance to an official ending on official abandonment of the target but they will let it slip. orre may be a shadow budget they will let the stabilizers kick in, that will happen. the stabilizers are meaningful. i am not saying there will not be a response, but in 2000 nine there was discretionary stimulus where they went beyond the automatic stabilizers.

is what they could do now and let the stabilizers kick in. ecb,l of action within the that did not happen. you can debate on whether the budget was too loose in 2000 and eight -- 2008, but that was the right way to do this. 20 years of a monetary union behind them they should be in a position to act in a crisis and they have shown they are not able to do that. ,rancine: wolfgang munchau thank you so much. we are with paul and james. what is the target level for euro-dollar? james: probably sideways over the residue of the year. we will have more dollar strength in the short-term but i don't think that is a given for the year ahead.

i would take that off the table. tom: i have got to go back to the dynamic of the dollar. yesterday was absolutely extraordinary, a near six standard deviation move in dollar dynamics. when does the president of the united states, when does the dollar strength signal to the too big to fail banks they have to hunker down and get conservative? stagewe are not at this seeing levels of the dollar which do significant economic damage. the dollar is overvalued. they never trade at fair value where economists say they should. that is a big issue and i would disagree, i think there is dollar weakness this year because the virus policy response in the u.s. has been weaker and later than that of europe -- europe has not been

great -- but it has been weaker and later in the states, and we have the political uncertainty of the election, political uncertainty in europe. the dollar will not be the focus of the administration or financial sector and if as i suspect we see a drift down with labor this year, it doesn't matter particularly at all. tom: thank you so much. hour,as been a wonderful what we love so much on "surveillance," people like james bevan and paul donovan. we have good conversation coming up to drive you forward to the market open. gabriela santos next with jp morgan, this is bloomberg. ♪

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the best tv experience is the best tv value. xfinity x1. simple. easy. awesome. xfinity. the future of awesome. ♪ tom: this morning, it is a recession, but for how long?

the street begs for fed relief, 100 basis points, four cuts, and now the president proposes the legislature to propose mass stimulus. cash is the ultimate safe haven. the dollar spiked six standard deviations. the bond yield continues to surge this morning. fear ofsteps to the broadway, the western world as we know it shuts down. this is bloomberg "surveillance," from world headquarters in new york. lacqua.don, francine the chinese acted an hour ago and everyone waiting for the fed to act. francine: norges bank, a couple of things from the nordic banks. for a lot of the money markets

that are buying btp's, the italian central bank governor after what we heard from christine lagarde, it is one of the first things i read this morning. there is a number of calls for the ecb coming into the market to defend italian bonds, so we will see if that happens. will joinela santos us, kenneth rogoff with us from harvard, and we are thrilled that president trichet will join us in moments. dow futures up 884. we continue to see dollars strength. toryone on wall street glued the performance and correlation of bonds with the dollar. a lift in oil. the vix out to 74. 81 was the peak in 2008. elevated in the

carnage we have seen this week. there is the 30 year yield. if you got whiplash, under 1%. higher.ce down, yield i want cash. i want dollars. the dollar index after six standard deviations continues a fractional assent. francine: two things i am looking out for, 30 year yield in the u.s. and the 10 year yield on btp's in italy. treasuries are fluctuating, the 10 year sovereign bonds tanking. up for ar edging fourth day versus a basket of its biggest peers. but in notocks are up way recouping the losses from this week. we saw a lot of focus on roche climbing after it won emergency approval for an automated

coronavirus test. that may change things in how we measure new infected cases. tom: the former economic fund, kenneththe rogoff and we are trying to get jean-claude trichet wired up. santos, sheabriela got the memo from mr. pinto and mr. smith to wear black. how are things at the bank? i do not want you to speak for the executive officers, but given the crisis and the bond market illiquidity, how has that affected your operations at jp morgan? gabriela: operations are working very well. we have been speaking to a lot of clients and getting a lot of calls from clients to talk about the change in backdrop, the

change in scenery that is quickly evolving. we don't have all of the answers, but it is important to talk through. tom: i want to go through your visceral expertise, read -- real. what do they need from chairman powell today when you see brazilian real week out 5.00? gabriela: it has been a very tough few weeks for latin american currencies including the brazilian real. it started with the impact of covid-19 in china, the prices exacerbated either fall in oil -- exacerbated by the fall in oil prices. local developments also. tom: you get for rate cuts , every single --four rate cuts, every shop saying go.

