francine: as spain and france get set to announce easing of coronavirus measures, has europe done enough to tackle the economic costs of the crisis? bad loans dominate bank earnings. hsbc takes its biggest charge in nine years. ubs says its credit portfolio will shield it from loan losses. and oil plummets again. wti extends losses to more than 35% over two days. -- over two years. b.p.'s chief executive tells us we're beginning to see the impact of opec's cuts. well, good morning, good afternoon, good evening, everyone, this is "bloomberg surveillance." keene, we have three stores. one is banks, second we will talk about earnings, a lot of earnings from a lot of sectors, the banks not doing too badly in that. ad wti, 11% down after beholder of those futures spilled off yesterday, tom.

tom: wti is leading down, no question, francine, but i would look at the remarkable decline of floating oil, global oil, brent crude, well under $20 a barrel now. for it to sustain under $20, a splint to me how some of these nations move forward. you were talking in the last hour with the tourist rector of greece. i don't know if oil is good or bad for the tourist director of greece, but $20 brent crude does not get it done for a lot of other people. francine: i mean, i think the price of oil is secondary. if you are the greek minister for tourism, he was very careful because he wanted to speak to other nations to see if it was ok. but do you issue a health passport? how do you do with people congregating in lobbies? a thirdce, it employs of their population. now to bloomberg first word news with viviana hurtado. viviana: a new strategy to

expand coronavirus testing from the white house, that is our beginning on "first word." states receiving new guidance on how to build testing capacity, less retailers say they will reopen hundreds of new test sites. state of testing so states can reopen their economies. now to the fed, expending -- extending an emergency lending program to cover smaller cities and counties. people can apply. rules, cities such as atlanta, boston, and new orleans had been excluded. today, spain and france unveiling their plans to ease restrictions on public life. leaders rei -- leaders are anxious to restart their economies. still, there are concerns that it could backfire and lead to more infections. in spain, for the second day in a row, infections rose by less

than 2000. we end with new york oil. it continues to fall today, plunging again, plunging below $11 a barrel. the biggest oil etf unexpectedly began selling all of its holdings of its most active contract. thanyear oil has lost more -- almost 80%. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries, viviana hurtado. this is bloomberg. tom: equities, bonds, currencies, commodities. a lift to the market, but very quiet markets. west texas intermediate not doing well, but far more important to me is the way brent crude has come in. francine, it is simple. our next guest is going to be fabulous on this. the former deputy governor of attuned to that collapse in the oil market.

get him: we will shortly, but let me also look to my data. on wti, s&p global, this is the company behind the most popular commodity index, basically told clients to rollout their exposure out of the west texas intermediate crude oil futures. that has triggered this big drop in oil prices. i am also looking at a couple of other things. gold, 1703.k at european stocks seeing a bid higher. he is one of our most interesting guests that we will speak to today, the head of blackrock investment institute, with many years at the bank of canada. thank you so much for joining us. i guess because of your time in canada, you have a unique experience of oil prices, what that means for inflation, and what that also means for the

world economy. you look at wti deepening the drop that we saw over the last few weeks. what does it tell you about how bad the economy will be worldwide? >> good morning and thanks for having me. all the time thinking about what is driving the price of oil, making supply ands between demand shot. we have ans unprecedented collapse in demand globally. this is the first-order story, and we are just gauging the size of this as we speak. amplified, of course, by all the storage capacities that used to be a local story. now there is a sense that this is becoming more of a global

phenomenon. more questions are being brought in in the u.s.. this is really in anticipation of a collapse in demand. until we have more visibility on how bad it is going to be, we the price ofget equities. francine: give us a sense of we willd of recovery see after the recession passes. so the challenge is on the one hand we are staring at a contraction we have never seen --peace time and, you know, -40%, ore forecast at

