deadline. germany's top judges say the central bank has just months to fix its bond buying program. it's price initiative is unscathed. united slashing management jobs. we speak to xpo logistics' --irman and ceo red jacobs ceo brad jacobs. countries putting in a bottom for economic activity. welcome to "bloomberg daybreak: americas" on this tuesday, may fifth. i'm alix steel. we are paring some of the earlier gains that we have seen. s&p futures still up. european equities, think kind of story. you are seeing a selloff in the european bond market. yields in italy pushing higher, up 16 basis points after that ruling by the german top court. later iniscuss that

the show. oil finding some support from markets as we still get earnings coming out. fiat chrysler withdrawing its full year 20 guidance. they plan to restart production as conditions allow. about 100djusted ebit million euros. nonetheless, continuing to see withdrawn guidance. really hard to make a decision as a portfolio manager when you don't know what the outlook is going to be. it is time now for today's market moving news from our brussels and new york teams. we want to begin in europe, where germany's top judges gave the ecb a three-month ultimatum to fix qe. the court ruled that some aspects of its asset purchase program aren't backed by eu treaties. going to brussels is maria tadeo. what does it actually mean, and have we seen any response from the eu on this? maria: it is a bombshell, really. the judges are basically saying

overall, there is no monetary financing, which would be illegal, but some aspects of qe are unjustified, and not backed up by european treaties, which means the ecb and its national central bank were exceeding their mandate in some form. it opens many questions to which we don't have an answer for. we didn't really know whether the european central bank would be able to meet this three month deadline to fix the qe. we don't even really know what it means, what exactly it is they will have to respond to. we don't know what this does for the german central bank, at what point it may have to exclude itself from qe. but there is also a read across on the effect this could have on other european countries, and the measures that have been put in place by the european central bank now to deal with the corona crisis going forward. potentially, they could be challenged, so there's a lot of unknowns.

there's a lot of open questions, and you are seeing once again that tension between germany, the european central bank, and the german central bank being put in a very awkward position because of course, they want to be seen as compliant with other national laws. many would be surprised to nazi germany because up eight -- germany-- two not see participate. alix: maria tadeo, thank you very much. the list of companies coming out with profit warnings or scrapping guidance altogether, making painful bi -- painful business decisions, are piling up. and marie horton has more. profit,: total cut falling 35%. the keep the dividend, so shares

are rising this morning. sinceas been a question shell cut there's the most since world war ii. cut capexthing, they again. bnp paribas say full-year earnings will take a hit from the outbreak as much as 20% lower this year. following socgen, they are loans in cash to take its trading unit, pretty much all but wiped out. as we see economies opening up, at the same time we are seeing growing fallout from companies, and the u.s. particularly, i want to talk about united. they are cutting jobs about 30%. that will be by october. that is 3500 positions. executives have said repeatedly they don't see sales picking up for 2020, and their top priority

is to ensure existence. hearse is preparing for bankruptcy. according to people close to the matter, the comedy was admitted to rework its debt, planning for bankruptcy if it could not get payments.to extend we could eventually get that morning.s this alix: annmarie hordern, thank you very much. here's a potential policy risk from the pandemic based on history. a paper from the new york fed has shown a link between the 1918 flu pandemic and the rise of the nazi party in germany. it's on the number of flu deaths correlated with an increase in the share of votes won by right-wing extremists. this shows the people who feel response to the pandemic has been insufficient.

this shows different zip codes in which people more hardly hit by the coronavirus and lower income neighborhoods are more hardly hit, so all of this to support this kind of thesis. coming up, more of your morning news, trade and analysis on the markets in today's first take. this is bloomberg. ♪

alix: more earnings trickling out this morning. looking at a loss of 6.9

billion euros versus net profit from earlier this year, just an indication of how difficult it is right now for some of these companies. they are prepared to restart conditions as conditions allow. they are looking at withdrawing their 2020 full-year guidance. so the latest from car companies, but we have heard from many different sectors. let's get the first take. joining me from our in-house team of wall street veterans and insiders, michael mckee, bloomberg international economics and policy correspondent, plus steve portfolio, federated manager and strategist. just to pick up on the earnings, how do you think of companies right now and there is no visibility, and we don't really know what the economy is going to look like on the other side of this, for even the medium-term? steve: our view has been that this is a u-shaped economic recovery. so what does that mean?

we think earnings don't it back to 2019 levels until 2022. that is the going assumption. consensus has earnings going back to 2019 levels in 2021. we think that is a lack of visibility and analysts not able to bring their estimates down. we think the market is going to price off of that earnings 20/20 iscause you know going to be awful, you have some recovery in 2021, but you don't know exact it with that shape is going to be. but it is difficult but is the have very little visibility -- difficult because you have very little visibility. alix: we don't know what the reopening looks like, or just how much companies are going to have to spend to put social

distancing in place, for example, in factories or restaurants. michael: that is going to be a problem. we into space the economy reopening. we anticipate people starting to spend money at a slower space as they need to be convinced that things are going to be safe out there. but we don't know how much business is going to have to spend it in time and money to make people feel safe out there. it is fairly clear you're going to have to do something about offices, people pushing to close together. elevators. have you been in bloomingdale's in an elevator during the christmas season? how do you deal with that sort of thing going forward? so it is going to be something that is really hard to tell for a while, and then you add in the other costs that are going to be baked in one way or another. energy prices are going to be low for a while. how does that affect corporate bottom lines, not just airlines and transport companies, but the electricity and natural gas usage that companies have?