what does brazil need from the central banker of the world this morning? gabriela: the pressure is on for the fed to lower rates to zero present sooner rather than later. questions are mounting about qe and yesterday the fed to the market. the most important thing we are all watching, and there is pressure building on the fiscal side. we need something substantial in the hundreds of billions of dollars on the fiscal side in microeconomic measures. francine: good morning from london. do you have any liquidity concerns on the market? because it was flagged early, it seems they are throwing everything at it. gabriela: it seems the fed is focused on this. it is something they can impact in a positive way, not so much the effect of coronavirus and the falling oil prices, but they

can manage liquidity. 1.5 trillion dollars announced yesterday, that is important. an increaset to see in what we call qe from the fed to help with the liquidity problem. the economic problem is much more on the fiscal side. francine: if there is another cut by the fed, what does it actually do? is it because the market wants it and is there a big difference between the market can see and what the economy needs? gabriela: 100% i agree. the rate cuts are to validate financial pricing. from further tightening, the micro fiscal measures prevent the overall effect of --id-19, to sue -- so to

allow for a rebound in the second half of the year. tom: how do you adjust your portfolio for this weekend? for mere mortals, what do you do? gabriela: we speak to mere mortals as well. tom: half a trillion. important ist is to prepare for a recession and position for a rebound. having a portfolio for what could be a continued rough patch and a volatile period for the market including cash, gold, safe haven currencies as appropriate, but for medium to long-term investors there will be a rebound. 2021 is the year of something else, so we need to be positioned for long-term structural stories including em and asia construction themes. francine: gabriela santos stays with us. let's continue the conversation

on central banks. here is what christine lagarde said. : we decided on a comprehensive package of monetary metals together with the monetary stimulus in place, these measures will support liquidity and funding conditions for households, businesses, and banks. francine: the central bank held rates, promising to buy more bonds and beef up loan programs, but this did little to appease markets, shares falling the most on record. france and italy hit out at the stimulus package. france said the measures are not we are delighted now to be joined by jean-claude trichet. he joins us from paris. was christine lagarde commenting yesterday on

diverging bond prices, she said we are not here to close spreads. this is not the function or mission of the ecb. is she right or wrong? jean-claude: it seems to me that she was really concise in this respect. when you look at what she said after, you can see that she corrected, if i may, this very ofrt and concise, because course the ecb has been very, very concerned about spreads. i introduced the s&p in 2010 and and 2011 which10 was targeted to advise the abnormal policy decisions in five countries in europe as a total between these years. there to take is

care of appropriate transmission of monetary policy all over the euro area. i think christine is very clear thehe fact that of course transmission of monetary policy all over europe is very important. francine: given what has happened after those comments and in general after the concerns about coronavirus in the last 48 hours, do you believe the ecb needs to step in today to defend italian bond yields? jean-claude: i think what has been done until now is enormously powerful. you have a package. we have unlimited supply of liquidity on a medium-term basis, which is a new thing. the concept was introduced a long time ago, but the idea of having it part of the package is very important, so absolutely every part of europe will have

access to this unlimited liquidity supply. on top of that you have the atro 's and the interest rates are diminishing in the supply, so the question of liquidity all over europe, the availability of credit all over europe has been addressed. euros of125 billion additional purchase on the secondary market which of course have also the impact on all interest rates all over europe. was -- theed it private sector as well as the public sector were at stake, so it is important to have in mind that we might have big spreads between the benchmark treasury and of course the private sector. account, it seems

the package takes care of this inappropriate spread. i expect they will diminish because the market will see that it is very powerful, as well as the market seems to see that all of the decisions taken by the ecb and central banks are powerful as the question of the stock market. tom: i want to go back to the time of your engineering and in physics you had to tackle magnitude. everybody is looking to gauge and judge the fiscal magnitude necessary. how far off the mark are we? how big does the proverbial bazooka need to be? jean-claude: first of all, it is absolutely clear that in all countries the fiscal weaponry should be utilized. some have a lot of room for maneuvering, others have not.