-60% for q2. it is not like a strong debate between the two. the contraction near-term is unambiguously visible, and it will be really bad. the big question for us is not how long,w -- it is which is your question. we need to recognize that there is -- i think it is difficult for anyone, very uncertain. it is shaped by the virus dynamic itself, which we have a bit more visibility on now, but it is still very uncertain. and it is shaped by the policy , and how we will be able to restart our economy. i will say our baseline is one we think we are going to be able to get some more visibility in the next few

weeks. result, the government will start to reopen. the question will be how successful it will be to restart. i think over the course of the next few months, we will see a shallow recovery. preventong as we can this from turning into a financial crisis, which is our base case at this stage, eventually we will recover. tom: it sounds like bernanke one 101 from princeton ages ago. i'm fascinated by a casual take you have on the spillover effects of this collapse in oil. ben bernanke's gospel was protect the financial system at all costs. lessons learned from the depression. effects the spillover that you perceive in the collapse of oil as it filters through the hydrocarbon system,

and then through the financial system? yes, thanks, tom. would not use the word casual on this. it is driven by a massive collapse, and stores that are increasing. that is a reality, and it is creating its own stresses for the industry in the high-yield sector. -- the energyry story is a separate story from the rest. theess with the extent that collapse in demand is continued, there is going to be damage, but eventually a recovery is in line of thee broader framing macro story. i would say the main point is response overy the course of only a few weeks is very significant.

sheet aboutlance 3.5 trillion -- sorry, 7 trillion in this crisis over the course of a couple of weeks. whereas with the global financial crisis from 2008, through q3 combined, it was after that. moreover, addressing the financial stress on the credit side for corporate's. the rippling effect israel. i think we will need to see. but the response at this stage is very impressive. the i'm curious where efficient frontier is for you. blackrock investment institute, are you working with traditional models, or have you given it up because you do not know where the risk-free rate is?

great question. i think in many dimensions there is no model that can be really applied to this situation. even just starting with the fundamentals and thinking about earnings on growth. any of the traditional models are not useful. there is nothing in the past data that can tell you about going forward. that is one point. i think we can get some conviction on what the risk free rate should look like. i think it is a lot lower than we might have expected a few years ago or even the beginning of this year. but, you know, given the growth safetyrom the demand for rates,e long-term getting a handle on -- the question is what kind of

compensation is valid. think --d francine: thank you so much. jean boivinack with from blackrock. we will take a break and he stays with us. coming up, a conversation with david herro. that is at 90 5 a.m. new york, 2:00 p.m. in london. this is bloomberg. ♪

tom: bloomberg surveillance,

good morning, everyone, from london and new york. not enough time to justify what should be a one hour discussion, though we are thrilled to bring boivin from blackrock. to him.onored to speak you took your phd with benjamin bernanke at princeton, but far more with mark watson, who has a wonderful econometric foundation in the beliefs and theories. think about nobel laureate robert engel of nyu as one example of the mathematics of the belief. we are flying blind right now. how do we get back to any use of theory, whether we use the theory for rules or we use the theory for discretion? well, that is a tough question. despite the know,

fact that we have never faced a situation like this, i think that what we have to try to do virusk back at the elements happening -- there are aspects of the current situation that are like a natural disaster, so i think rather than thinking about the business cycle analysis and trying to resurge a recession, i think it is more productive to start thinking about natural disaster, the economy, how we should be responding. tom: this is really important. given natural disaster exogenous theory, andfs, mathematics, do you believe we get back with smooth curves,

or do you see volatility and sudden and abrupt changes in the mix of economics, out 2, 3 years? path is i think the uncertain because while there is an aspect that is visible, we that.ginning to do the data does not tell us much in that regard, and that's part of the reason why the markets have been looking the other way. hand, we have data on the nature of the shocks, but we do not know how successful we will be on continuing with the virus itself. about health and biology, and the other part is we do not know how easy it will be to

restart companies. think we can be confident that the economy is going to restart. moreonger it lasts, the organizational capital between -- it is employees broken and more difficult to rebuild. that is the part that is more difficult to gauge. provided that we do not get the that we do nots, morph into a financial crisis, it will be a question of time before we get back into a level of activity similar to what we had before. francine: what kind of timeframe will we get to what you say is something similar to what we had before, and how much do you worry about deflationary risks taking hold? going tohink it is

take a long time. matter of a few quarters. i think we will rebound in the next few quarters, but it will not be -- i think we are talking about a few years before we normalize. but that is still, you know, a timeframe that is very different from the global financial crisis. with the global financial crisis, what we really learned is that there was a massive downshift to growth and activity for the 10 years that followed after. we had the weakest recovery on record. here, given 2, 3 years, we will struggle to get back to activity. that means for inflation, i think it is a story of

timeframe. a very we are seeing now significant deflationary forces, i think it will persist as long as the economy is better the way it is now. demand is being shoved down. until the pickup. but we know this. stepsare very significant that have been taken over the course of the last few weeks, and i think they improve the upside risks to inflation over the next five years. -- it will be difficult to unwind. organizationseing adding up to more upside risk on the medium-term. francine: thank you so much, always.