so a lot of calculation has to be done. i think the biggest issue for a lot of people is the assumption that things are going to look like they looked before. i think for many companies, it is going to be quite different, at least for a while. alix: that sort of brings up your u-shaped because it implies that both sides are symmetric. it feels like maybe that other side is not going to look like decide we. volkswagen saying overnight they are going to be dealing with price spikes. we haven't had someone like that in a long time. steve: what we were just talking about is the key for the market, and that is how long does social distancing -- how long is social distancing required, and at what level of severity? right now, in very broad terms, the market is saying the economies are going to start to reopen may or june, we will probably have nine months or so out until we can think about realistically having a vaccine,

so you've got social distancing for that period. if it turns out that some of the therapies under development, if they happen sooner in that social distancing period is shorter, the market has real upside from where we are. if it turns out those therapies fail, you've got real downside. i think in the current environment where that is the base case, you are probably range bound between 25 and 2900, and you want to be tactical within there. in terms of supply chain disruptions, i think we are going to end up finding out that closing down was easier than opening backup because when you're closed down for me have no expenses and you have all the government support you need. but what kind of support is going to be necessary when companies reopen, but can't operate at full capacity? alix: and what the political appetite is for that. you still have democrats and republicans butting heads now on

the next bailout package. i don't know if it is stimulus or bailout. i don't know which one it is yet. at the same time, treasury ramping up issuance to a record for the second quarter. how does that wind up playing out? michael: at this point, it is kind of deal with the problem that is right in front of you. we will get the treasury borrowing composition tomorrow, but we know they are going to borrow $3 trillion. it is hard to analyze that because we have never seen anything like that before. so far there seems to be enough appetite for that issuance around the world, but when it starts to come all at once compressed into a three month period, will people buy that much at the time that other central banks are selling that? we are going to find out what we have to pay for that, but as you mention, the political aspect of this is still being thought about. right now we are still talking bailouts, but in terms of the bailouts, the democrats want to spend $1 trillion to bailout states and localities come on

top of the trillions we have already spent. at some point, this comes back to bite you. at some point it is going to be too much. nobody knows what that point is. alix: at some point, u.s. stocks will be too expensive. steve, how do you tactically rotate dealing with this economic backdrop and then broaden that out to other asset classes, say, the treasury market? steve: i think the first thing to remember is that markets, even though you have a u-shaped economic cover he, markets don't require -- economic recovery, bad to becomeuire good. they just require awful to become bad. the implications of a long-term

market, the fact that the u.s. has population growth when so much of the rest of the world is not, we think those are the ingredients for a long-term secular bull. you've had pullbacks of 30% to 35%, but you make your money back within two years. we think we will be at back at the old highs. with think the key theme here is that you don't want to own everything right now. i know the passives and etf's have been very popular, but right now, not everyone is going to be ok, i needed to pick and choose. that is where our focus is. i think terminology is really important here. the reason that is remember, the

reason we need these bridge loans is we have asked people, individuals and businesses, to shut down in order to save lives. we then can't leave them on their own. it is just unethical. when we write the history of this episode, the terminology is tong to be very important see what we did as a society here and why we need the government to have these put in place. alix: that leads me to what germany's top judges ruled in terms of the overall asset purchase program from the ecb. it does bring into the question, does that spread into other purchase programs at some point? it highlights the need at some point for some more substantial unity within the european union on how to tackle something want. michael: you would think it would, but i don't think it is really going to have that much impact on the unity situation.

european countries are pretty divided over that. this isn't necessarily going to bridget. what may not to have a practical effect in the short run, it is very complicated. it is not that the ecb violated the constitution in germany. it is that the german government violated the constitution by not challenging the ecb. it is that kind of ruling. it also deals with the public sector purchasing program, the old qe they did coming out of the financial crisis, not the pandemic emergency purchase program they are using right now. maybe they are connected, but somebody would have to file a suit and it would work its way through the courts. i don't ticket really shuts down -- i don't think it really shuts down the ecb because they could satisfy the court ruling by coming back with a different analysis of what they were doing and why, but it does throw a small monkey into the ecb at a time when they

don't need it. but it probably isn't going to stop anybody from helping the euro zone, and it really isn't going to have the petitions for other central banks like the united states or japan because this deals with a treaty that put the european union together rather than anything fundamentally inside the central bank itself. totally fair. steve, do you agree? did you make anything of it this morning, the ruling? we did see btp's push higher. steve: i agree with mike that the practicality is low. i do think it underscores the challenge for europe and international markets in general. you have population decline in these economies. more densely populated populations. then you have political structures, particularly in europe, that are just not efficient. because of that, when you're dealing with a crisis like this, the response is less robust. this is the second time now and the last decade that the response is less robust, less

coordinated, and it causes europe to fall behind the united states. i can't believe i am going to say this, given the recent history of our government, but our system is just better. it is more efficient, and it allows for much more robust responses, and therefore better recovery. it is one of the reasons among many that we still prefer the u.s. to international markets. you, ands question to you sort of pivoted on that, there's also talk now about how forward p/e ratio, the u.s. is the most expensive it has ever been, especially compared to europe and em. if we do have a better recovery, would that make european equities more attractive? steve: yeah. look, i think you have to keep in mind, we have population growth. europe has population decline. one of those is deflationary and progrowth. one of those is disinflationary

and not progrowth. layer onto that the size of our tech industry, which is a size of -- which is a sign of our innovation relative to europe's, and a lot of those p/e ratios start to normalize. even though that is something that has mean reverted over time, it may not here. i think you've got to look with your eyes and not just the history books and say, where do i have better growth? where do i have more efficient systems? where do i have companies innovating more? i think that is your higher probability bet, particularly if we have a more robust recovery. alix: all right, guys. thanks a lot for the conversation. bloomberg's mike mckee ob back with me. steve chiavarone, thank you very much. any charts we use throughout the next two hours, go to gtv on your mental. browse the feet -- on your terminal. browse the features, check it out. this is bloomberg. ♪ ♪

alix: this is "bloomberg daybreak." more bad news coming from the coronavirus outbreak. this time, a warning from bnp paribas. the french banks as net income this year will be 15% to tony percent lower than 2019. in the first -- to 20% lower than 2019. quarter, it set aside for charges and write-downs. more cuts on the way at united airlines. in october, the carrier will cut at least 30% of its managerial and administrative jobs, about 3500 positions. plus, managers and other workers must take off 20 days without pay. united warns that the airline will not rebound quickly from the coronavirus crisis. neiman marcus is now close to a bankruptcy deal with lenders led by pimco. bloomberg has learned the agreement would slash by more

than half the department store's net debt loans. in return, pimco would take over the company. that is your bloomberg business flash. one of the things i am watching today is the so-called investor class will have to pay for the debt stemming from the coronavirus outbreak, according to guggenheim securities co. jim milstein -- securities cochairman jim milstein. >> one thing investors need to take into account is that the era of tax cuts is over. there are going to be corporate and personal income tax increases on the others of this, just to bring that budget somewhat closer to balance. millstein led restructuring efforts at the treasury department after the financial crisis. the question is what companies are really going to look like at the end of this. coming up, ibm's largest ever digital event experience is kicking off today. we will be joined by the ibm

ceo, coming up next. in the markets, a rally still underway for s&p futures. a little selloff in the european bond market. bdp yields fluctuating all over the place. it is a mixed dollar story in the g10 space. oil getting a bid, helping to support equities overall, particularly in europe. this is bloomberg. ♪ staying connected your way is easier than ever.