the euro area as a whole has a lot of room for maneuvering because if you look at the current account, you see a surplus which signals macro policies that have room for maneuvering. bigpect there will be a change in the behavior of the european and christine was clear about that. it is part of her message and it is important in my opinion. we are really in a difficult case and i take it that the fact that you had liquidity problems ,n new york is very important and we see clearly something that is only observed when things are not going well at all , because we see correlation between all asset classes, stocks, bonds, gold, bitcoin, you name it. this proves this is really something wrong and i think what

the fed did with this enormous amount of additional credit and liquidity is something which is exactly appropriate. take the broad trade-weighted dollar, there is always bouts of dollar strength and a point where the global society says enough. that would be the plaza accord and the louvre accord and the rubin dollar as we call it. muchlose are we to too dollar strength? jean-claude: no, i don't think at all. we have fluctuations of the major currencies that are really minimal. i have experienced myself enormous amounts of fluctuation nothing to do with what we observe today, and let's not forget that the dollar is a very important currency so it has to remain a pillar of stability.

talking the dollar down seems to me absurd. as well as something like, don't have trust in us, don't have confidence. if i take your point, the main anomaly in the president's handling of the crisis is the absence of appropriate g20, g7 coordination. the g20 is absent when coronavirus was born in asia and the emerging countries in asia. in the previous crisis, we had a very important stepping in of the g20. that is lacking. tom: thank you so much. this is so important. who affects coordination? who provides the leadership for coordination if the traditional vendor at the white house is missing in action?

who will do the leadership now and over the weekend to pittsburgh g20, say spirit? jean-claude: i hope the other major heads of state and government will step in and say we have an absolute need to convince the entire world that this is a global issue, this is a global problem. we have health problems which is a pandemic, supply problems and demand problems of first magnitude. we need coordination. the fact that the u.s. could decide to block europeans from entering without any prior discussions or coordination is something which is totally absurd in my opinion. francine: are you talking about some kind of coordination between g20 central-bank members together with fiscal? is fiscal and monetary policy not essential than having 20

central banks cutting interest rates together? again, interest rates in my opinion is not the main problem. the main problem is liquidity, available of liquidity and credit for all those who are impacted and the economy as a whole. it seems to me the decisions taken by the fed were exact the -- exactly appropriate in the circumstances, as well as what has been done by the ecb. i take it that what we need is overall, the same terms of reference with of course different measures taken by different countries because the situations are not the same. terms, need is the same the same communique in all capitals in order to show there is coordination. doncine: what should the ecb , given what has happened in the last 48 hours, today, over the

weekend, and monday? kenneth: the ecb -- jean-claude: the ecb just decided to produce an enormous package with unlimited supply of liquidity, not several hundred unlimited supply of liquidity and diminishing of the rates of the ltro's which are so important in the context. i expect coordination on the fiscal side in europe, coordination all over the world with central banks explaining what they are doing and areincing what they starting -- the markets are better because there has been the decision in europe and the u.s., and decisions taken by many central banks over. we need to demonstrate we are all on board for the appropriate

targeting of what is important in the present circumstances. thankean-claude trichet, you so much for joining us on bloomberg, the former european central bank president. it is the most courageous book of the modern generation, "the curse of cash," written by kenneth rogoff. cash free society and a dissertation on negative interest rates, some of that is what we are seeing now and we are thrilled kenneth rogoff could join us from harvard university. every discussion comes back to a fiscal responsibility and fiscal solution. does the united states government need to go big on a fiscal solution to this crisis, and should our viewers and listeners fear a fiscal irresponsibility? kenneth: absolutely.