at tourism,e look we look at airlines. a chiefbe joined by executive, that interview at a.m. am in new york, 4:30 -- 4:30 p.m. in london. this is bloomberg. ♪

viviana: you are watching "bloomberg surveillance." we begin with ubs, expressing today both confidence and caution. the swiss banks says it can

survive an increase in bad loans, but it warns the coronavirus outbreak will put pressure on its wealth management business. ebs says falling asset prices will erode income. to hsbc -- it took its biggest charge for back debt and almost nine years. europe's largest lender expected credit losses soared to $3 billion. that could rise to $11 billion in three years. the coronavirus outbreak derailed its plans. building up financial reserves to write out the coronavirus outbreak, the british energy company taking on a $10 billion credit facility. it also sold $7 billion of bonds. bp's profits plunged in the first half of the year. that is your bloomberg business flash. francine: this is what your markets are doing. european stocks are gaining, they are following some of the

gains we saw in asia. looking at treasuries, they are pretty much steady. the other thing that we spent a bit more time on his crude oil, extending sharp losses after plunging on monday. tom? tom: francine, thank you so much. oil is what i am looking at more than anything, with dollar strength. i cannot say this enough. if you want to frame an optimistic view on the market, next is our interview of the day, benjamin later -- like december of 2018, he is optimistic. this is bloomberg. ♪

♪ morning, everyone, the beauty of washington. kevin cirilli looking at all the politics of the moment. if you are a bowl or not of --

in those withsted optimism, this is the interview of the day. hudsondler is that tower -- at tower hudson and he had the courage in 2018 to say go along stocks for a substantial move. he is saying the same thing now. we are thrilled ben laidler could join us. what does the gloom crew get wrong? go very quickly and that is a contrarian positive. got cut quickly compared to previous crises and that is a contrarian positive to give us a bit of visibility. you have unprecedented fiscal and monetary stimulus that was bigger and came quicker than the previous crises. and now, we are beginning to see

some potential stabilization in these cases. you put all that together and given where markets got to in a shockingly quick way back in march, that is the main ingredient for this big bounceback we have had. tom: what are the distinctions of your -- one of the distinctions for your call is your affection for these faang stocks, leaders driving up even as the market stagnates, and it seems this call is that the rest of the market will be pulled up by the faang excellence. do i have that right? ben: broadly. was, 20%double what it of the u.s. index. people are concerned about valuations. come out of this crisis stronger than they went in.

some of the regulatory pressures we were worried about three to six months ago are starting to fade away. i think we will see impact on vc funding meaning less competition. i have no problem with valuation. they may be nearly twice the market, but every other indicator you look at whether it is profitability or growth, is more than twice that, so i think andg's are well supported more important now than they have ever been. there are more cyclical elements of the market that are more technically interesting -- tactically interesting like real estate, small-cap, bits of europe, and i would be looking to participate in the cyclical elements of this every. francine: what kind of bits in europe do you like? if we have a 15% contraction, does it change everything in

terms of your modeling and probability and what you want to buy? ben: the worst things are on the way down, the better they will be on the way up, and europe will probably have the worst gdp numbers of any region in the world in this crisis. we can talk about the amount of policy support, the opportunity behind this recovery is a lot and there could be more out of the ecb, but really i am looking for the china playbook i think europe is coming into that sweet spot now. i am looking for the most domestic, the most hardest hit on the way down and that is european financials. valuationsic sector have been the cheapest sector globally at this point, and i think they will get all the policy support they need. if you are looking for a deeply out-of-favor try very --

recovery trade, that would be the one out of europe. francine: we had a number of warnings from bundesbank and the ecb about possibly becoming a financial crisis. what is the probability of that? don't want toy, i minimize how potentially bad things are. this is a real issue in europe. most of corporate funding comes from the banks, completely the opposite in the u.s. ecb policy support and them being all in is dramatically important. the other big difference of this crisis versus the global financial crisis is not only how quickly the policy stimulus has come but how it has gone into completely new areas. the focus on the high-yield bond market and investment-grade bond market is crucial. if i look at earnings, what is the biggest correlator?