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david: welcome back to americas."daybreak: i'm david westin. ibm is having its annual digital event, but it is different than last year. this year, it will be all virtual, which tells us about how things have changed because of the pandemic.

we are joined by the ceo of ibm, arvind krishna. how has the world changed when it comes to computing, the cloud, interconnectivity when it comes to the pandemic? arvind: first, it is great to be here and to talk to your audience. when we look at the pandemic and what is unfolding upon us, first, let's just have a lot of sympathy for those impacted by it. as we have all shifted to remote work, the need for digital technologies, her ai has accelerated, and you pointed out our audience went from 30,000 to 87,000. i do believe that is a reflection of the acceleration our clients are seeing in adopting these technologies. it is a great way to be able to reach her clients -- to reach your clients virtually. if you look at ai, it is about

the only way to get the extreme automation to be able to handle .he workload we support those realms, as well as the client interests we can see with the people attending these sessions remotely. david: let's talk about those clients. we have all become so dependent on this technology. what are the things you are hearing most about what change they need, what improvements they need, and what are you trying to do to address those? point --ust to recoup just to pickup point, i will be talking to if you digital officers during the conference, and what they are talking about is how they connect all of their clients come of the 40 million people who get health care, and how they connect them digitally and remotely, and how they can infuse those experiences with ai and on a hybrid cloud platform so they can run the midscale --

so they can run them at scale. that is a great example of a client, but the same story we hear from everywhere, whether from people in the airline industry, insurance, banking, telecom. it is about bringing hybrid cloud technology so they can deploy the workload wherever it is fit for purpose, and then they can use ai not only to do extreme automation, which helps cost cut, but actually make the experience richer for all of their end lines. that is why we begin to see the infusion of those technologies going forward. once the things we've announced here is ai for i.t. outages in i.t. across the industry cost about 200 62 $5 about 265ea but --

million dollars. that brings huge power, unlocking the potential of ai, and that is something we are really excited about in addition to the other hybrid cloud technologies we are also bringing out at this conference. for those of us working from home and experiencing some of the glitches, we are eager to have those corrected. when will that product be available? will it really redeem some of the situations we have, where the system goes down, we have to reboot it, things like that? arvind: that product is actually coming out now. we are announcing it at the conference, and people can start purchasing it now for deployment in this quarter, meaning before the month of june. that is a great power. but to talk a little more on ai, if you look at its impact on covid, something we are all unfortunately suffering from right now, when i look at medical research in india,

government services, hospitals in the united states, and these examples go across dozens of countries, we can all begin to use intelligent ai assistants. parents whol case, are anxious about their children can interact with the ai assistant, and that way you can take 1000 odd calls out of the hands, professionals' allowing the medical professionals to focus on serious cases where it is serious enough that you should now have a person interact. i think these are really useful examples to show how ai can go not just in i.t., where we would like all of our infrastructure to stay up all the time, and we do believe the next tools are going to help there, but also helping citizens and government and medical professionals be able to help everyone deal with

covid-19. arvind: you make a very important --david: you make a very important point mentioning countries where this can be applied. even before the pandemic, there were some countries trying to draw some borders when it came to data and some of the internet issues. are you concerned? do you see any indication that depend, problems may increase the resistance to flows of data and information across borders? i will begin with my perspective. of course nations are always going to try to advantage themselves, but let me step back. free flowde and the of data have shown that the entire global economy gets better and everyone benefits. i think it is a false dilemma when people think about a win lose. it is not a sports game. it is a win-win if you can

increase data supply for everyone. that should come with increased protection around i.t., but the free flow of goods and data is what unlocks the potential for everyone. when you look right now, and the pandemic, i am encouraged that people are cooperating more, taking advantage of cloud computing capabilities from everywhere, the sharing of science research has increased. there's a positive sign amongst thatf the emotions naturally accompany such a crisis. alix: that's one of the things we hear about some of the cooperation even among competitors. is there any way to institutionalize that? there's a tendency for humans to respond to crises, but then they go back to their old ways of doing business. arvind: i think public-private partnerships have paid off so much not just for the nation and the government, but for private enterprise as well.

if you look at the program from the 1960's, how many technologies came out of that, whether it is teflon, the ballpoint pen, semiconductors, the integrated circuit? i think we can lay a lot of credit on that for the public-private partnerships created in the 1960's. if you look at the internet in the 1980's and 1990's, it has benefited everyone. one that we are particularly excited about in high-performance computing is a public-private partnership sponsored by the white house, ibm, the national lab, and many nations, which brings high-performance computing in favor of solving covid-19. -- 440 petaflops running. but that is something that could lead to better drug discovery, better health care, maybe work on climate and batteries, and many other things as those

technologies, including quantum computing, get folded into this partnerships. i am a believer that public and private can work together and be a win-win. it is not a question of taking from one to give to the other. david: finally, it strikes me that you are coming up on your one month anniversary as the ceo of ibm. you were prepared. you knew the company well. at the same time, this is a curveball that no ceo really could have anticipated. what were the biggest prizes, the biggest challenges you found? -- surprises, biggest challenges you found? arvind: the biggest surprise is , theay that every ibmer people around the globe have risen to the challenge. issed.ent delivery m people really embracing work from home pledges and how we all work together as a team. that is the real positive.

and the same reaction from so many of our clients also, who were so appreciative of the work we do both now and in the future. now, none of us can predict where this crisis is going to go. certainly i hope its impact will be limited, both in scale and scope in time, but it could go on. we now have to plan for so many scenarios that were unforeseeable even for you months ago -- unforeseeable even three months ago. but i am amaq to miss that but i am an optimist. i do believe -- but i am an optimist. i do believe in the power of technology and innovation to carry us out of this and into a more positive future. david: i really appreciate your spending time with us today. krishna,rvind ceo of ibm. coming up, we are going to have brad jacobs, the xpo logistics ceo. this is bloomberg.