my big problem with trump's address the other night was not all the party -- particulars that were left out about test kits and such, but why would you give an address like that if you had not come to an agreement with the democrats about what you are going to do? you don't have power to do the fiscal response on your own. we need a massive fiscal response to protect the healthy parts of the economy. we need a multifaceted health response. likeed to protect sectors airlines and hotels and travel, small businesses, with loans that are most directly affected. there needs to be a large-scale fiscal response. i hesitate to wander into ultimate numbers, but for starters $500 billion to $1

trillion, and a lot of that needs to be directed at the iwer income earners because think they would spend it fast. it would be politically the most palatable and probably would not be the last thing we did. notingst night jp morgan $500 billion in stimulus and no one is considering in washington. own thisarmen reinhart territory and this time is different. what is the history of the courage of governments in crisis to act with a large fiscal stimulus? does it happen? kenneth: of course. 2008/2009, there was substantial fiscal stimulus and then they thought they had defeated it too quickly and retreated on a number of fronts. it was not just the governments. imf allral banks, the

were making too optimistic forecasts. it is a shock, a natural disaster, and there was not in the advanced major countries the same kind of plumbing problems. it does not have to last eight to 10 years, the aftermath, but if you let the healthy part of the economy suffer. to answer your question, a lot thends on how quick government is able to react. the perfect storm that creates these really disastrous financial crises often involves having a government at war with , butf, caught on its back very often just before an election. pboc pumping $79 billion to banks. which central bank is getting this right? jean-claude: the central bank --

kenneth: the central banks are not the major players. morecould be much important players had they done the homework to prepare for effective negative interest rate policy. clearly, that would be extremely desirable to be able to cut interest rates deeply into negative territory. that is far more effective than playing to quantitative easing. that will not happen, so the powers with the fiscal authorities, the central banks in many countries have some fiscal capacity in europe, some in china and the united states, but nothing compared to the main government and the treasuries. it is a little bit like you want to send, the army has a few airplanes and you want to send them but you really need the airports. tom: what do you want from

chairman powell this morning? emergency rate cut, is it efficacious? kenneth: he is one of the lone adult in the room in the u.s. policy response, and he mostly needs to express that he is doing what he can and come up with creative policies. itsfed cannot do this on own if washington lets everyone twist in the wind. this is not something the fed can do because it is not fundamentally yet a financial crisis. you kenneth rogoff, thank so much, and jean-claude trichet. our third heavyweight for the half hour, gabriela santos of jp morgan. you hear these guys talk about 60,000 feet stuff. how do you distill them down to what do we do with our money? gabriela: we have been thinking about the potential short-term

economic impact from these two shocks in terms of covid-19 and oil prices, and the policy responses are crucial to gauge here the severity and length of the shock. is the our view here likelihood of a recession is rising but it does not have to be a long-lasting one if we get the right policy response. bit, but weerisk a are betting there will be an eventful rebound and return to normal life by the end of the year so we want to be positioned for that rebound. tom: gabriela, greatly appreciated. francine: we will be back with gabriela shortly. in the next half hour, vitor gaspar. we will ask him a thing or two about fiscal and i want to dig deep into what he was saying

about ecb. tom: interesting to see him on fiscal policy. data for the better market, we are watching dollar carefully. continued grinding dollar strength this morning, front and center for global wall street. we have much more coming up. please stay with us through the morning on bloomberg television, radio, and tv . it is very important for those of you working at home on your bloomberg terminal, the conversation of this historic week and friday. this is bloomberg. ♪