it is not gdp. it is what happens in the high-yield bond market, despite the facts that central banks are getting involved gives you a big policy put you did not have last time. tom: that is right where i wanted to go. your weekend note was extraordinary on emphasizing credit spreads as important. part of your charm is finding the bottom and moving higher, but having the courage to stay in the trade once you have come out of the bottom. explain how the credit markets, in improving credit spreads, falls over to the equity market weeks after you find a bottom. ben: markets are sort of paranoid here about there being a double-dip and this has been a bear rally and we will retest lows. the is going on in high-yield market gives you

confidence that will not happen. high-yield credit spreads are half where they got to at the peak, and now you have the fed, the boj, and potentially the ecb essentially saying we are going to make sure things do not get dramatically worse in the high-yield market. it may not take you higher short-term, but if you have seen the bottom, it prevents things from getting dramatically worse. are the reopening continues the pain into three or four quarters, and companies essentially capitulate. that is where the high-yield market becomes important, them having continued access to financing mitigates some of the risk and prevents us retesting the lows. tom: we saw small caps do better

yesterday. are you looking at it as a large cap lift or can you find comfort in small and mid caps have underperformed? ben: it is clearly a contrarian call. what is interesting -- and we know why they have underperformed -- they carry more leverage, they are much --e domestic and they are the drawdown in the u.s., and it is not very helpful. it is technical. they have a lot of financials. having said that, valuations, small-cap relative to large-cap are the lowest they have been in a decade. earnings expectations have been deteriorating at the same speed they have for large-cap, so not more than that. they are very out-of-favor. again, as we build a bottom for risk aversiond

begins to come down a bit, i would be looking at some of these select, more cyclical areas where the risk makes sense. the small caps are no more expensive than the large caps, despite the long-term premium earnings growth. it is interesting and something you have not seen in a long time. francine: what you do with u.k. companies? do you make a difference between the countries that are opening the lockdown even with the risk that they will have to double down on the lockdown if the number of infected cases goes up , or are you agnostic about that? ben: i am really focused on the reopening and that sort of trajectory, so like i said before, focused on continental europe and the most domestic parts of that, where do i get

the biggest exposure to that reopening? if there is a second wave, that is the big risk and it is very unquantifiable. what plays against the u.k. a little bit, it is obviously behind in the timing trajectory in terms of reopening. the stock market does not help either, 60% global, very commodity focused. you have seen a lot of dividend cuts and aims as well. -- things as well. we are pretty cautious u.k. and continental europe. francine: that was ben laidler. we will get him on the phone soon to talk about the opportunities he sees in the market. let's get straight to new york city with the first word news. blueprint to increase coronavirus testing released by the white house, but the strategy is up to the states to

depend -- develop their own plan. state and local officials insist widespread testing is the key to this day at how motors -- the stay-at-home orders. at a consensus that the coronavirus cannot be eradicated and expected to return in waves. the biggest problem, it can be spread undetected because it affects people without symptoms. amazon's safety and labor practices after they fired the leader of a warehouse walk out. a group of lawyer -- employees demanded they close the facility for cleaning as several colleagues died from coronavirus. donald trump says he knows how kim jong-un is doing and south korea no where's he it -- knows

where he is but neither are releasing information. president trump says he cannot talk about it now and that he wishes him well. 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: thank you so much. we have much more coming up across the span of "surveillance." we will finish with robert schiller of yale university. this is the first time to talk to robert shiller about pandemic, finance, and the good of society. please stay with us from london and new york, this is bloomberg. ♪

♪ banks here in the u.s. will go through a difficult second quarter and i think it will depend very much on the degree of recovery that we see into the third and fourth quarter. >> plans are ready to deploy cash in a selective way, but as they indicated, investors are waiting for the situation to clarify over the next couple of quarters. those were the ubs chief executive and the chief financial officer of hsbc. let's do a banking roundup. we will see who has written some amazing pieces, from bloomberg terminal. great to have you on surveillance.