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posting p logistics first quarter revenue that fell about 6% year on year. xpo is a trucking and logistics provider that said the marketeer rated -- the market deteriorated with the start of the pandemic, but still anticipating millions in cash flow this year. joining us is brad jacobs, xpo ceo. what is the biggest problem since you have all your fingers in different supply chains? what is the biggest issue you see right now?

brad, can you hear me? ok. we are going to try to get brad jacobs back. we are having some technical difficulties. in the meantime, let's get a check on the markets. talking about xpo logistics, their stock is now up by about 6.5% in premarket after they reported yesterday. an overall check on the market of where we stand, european equities pushing their way higher. outperformance really by the dax and the cac, as well as the ftse 100. in the u.s., s&p futures up by about 28 points, pushing solidly higher. in the bond market, a bit of a mixed picture. you see a little bit of selling in the treasury market. remember, $3 trillion of

issuance in the second quarter, and unbelievable number. we will get where they are issuing along the curve tomorrow, but no doubt that is potentially putting some pressure on treasuries. in italy, it is a mixed picture. yields now pushing higher by about 13 basis points, but you are seeing some buying coming in for the bond market. in terms of the currency market, looking at a mixed dollar story here. the canadian dollar, aussie dollar, british pound. oil still holding on to a two dollar rally, now at $22 for the june contract for wti, so a distinct positive for the market. let's get back now to xpo logistics ceo brad jacobs. he is joining us now. my question was, when you take a look across your supply chain, i want to know where the biggest -- thet is right now

biggest bottleneck is right now. brad: there's really two problems we are mainly focused on. the first and foremost is the health and safety of our people, our 100,000 employees. so far, so good on that. in terms of the bottleneck in the actual supply chain, is a tale of two different continents. europe has already bounced back. europe trough doubt and volumes have come back very strong. we are the largest transportation network for france, spain, and the u.k. the volumes have improved dramatically in the last four weeks. in the united states, a little bit different story. it has come down and has just bottomed. it has found a bottom. it has stabilized, but it hasn't bounced yet. alix: when you are seeing the slope the opening and recovery, many are looking for a u-shaped. a u-shaped implies that both sides are symmetrical. are you seeing a kind of

where weback to would be pre-covid, or is this a different type of economy you are seeing? who runs our to logistics part of our business, about 90% of pre-covid levels as early as june or july. he's pretty optimistic there. i would say what has happened in europe has been a v. it is not a full v, but it is been a quick, rapid increase in the last four weeks. we don't see the same thing in the united states. moment, butat the that could turn into a u or v. alix: when things reopen, is there enough stuff to transport? is the demand there? is the supply there? brad: oh, yeah.

we have been up and running throughout the whole pandemic. at the worst part of the trough in europe, we had about 49 sites closed down. that was on april 14. today we have about 25 sites down. here in the united states, we have been growing the business even despite the sluggishness, but over the next few weeks, take the auto customers, for example. they are all coming online, and going to nothing for coming online. so make no mistake about it, april was a terrible month for the transportation logistics industry worldwide. volumes were very low, which is not surprising since most people were in their homes or apartments. alix: do you have any visibility in the u.s. about what supply chains or what clients might not reopen at all? we are looking most

closely at the small businesses. all of the large companies coming back, except for the ones that were very travel and entertainment oriented. but in terms of small businesses, it is going to be a struggle. let's be frank. a lot of those businesses have not had any revenue for a time. there are the new rules we are going to have to abide by if we want to live, that require less numbers of people coming in to restaurants and service organizations. that is going to challenge the p&l because you have less revenue with the same amount of cost. how does that then impact you? we have some clients at small businesses dropping off altogether. does that mean for your bottom line and operating margin, and your ability to generate avenue? -- to generate revenue? going torad: we are

emerge out of this a much stronger company. there is more outsourcing being done by companies. companies want to move their supply chains to more stable, reliable third parties to manage it and do it more locally, in many cases. we have a very outsized presence covid,mmerce, and post we think the e-commerce trend is secular. we run the largest fulfillment .latform in europe there's lots of things we are exposed to as an economy that growth trends independent of what is happening with the cycle. alix: do you have any circumstances where you are going to have two furlough workers, or on the flipside, higher more or pay them more to keep going. you have any more on that? brad: a head count will fluctuate on demand.

as business comes back more in europe and starts to come back in the united states, hopefully in the next few weeks, then we will be hiring. alix: do you have an idea of how many or what pay, how quickly you need to hire? brad: no, and we have to be cautious about predicting that because the visibility to how fast does this is going to come back is not very clear. it is unsure how quickly business is going to come back, but as it does, we will staff up. alix: thanks so much for your candor. brad jacobs of xpo logistics, thanks a lot. one other affect the pandemic is having on certain businesses is the world of restaurant. some may actually have to stay closed. the future of 11 madison park in new york is now uncertain, according to the owner. he says it will take millions of dollars to even reopen. in 2017, 11 madison park was named the best restaurant in the world.

at the time new york shut down for the coronavirus in mid-march, the restaurant was still packed. the chef says it considered doing delivery, but decided the world didn't need 11 madison park food in boxes. downg up, we will break more for you in today's trader's take. this is bloomberg. ♪

alix: time now for trader's take. joining me is damian sassower, who is looking at high-yield spreads. what do you see? we are looking at the ratio of high-yield for emerging markets and effective credit. this measures premium effect of quality. in the u.s., high-yield spreads have recovered nearly 50% of their losses since the mid-march peak.

while we all know about em bankruptcies, delinquencies and missed payments are growing in the u.s. hertz it's expected to file monday. neiman marcus has had trouble with creditors. for me, it is all about the moral hazard associated with the fed in the u.s. and whether or not that holds, and whether or not we see spread compression here. alix: right. like you mentioned, we have the fed backstop here versus in em. there's no real appetite you take on duration as there is no true backstop. damian: exactly. this potentially creates a new generation of zombie companies in the u.s. spreadsd expect greater over the long-term, but in the short term, let's see if the fed is willing to be that backstop, as you rightly point out. alix: always good to catch up with you.

ask a lot, damian sassower of bloomberg intelligence -- thanks a lot, damian sassower of bloomberg intelligence. coming up, darrell cronk of wells fargo investment institute. what are the recovery trades? we will break that down. this is bloomberg. ♪ these days staying connected is more important than ever.