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and james bevan, we have had a wonderful set of guests. gabriela santos joins from jp morgan. they said, tom, you cannot be the only fossil who remembers the panic of 2007 so we dragged -- 1987, so we dragged in carl riccadonna. were crateringts and it was in single digits. we were sitting around the news table at 10:00 in the morning and i asked the question, can we call this a crash? everybody said, we cannot do that. at the end of the day, it was for columns across the wall street journal for the first time. you would buy tickets here and sell tickets year and everything was on the floor.

i don't agree with the comparisons to 1987. the efficiency in computers and markets make it different. marty: it is a much different world than 10 years ago, let alone 30, with the interconnection of computers and the global nature of the world economy. this is a global phenomenon, not just wall street. francine: how would you describe this? we are putting so much hope on the economy of this. is it a humanitarian crisis? what can central banks do? marty: i think everybody is looking for the adult in the room. we had the committee to save the world. there is no committee to save the world this time because the out ofannot be policyed existence. causing whatnty is

is happening today and this week. francine: are we talking about coordination and what does coordination look like? whowas asking mr. trichet should lead today. who is that? marty: i think a certain measure of leadership is coming from washington finally with nancy pelosi and steven mnuchin reaching a deal on stimulus package, and pelosi wants to do work. i do think that people looking for some sort of miracle cure overnight, it is not going to happen. toprobably will just have relatively be patient and wait this out, and it may be a matter of months. francine: are you worried about the timeline? you are talking about months. what do you look at in our bloomberg coverage to see how many stories we do, what data

points we look at, how many infected, and deaths? marty: this is, as i said, there is no comparison to anything in history where there was such uncertainty. ultimately the market will stabilize because the world is still existing, but it may be extremely slow and a long time coming for some resolution. tom: i want to show a chart that is misleading but it is not. this is brazilian real log back to the ugliness after 1987. what is so important is the huge depreciation of global currencies including ecuador in 1992, 1993, mexico in 1994. what is the ability of these shocks to filter over to those

seismic shocks you see internationally? gabriela: some of the dynamics happening here -- reminiscent. gabriela: there are two dynamics at play, the brazilian real up. one is the velocity of how quickly all of the change, the global backdrop and the local backdrop, so it is all happening at the same time for some of these economies. there is concerned locally of can this feed through into higher inflation expectations and cause the need for higher interest rates? then you get into a less favorable loop. washington going to do? you are wired into craig gordon. us $500rogoff just told billion to $1 trillion.

i am guessing and washington they are thinking itty-bitty. marty: it is unprecedented. the lights are going out across america. usion.ood broadway all marty: thank you. i think there was an opportunity for shock and awe but it is not happening. reporting itm is is not happening for speaker pelosi as she battles the republicans over the size we need. marty: you asked what washington is doing. they are going home. congress will adjourn, the senate will stay open, but this narrow stimulus package is all that will happen today. nancy pelosi and the democrats will try to continue to push for more measures, but the dysfunction in washington cannot be overstated. they are just not there.

take evenely, it may more market turmoil to get them there. tom: marty schenker, thank you so much. as we have marty schenker and gabriela santos with us, jean-claude trichet and kenneth rogoff, we are thrilled to bring you the world's great synthesizer of fiscal analysis, at theaspar international monetary fund. you have a certain place within this crisis. how will you and your leadership team at the imf assist on fiscal stimulus? vitor: i think there is a lot that can be done in a sense. fiscal is right at the forefront. the primary goal of fiscal at this point in time is to enable the muscle of the health systems to be able to respond to

something which has been labeled as a global pandemic by the world health organization. monitor,iority is to contain, and mitigate the impact of the virus. efficienten that monitoring and containment can work. a very good example is south korea where they have conducted extensive testing of the population and so we have excellent information about the extent of the disease, how fast it is spreading, and the latest news suggests quite a substantial slow down associated effective measures of social distancing. that is the crucial first priority, nature that health services have the means to fight

this global pandemic. well.as global aspects as as our managing director likes to say, global pandemics do not respect national borders. a global health challenge needs a global response led by the world health organization. there is much more that fiscal should do and there is much more that fiscal is doing around the world. francine: do we have enough cash flow? if you look at what central banks and fiscal policy are doing, is it enough? vitor: absolutely. that is a key aspect. defense, soine of to speak, is to mitigate the economic and financial fallout. given the amount of uncertainty