thank you for joining us. when you look at different banks, it seems trading did ok. do you make a difference between the ones lending more and the ones with the most debt? >> thanks for the introduction. what you are looking at is a fourth quarter -- first quarter that will not be telling an awful lot. that lifteding's the tide for everybody. the other thing is how banks are preparing further credits that ahead, and then you get a sense for what is in store. the u.s. banks, larger banks taking very large provisions at the end of the first quarter for cuts ahead. banks, potentially not to the same degree, amid concern banks are pushing some

of those provisions further out into the future. francine: what was most surprising of what we heard from ubs? you wrote a great piece about deutsche bank in credit suisse the week before -- and credit suisse the week before. appears that, it the pivotal wealth management has an advantage in terms of the very strong revenue, transaction revenue for clients, but also in , ams of its lending exposure smaller portion then competitors in wholesale corporate loans which at the moment is paying off in terms of how that will pay off. laidler was just on

with us and he made very clear within his optimism that the deepest of deep discounts is your world and european banks are cheap. can i assume the best thing that ever happened for them, with the great seriousness of this pandemic, is this pandemic? it has given them a wonderful distraction to delay to right size their systems while the pandemic is going on. do they right size while the pandemic is happening, or does it delay them until after things are better? eliza: i think the downsizing right now is very difficult. andwill see more delay, that is reflected in the valuation. you basically have no profit dividends, and very little certainty of what lies ahead. you are seeing that in valuations. ultimately in the medium-term, we expect a shakeout validationn -- in

and potentially some consolidation if there is a sense of the european regulations. tom: what be the catalyst for consolidate -- what will be the catalyst for consolidation? we wait and wait. does madame lagarde tell them to consolidate? eliza: at some point, some lenders may need help. the italian central bank recently commented it sees potential for the smaller lenders that have gone into this possibility of potentially needing help like other companies in other sectors, and that could spur consolidation. look and i said let me go

to retail and bnp paribas. they seem to be less trouble than the others, and you look at the french banks, the history of derivative mathematics, are the french banks solid or do they have challenging quarters of earnings due to derivative exposure? eliza: our colleagues at bloomberg are reporting ,xclusively on the derivatives but on the whole, the banks have gone for much smaller positions so these are not material losses. clearly, there are now benefits theirotential to grow books. bnp has been aggressive in growing their corporate loan book as aggressive -- competitors pull out, so

aggressive as well. francine: give me a sense whether there is any space where european banks can take market share in this kind of environment from the u.s. they have had tax breaks at the u.s. banks and have enjoyed favorable interest rates but that could change. eliza: we are seeing that in the loan market in the european retreatd the u.s. firms back home. on the investment banking side, it will depend on the capital they have put to work in that space and it is not clear yet what we are seeing from the u.s. tom: thank you so much. i cannot say enough about her. i cannot say enough about her essay in bloomberg opinion, really sharp on deutsche bank. hour, thein the 1:00

former chairman of the federal reserve system, alan greenspan. this is bloomberg. ♪

♪ this is bloomberg "surveillance." nissan and a warning for the fiscal year, it expects to take a loss, laming the attack of the coronavirus pandemic. annualis delaying its report. before the coronavirus, they were struggling with plunging sales. next month apple expects to reopen many of its retail stores after closing all locations outside of china because of the coronavirus. deirdre o'brien did not specify which stores and regions would reopen, but said some stores in the u.s. would resume operation in may. jcpenney is testing whether private credit markets may be a source of funds. they could use that for leverage. they are negotiating for a

potential bankruptcy loan. concerned with taking on more exposure. that is your bloomberg business flash. francine: this is what european stocks are doing. they are on the up on earnings. banks a bunch of reporting and also bp and novartis. corporate's are having a tough time right now but it will gradually get better as economies reopen. many more governments are contemplating reopening the economy, giving a little bit of a lift to the market, crude oil pairing, dollar declining. treasuries are pretty much steady. tom: within the optimism of the market today, we just heard that tone from ben laidler, the vix a print of 31 handle, moving from 39 to 47 and down in the range

of the last 10 days or so, and breached well under 39 and 38. just seeing a 31 print on the vix. we will drive forward the conversation with russ costa koesterich of blackrock about what the bond market signals and credit market signals over to the stock market. a really important week for earng and for central banks. ofy with us, another hour bloomberg "surveillance." ♪

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tom: good morning, everyone, a moment of silence for the prime minister. let us listen in as he honors the nhs.