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tuesday, may 5. i'm alix steel. let's take it from the top. >> that could get the economy back to normalization, and will be happening at the best buy the end of the year. asidebnp paribas sets more cash for loans, and sees net revenue down 20% this year. >> bnp paribas is warning full-year earnings will take a pounding, also posting a $200 million hit at its trading unit. alix: this comes as other companies continue to take steps to me to get the crisis. about airlines will cut 3500 positions, while car rental company hertz prepares to file for bankruptcy. >> there's a lot more distressed players today. it will help clear the market, but it also means that there aren't near as many opportunities. alix: sam zell echoes warren

buffett, saying there aren't as -- during an out turn because the fed acted so decisively. enoughnow says it has liquidity to withstand current conditions until december 2021. >> we are trying to figure out a lot more on what the implications are of the court ruling that part of the quantitative easing the ecb has put in place has been judged illegal. alix: germany's judges say that some parts aren't backed by eu treaties. >> it is a bombshell really. they are basically saying overall, there is no monetary financing, which would be illegal, and not backed up by european treaties. alix: the ruling does not affect the ecb emergency purchase program. we will allow additional

movement through phase two. alix: california governor gavin newsom tentatively starts to reopen the economy. the first phase will allow stores to sell books, clothes, and other items through curbside pickup. this comes as economic activity has bottomed out. michael: we anticipate the economy reopening. we anticipate people starting to spend money at a slower pace as to be convinced things are going to be safe out there. alix: hong kong is next as carrie lam moves to open movie theaters, restaurants, and bars. a bullish reversal yesterday into the close for the s&p. no necessary real catalyst for the risk-taking, but let's see where we stack up. futures still grinding up by about 31 points, following european equities higher as well. the bond market not doing that much.

the refund rate for the treasury comes up tomorrow. how and where do we finance that debt from the second quarter? ninth straights day, it's longest rally in years. we are still $22, but maybe production cuts will make a difference. for more on the markets, we are joined by darrell cronk, wells fargo investment is to toot -- investment institute president. are you putting conviction into a recovery trade? darrell: we would be a little more cautious here. it is good to be with you this morning. the s&p does remain remarkably resilient above 2800. yesterday's interesting reversal late day i thought was good, but we are at really important technical levels here. we are kind of caught in no at 2740, and upward resistance at 3000, so we think

equities might be a little bit ahead of themselves here. we would be more cautious and probably more of an active buyer if we got back down in the 2600 level. question isoader does it matter that we are reopening the economies? economic growth is slowly picking up, but earnings are going to be disastrous, and we don't know for how long. how do you judge the reopening conversation? that's part of the concern, i think. themselves uphung on this kind of i nearly reopening. certainly the earnings for q1 were going to be ugly, but we are still missing 10% of where consensus was coming in. we know the second quarter is going to be the worst quarter likely that we have seen in modern financial times by any accord. the real question is how quickly can we reset him restart the

economy. we've got 23 states representing about 35% of u.s. gdp beginning to come back online, but confidence is so key and critical here. we are also walking into a market standpoint into a seasonably weak period of time. don't underestimate the effect of buybacks limitations and how they reduce earnings-per-share. there's a lot of headwinds here that we need to face and navigate. i'm afraid the markets are kind of looking at this with a little bit of a utopian span at this point. alix: many would say the utopian span is because of central bank liquidity. why does that not trump all of your concerns for you? darrell: well, it does, and it has in the near term as part of the 30% retrenchment rally in the month of april. the fed has moved with miraculous speed as evidenced by sam's al, as evidenced -- by sam

zell, as evidenced i warren buffett's comments. it is going to take a long time. we are already seeing andruptcies and energy consumers christian arey -- consumer discretionary begin to spike. consumers, they are reluctant to return. those who do return may actually spend less, and serving them now is going to require a higher cost as we were to try and make sure everybody is safe. so that is going to eat into profit margins as well. that is not completely negative. i just think at 2850, you need to be a little cautious because there's a lot of good news priced into the market. institutional money is starting to get short at these levels, which can sometimes be a contrarian indicator, but also that there is just not a

lot about you on the upside. you: how closely are monitoring what companies look like on the other side of this? i have been talking about this for a few days when it comes to bowing. eing.mes to bo the fed was able to open up the bond market again, but that is $25 million of debt that is now on their balance sheet. you mentioned sam zell and not being able to provide opportunities. but then you have these companies re-levered yet again. how do you look at that on may be a two to three-year horizon for equities? darrell: it is a great point. it is probably an underappreciated point in the markets. the issuance in the investment grade and high-yield market has just been off the charts the last six weeks. companies are able to finance as much as they want at relatively cheap spreads for low cost, but

it is increasing debt on balance sheets. corporate that was already relatively high heading into this slow down, so it is going to increase more. if you think about the time affect growth.l the other thing people have to wheretand is manufacturing was a bigger piece of the economy, if you are going to buy a new smartphone, you may delay that purchase in the near term, but when you lose things like hotel room nights, plane seats, restaurant meals, haircuts, uber rides, the cocktail at the local establishment, those things go away forever. so a service-based industry is a true demand lost for whatever period you are locked down for.