and how fast these developments are going on, the crucial priorities are to focus on vulnerable households that need cash support, focus on vulnerable firms that need cash support as well. when it comes to the actions of central banks that have to do with liquidity, as my colleague has spelled out in a recent blog , when it comes to fiscal, it is about making cash available as well. if you look at budgets around the world, you do see that these measures sum up to something which is macro economic significant. countries thaty actions have been announced and range ind thus far those countries that have been most effective, between 1% in 2%

of gdp. -- and 2% of gdp. you may recall the expansion in 2008 at the start of the global financial crisis was two percentage points of gdp. that is why our chief economist has called for large timely targeted and temporary fiscal stimulus. it does not amount to much and should take priority early action on the health and fiscal side should be a priority. can we be sone: sure that a lot of people will not default on their loans because of this? what are the chances we see a freezing up like in 2008 leading to a financial crisis? vitor: the crucial goal is to avoid a temporary and important health shock like this virus.

turns intoary shock something which is long-lasting or even in the extreme case, permanent. isorder to avoid that, it important that liquidity is made available, and central banks have been acting quite forcefully in that direction. it is also important that fiscal measures to make cash available to vulnerable households and firms are made available. tom: thank you so much, vitor gaspar, director of fiscal affairs at the department of the international monetary fund. gabriela santos listening. i want to bring up a chart, the massive disinflation on a fisherian basis. down to low interest rates, low yield, there is the fiscal response. to do our viewers readjust this low nominal gdp, low

inflation, low interest rate environment? gabriela: we thought we had a low interest rate over the past vu years and it turns out we are going lower -- past few years and it turns out we are going lower. despite the fact that we started from low yields, government bonds can provide protection in tough moments of volatility and risk aversion. it is challenging when you look throughout medium to long term, the search for income and growth. it is challenging and we need to look for alternative sources of income. tom: the actuarial assumption of long money is shocking, used to be 8%, then 6%, the united begdom 4.1%, and we will looking at a 3.9% actuarial assumption. that tells me people have to save more because it is reducing

demand. we are channeling into savings. gabriela: when we speak for our clients planning for the medium and long-term, it is important to think about your nest egg for retirement. we have low return assumptions so we need to save and invest more, and think about how to grow our money over time. unfortunately, you cannot just have cash or fixed income at this point. francine: thank you so much, gabriela santos. coming up, we speak exclusively to ignazio visco. we will talk about ecb measures, btp's, and the economy. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance," francine lacqua in london. let's get back to gabriela santos of j.p. morgan asset management. we talked about recession worries and equities in general. what happens if and when treasury yields go negative? gabriela: we were just discussing with tom in the earlier block, we started the year with low treasury yields but turns out they can go lower with moments of risk aversion and this big move in the outlook investors.ng by we are not at the point where we think treasuries will go negative but they can stay significantly low while we go through this difficult period for the global economy. francine: gabriela santos, thank

you very much. leaders of italy and france are taking a swipe at the ecb after christine lagarde's bid to tackle the coronavirus failed to calm the market. joining us now from rome for an exclusive conversation is the governor of the bank of italy and a governing council member. out a of the ecb is coming -- philip lane of the ecb is coming out saying spreads do not affect infection. does that mean? marty: it means the policy will be adjusted to the circumstances -- mr. visco: it means policies will be adjusted to the circumstances. -- these are important

decisions and perhaps they have been a little bit underestimated by the markets so far. they will be completed as soon as they will be put in place, in operation. obviously, the first response to this crisis which is extremely severe, as the response of goldman. goldman has the means to support the incomes of the brave women and men engaged in the fight against the virus now and to those we position our gratitude. the responsibility is to intervene with the maximum crisise energy to the and to make sure there is no financial market fragmentation that may make the response less