that does change the dynamics as with think about what the earnings growth and opportunity looks like on the other side of this. alix: and a good example of that i think is small caps. obviously underperformed. the argument is that the fed is othera -- is allowing countries -- how do you do that as an investor? darrell: i think small caps have been a bit of a proxy for the risk on trade here. in other words, when you went to highong beta, you just buy beta sectors like small-cap. the reality is if you look under the covers for fundamentals, first-quarter earnings are tracking down 45%, which is kind of a crazy number. you still have upwards of 40% of the russell 2000 that doesn't turn a profit today.

to your point, they tend to carry higher leverage. they tend to have a narrower margin. labor tends to be a big issue for them. so there's a lot of headwinds there. we are underweight small caps relative to large caps and have been for quite some time. frankly, i am not sure that there is a good reason at this point to change that exposure. alix: fairpoint. what does that then mean for a location in terms of equities regionally? you made the argument that s&p em orward-looking, versus europe. how do you square that? darrell: we still think the right exposure to have his cyclical stocks versus defensive because you are going to get the best topline growth. we still like the u.s. over international.

we still think growth and quality overall you make sense. we still think large-cap over small-cap. from a sector standpoint, we would be most favorable on technology, followed by bycomfort discretionary -- consumer discretionary, and i think real estate is going to be challenged on the others had of this in many forms, not just commercial real estate, but industrial, multifamily. those are the areas that we would underweight our input folios. alix: thanks so much. ronk of wells fargo. coming up, we speak to karen pierce, u.k. ambassador to the u.s.. this is bloomberg. "bloomberg daybreak -- this is bloomberg. ♪

alix: the u.s. on the u.k. kickoff talks on a post-brexit trade deal today. joining us for more on what to expect is dame karen pierce, u.k. ambassador to the u.s. thank you for joining us. can you give us any kind of timeline for any sort of trade deal? amb. pierce: what's happening today is the ustr bob lighthizer and our trade secretary formally launched negotiations over video , and then some 100 negotiators on each side to sit down and negotiate by video, and they will be done virtually.

those will take place about every six weeks. we are trying to cover all the simultaneously, supporting small and medium-sized enterprises. we want an ambitious timetable. i don't want to put an end on it, but we certainly want to get it done. ideally before the end of the year. we will negotiate for as long as it takes, but we would like to move expeditiously. alix: what are some of the maybe one or two top sticking points where you hold back that deadline? amb. pierce: i think the negotiators will be working that out as they sit down. we are optimistic. some obstacles. you've got some very good negotiators on the american side. we think we've got some good one

on the british. but trade is not straightforward. i'm sure there will be obstacles, but i think we will overcome those obstacles when we get to them. because there's a lot of goodwill and a lot of ambition on both sides. any: i wonder, though, how trade conversation just got harder with covid-19. can you give me a sense of the landscape, of how countries are looking at supply chains? nationalism, protectionism in light of the virus. amb. pierce: i think you are absolutely right. countries are more worried about their domestic supplies and where they source their goods .rom there will be some items that back,ies want to bring

but we can't bring to domestic production for strategic resilience, but there will be others where it is vital to diversify and keep the global economy moving. countries need to find the right balance there, certainly from the u.k. perspective, we are very ambitious about keeping the global economy going, people and supply chains open, and i think economicnse of recovery, having negotiations start between the u.k. and the u.s., that is a very good sign of confidence in the ability of the economy to recover, so i that.look at it from alix: do you feel like there are areas in the supply chain that you're just going to retrench? amb. pierce: i wouldn't use the word retrench. i think it is more about taking a strategic look at what items might be critical.

we have seen certain medical quit and, sorts of chemicals, and i think it is a case of taking the strategic look to see home ords to be brought closer to home, and what still ought to be diversified. trade is so important at the current time. we don't want covid-19 to mean countries turning inwards. a little of that will be inevitable, but we want to help create a climate where the global economy keeps rising from where we get back to protective growth, and we see disagreement with the u.s. these negotiations are making a contribution to that. point, morgan stanley had an op-ed that talked about the risk of the slower .lows of people, money, goods

less competition and investment. do you have any real tom reed -- any real time read on if we are seeing that currently happen? amb. pierce: i think there are lots of statistics coming out, ,nd you will be aware of it willthings that come out be worse. i think the speed and strength of recovery will end up being the most important marker. i have seen statistics saying that the u.s. will get back to 2019 growth rates by 2021. i don't know if that is true. i am not an economist. but i think we need to make sure that as we can come out of covid-19, we do think it can grow the economy. i think that means a very strong focus on new technology, strong

focus on digital and sme's. i think it also makes a focus on greening economies to make them more stable. that applies to developing countries, as well as countries like u.k. in the u.s. alix: that's a great point. there are many in europe, for example, calling for the stimulus to restart the global economy is a more green initiative. do you have a read on what that winds up meaning for the u.k.? amb. pierce: we've already made some ambitious decorations and written them into law. looking to see if we could bring that forward. we were going to post the international 26 meeting of countries in the yuan in december this year. we are putting that back until 2020 one. i think that in itself will now be a very important moment to

look at sustainability and the more ambitious measures, and to try to get more international cooperation going. alix: and last question, as you head into negotiations today and work out the negotiations with the u.s., what role do you think the conversation around china and huawei is going to play in ?ight of covid-19 and 5g amb. pierce: i think they are separate issues. on 5g, we are aware that we are in the u.k. because of market failure. there were very few companies, i think there were only three that can supply the 5g needed. one of them is huawei. in response to security concerns, our government, the british government has limited the participation of huawei in

the telecommunications network, and that safeguards of our national security communications and those of our close allies and partners like the u.s.. in terms of china generally in the covid-19 recovery, as i say, we want to keep global supply chains open. we do want to make sure they diversify, so we are not reliant on single suppliers, and we will take a strategic look at restoring, but i think the main point for a country like britain which historically has always been a major free-trade nation, it is about getting the right balance and about doing what we can to get growth back into the economy. some of the underlying trade issues need to be addressed. alix: ambassador, thank you very much. a pleasure to chat with you today. this is bloomberg. ♪

, legendaryell investor, is a billionaire renowned for buying up distressed real estate. right now, sam says there's really nothing to buy. >> those sellers that wanted to prices thatr the were available seven or eight weeks ago. the buyers are looking at a very different world, and expecting to see significant discounts from where we were seven weeks ago. when you've got that big a spread, nothing happens. alix: you can watch that full interview exclusively on the bloomberg terminal. always love to hear from sam zell. coming up, how the pandemic has shattered global trade flows. march trade data coming out next. you know april is going to be

even worse. hertz is getting totally wiped out in premarket. it could file for bankruptcy as soon as today if they can't we work the debt -- they can't rework their debt. marathon petroleum is actually up as the company says it will suspend its share buyback, plus cut spending by a whopping 30%. this is bloomberg. ♪

alix: welcome back to "bloomberg daybreak."

i want to take a moment to check on the markets. the s&p had a bullish reversal and a rally into the close. many said there was no catalyst. building on those gains in europe as well as the u.s.. up on s&p futures. if you switch up the board, you can see risk playing out across different classes -- across different asset classes. one is oil. a mixed story in the bond market. selling in italy as the german court decision caused question marks in terms of how the ecb and german government will by any sort of sovereign debt. this data dropping right now, the trade balance for march, the billionwidens, now 44.4 , negative. -$44.4 billion is the trade balance for march. you can imagine what it will be like in april as the stores kept shutting down. you can imagine a lack of buying and what that will do for the

trade deficit. the trade deficit at $44.4 billion, negative, in march. michael mckee joints me. i know we are still waiting for a lot of the data in the intricacies of the trade deficit. this sets the stage for how bad it would get in april, which is what we keep talking about when we get economic data. michael: it also has implications for the first quarter. the trade deficit wider than anticipated. from $39.8 billion to 44.4. it suggests growth slower than the first quarter. not that anyone cares that much anymore. we did not see a big drop in imports and exports. exports were 20 billion less than february and imports were 15.4 billion last than in february. it is a sign the global economy was shutting down. this all started about halfway through march.

a lot of the stuff would have been in transit. it would still have come in. it does show you the change can be fairly rapid. the fact that we saw exports fall less than imports is one reason the deficit was a little wider, but not as wide as it could be during the month. a milliononly down dollars in the month. -- $1 billion during the month. i am reading this a different way. that impact will hit in the current month with a big drop in prices. that should have an impact on the trade deficit for april. fact not to mention the that we had the export market closing which backed up oil, that would be a different story as well. i also wonder on an inventory level, if you are in business and you're trying to buy for

december, for the holiday season, you have no idea how to do that. i wonder what that doesn't terms of importing in the trade deficit versus pent-up demand later? michael: that will depend on logistics. you were talking to folks from the logistics firm earlier, and how far you might build a push your ordering out. this is the time of year where people start to put in orders for the holiday season because the stuff would be delivered in august and september and they have warehouses full of stuff they do not sell in march and april. what you do? that is old stuff and you will not want it in september and october. black friday. it is hard to tell what this holiday shopping season will be like. we do not even know people will be their houses to shop by them. we hope so, but it is difficult, especially for retailers. another thing that comes into this is supply chains and how

companies are dealing with supply chain shortages, particular from countries like china that were completely locked down. alix: totally right, and what the short-term implications are as well. the march straight deficit coming it $44.2 billion, worse than estimated -- $44.4 billion worse than estimated. hurts -- hertz is in contact with lenders to engage in talks with forbearance. they are looking for more time. the waiver agreements will expire may 22. they are talking about the sudden dramatic impact of the coronavirus on their business, and they did not make some payments and according to an operating lease. they have been inching towards bankruptcy. they are currently in forbearance and there is limited waiver for additional time. they are saying different

sources for employees. that stock down 10% or 11% in the premarket. this is bloomberg. coming up, we will talk more about the disruptions, the stress, and all the rest in the credit market. we will speak to james zelter, apollo copresident. this is bloomberg. ♪

eric: you are watching bloomberg daybreak. i am erik schatzker in new york city. you saw what happened to denmark, it is not over. time to bring in jim zelter, copresident of apollo and chief credit officer of the firm's credit business. good morning. we are in the middle of the deepest recession in more than 80 years.

about 20%,t is consumer spending has collapsed, and yet investment grade debt is up on the year. bonds are down just 12% in the high-yield market. is credit properly priced? jim: great question. i would say the breadth of credit today is wide and extreme. as you saw in the middle of march, the week of march 23 in dayscular, four or five before that the markets seized up. the cp market, the money market, the ig market, and in response to a tremendous amount of tremendous the fed, moves by the fed and treasury, they unclogged the investment-grade market so you saw tremendous amount of issuance from wells fargo, jp morgan, procter & gamble, great companies. spreads,rket and the

that was quite attractive at that point in time. 12, 18ly we are in a 6, month economic recession where all credit is being repriced, some probably attractive, some not attractive. you need to have a wide toolbox to analyze that. some credit is fairly priced. a lot of credit is probably well ahead of itself where you have market fundamentals still very challenged, notwithstanding the tremendous amount of federal fiscal and monetary stimulus. eric: what are those spots where the market is ahead of the fundamentals? --: when we see the market we oversee a $200 billion plus credit platform and the largest and broadest noninvestment grade alternative credit platform on the planet. when we think about the world, i look at it in three chapters over the next 18 months. the first chapter was

dislocation, market seizing up and only the highest quality assets receiving a bid in interest. the second is capital solutions, different types of funding for growth companies, the third is the distressed market. when you think about those three areas to put capital to work and you overlay a variety of whether it is a v-shaped, which is extremely unlikely, a u-shaped, we weretended l-shaped, quickly put on the dislocation part. that was attractive. you did quite well providing capital to great american companies -- united airlines, airbnb, expedia, which we did in the dislocation, and certainly in capital solutions. the distressed angle, i believe there will be unprecedented damage to the economy. certainly we are seeing it with

the unemployment numbers. certainly, it is my view and our view as a firm that while we are waiting our way into the distressed universe, there is plenty of time when one looks at the real behavioral dislocations of what's going on, distressed is some time to come. what the fed has done with their stimulus is help the highest quality investment-grade companies, but there're many more middle-market companies, sponsor companies, a lot of the asset-backed businesses which is still yet to recover and are in very poor shape overall. what you just said prompts many questions for me. since you ended on the fed, does the fed draw the line at fallen angels or do policymakers go deeper into junk territory and possibly into structured finance? while it was not a surprise