prompt and more difficult. this is exactly what was the main preoccupation we had yesterday in this package. clearly emphasized the need to provide liquidity as easily as possible to banks so it can be transferred to banks and workers, and to intervene in purchasing assets, increasing substantially our program which covers private and public bonds. public bonds obviously are to be purchased when and as needed and as much as needed. francine: how much more can the ecb do and how quickly? if the market selloff continues in btp's, does 120 billion give

you the means to frontload btp purchases? mr. visco: to be clear, this has not been the final word. we are data-dependent. -- we things how things see how things proceed. expectations for the whole euro area are not really favorable. then if needed, there will be words,tion and more perhaps better and clearer understood words. for the time being, the package is substantial. we can frontload. we can concentrate on particular jurisdictions according to the circumstances for a temporary

time, but clearly fighting the risks that the widening of spreads makes the transmission of the process is more difficult for certain countries. francine: how quickly could this frontload,? if you have to take action -- frontload come? if you have to take action today, we are trying to get a sense of how quickly the ecb is ready to act if necessary. mr. visco: the program has just been decided to be in place in the coming days. we have already the older we are modulating our purchases as markets develop. next days, the ecb will put into place purchases that

are consistent with these 120 billion increase in the program for this year. be escorted for the future. we will see. it has to do with the instruments we may address as well as the rates that are our responsibility. francine: christine lagarde was talking about using flexibility of the qe program. can you give us specifics of how this could be used to address the tensions in italian bonds? mr. visco: we may speak about italian bonds, but we have to speak about all the bonds that are going to be purchased with this program, not limited to the italian bonds. obviously, if we see spreads increasing because there are fears in the market, because

there is uncertainty about the and so on,the virus wideninghese -- this [indiscernible] in any jurisdiction. it has to be clear that in monetary policy, it has its own responsibility. it is not the only policy that has to be in place. it is a compliment to the decisions, important decisions taken on the fiscal front in this country, taken together in the european union, and we will have to be as bold and coordinated, ambitious and coordinated as we wrote in our statement and as we discussed yesterday. there is no question if there

are movements in the spreads caused by fears of the coronavirus, this will make more provision of liquidity and the interests we are giving to the economy to respond on the turbulence on financial markets, and therefore they will be targeting and focusing on the jurisdictions. francine: can the ecb increase and was of qe further this discussed? mr. visco: yes, of course. we discussed a lot of things. the details are obviously to be defined. of theseamount programs is different than what was expected, much larger. if there was a disappointment as

far as interest rates go, the fact that we did not go farther down on the facility rate, we [indiscernible] the effects it may have vis-a-vis a further reduction which is already negative. that again is not necessary. for thessed that and time being, there is no need. act very quickly, we can purchase bonds quickly. we can provide liquidity, very favorable conditions if needed now. francine: given what you have said, given the clarification, are you expecting btp's to settle down? mr. visco: i suppose yes.

there is no reason for these spreads to be so wide, no reason at all. italianonse of the government has been correct, timely. needed thesis that containment measures that were that and it was a crisis may have a similar pattern in other countries, so i expect other countries to act in that way. monetary policy, central-bank conditions are there to accommodate. i would add also on the supervisory side. francine: thank you, governor visco. ♪ when you move homes, you move more than just yourself.

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pump to calm companies and prevent a spike in short-term rates. circuit breakers triggered overnight from asia into dow futures as liquidity shrinks and volatility spikes. activity cross to a standstill, raising the risk of a global recession. everyone now waits for fiscal. welcome to "bloomberg daybreak" on this friday, march 13. we will take it as it comes. i'm alix steel. what a week. it has been an insane week for the markets. we are very close to him it -- to hitting limit up now in futures after the worst day in stocks since 1987. now you're seeing equities claw their way higher. you can understand what is happening. all the losers now the winners. dollar-yen up. the yen was the safe haven, now the other performer. a little bit of selling in the 10 year. we are seeing with