what the fed did on the primary and secondary credit facility, as you point out, the inclusion of the fallen angels, former investment-grade companies that had fallen to noninvestment grade or junk, in the inclusion of the high-yield etf's certainly took the market by surprise. i will also add that even though those facilities are very creative and well structured, they have not been put into practice yet. as you pointed out, there has been massive investment-grade issuance. this is a new area for the fed. you have had central banks take even more dramatic action, what they did in asia and hong kong, they bought equities. i suspect while jay powell has done a tremendous job and they have lots of what if scenarios, at this present time i do not

see them expanding beyond what they have done in the ig market. with regards to the asset-backed business and the asset-backed tarp was a great success in 2008 to 2009, and today they announced the aaa argue that, we would if the fed expanded that facility, they would, because of the evolution of the markets and how many companies finance through asset-backed franchise fleet finance in terms of some of the car industry, i think that would touch a lot more american companies which need liquidity. what you have described in what we are talking about, it just shows where credit is the lifeblood of the u.s. economy, the global economy. companies cannot operate without liquidity. the great american companies we

have helped finance over the last eight weeks, we are just putting capital into those companies so they can adjust their business plans appropriately. not inre you or are you howard marks's camp, but moaning the amount of fit liquidity competing with private capital? jim: we do not spend our time bemoaning. hat to whattip your the leadership of the fed and treasury have done. the most unique economic crisis we have been faced with globally , and the response has been thoughtful, it has been swift and decisive. that is good for america, that is what we care about. eric: you mentioned, if it was not you, your colleagues on the apollo conference call mentioned that the firm had lightened up on retail and energy before the pandemic. what industries are effectively

no-fly zones right now? , you have tostion understand business models in this environment. in the middle of march, it was this massive dash for cash. many large companies accessed their revolving credit facilities in banks, and from our perspective, when we overlay those economic scenarios, you want to have companies you believe have the liquidity to make it through. eric: you know what i am getting at. in a macro sense, is there value left in retail? is there value left in energy with crude at $22? -- there any other places directly and indirectly in airlines? you rethink those industries because the business models are so challenged in an economy

where what people do is not happening anymore? jim: you had industries that had headwinds before this crisis. what was going on with the global players in energy in russia and saudi arabia and their objective to impact u.s. shale producers, that had a secular challenge. has been wellail published in terms of their sector challenges. credit,what we look at while there are a variety of businesses that have been directly impacted, a company like expedia, a company like ual, which we provided capital to, we believe those are great american franchises and will survive. we have been thoughtful about our approach to retail and energy over the last several years. loans and bonds do not go north of par, they stay right at part.

you have downside to zero. the question you are bringing up his equity versus credit. in this environment, when you're coupon and have structural protections, it is much easier to be fleet of foot. we put almost $50 billion to work at the beginning of the year, $40 billion in the first quarter. that is because of our ability to analyze the capital structures, separate the ones that do not have the secular headwinds but actually have a business model, and if you can do so in performing credit, and the reality is in that first stage of the market selloff, that dislocation we talked about, there were many companies i would argue were all going to be impacted, but were less impacted. those are the ones that make sense. clo: every cielo -- every

manager i talked to says something along the lines of the following -- they will be fine. if the economy is in shambles, downgrading's are multiplying how is it the vehicles loading the leveraged loans are fine? jim: there are two parts to that answer. i would say that if you look back at this period of time versus 2008, in 2008 the crisis was the intersection of the commercial bank in the u.s. and real estate. today the intersection of the crisis beyond the obvious entertainment, lodging, travel, will be in intersection of structured credit, probably commercial real estate, and some secular headwinds in a variety of industries like retail. benefit manager, the you have is capital that is arguably locked up, you have

liabilities fixed for many years. eric: i am sorry to interrupt but i want to make sure we can go through this before we run out of time. is there trouble in cielo land you manageand, do about those structures and the underlying debt or you see that more as an opportunity to pick clo's cannotthe buy. jim: we look at it as an opportunity. dramatic demand for private credit and across the breadth of our platform, our $200 billion, we are looking to expand our avenues of private credit. we also announced on our call we are in the process of raising over $20 billion of capital for dislocation and distress strategies. from our perspective, what is going on in the cielo market is an opportunity for a firm like apollo which is a leader in

alternative credit. eric: i want to thank you for spinning this much time with us. that is jim zelter, copresident of apollo, chief investment officer of the firm's credit business. this is bloomberg. ♪

alix: virgin atlantic will fly only from london heathrow and manchester. they are seeking u.k. government stakeholder funding. they do see a return to precrisis demand but it will take three years. another stern warning from an airliner. united overnight having to cut 30% of its workforce, asked management to take a pay cut as well. virgin atlantic will be cutting 3000 jobs. compare that with hertz that is forbearance -- that is in

forbearance but did by itself some time. shares were jumping with that action. the idea is they will file for bankruptcy, that is another rumor in the market. what does all this mean if you're trying to invest? let's get answers. chris hyzy, merrill and bank of america private bank cio joining me now. goldman sachs, morgan stanley, they say the world economy is bottoming out, then you get horrific warnings from virgin atlantic. hertz getting crushed. how do you square that is a cio? to is what it comes down the world economy, and even in the u.s. if you look at all of the states, there will be various shapes to this recovery. depending on what part of the economy you're talking about. we believe china bottom early.

the rest of the world in february -- earlier than the rest of the world in february. it's consumer sector is tenuous. when you flip over europe, europe also looks to have bottomed some type in early april, and then the u.s. with us real bullying various dates -- with us reopening states, we have about 50% of the economy open today. we are seeing a better mix. we are seeing construction park backup and stabilization for the consumer. there are different shapes, with the u.s. being the most consumer oriented and leading the pack. alix: what is your strongest conviction right now? chris: the strongest conviction is science and technology is what gets us to the other side. what is the other side? the new normal. right now we are in phase two,

the bridge period, where the stimulus is filling the hole created due to the shutdown. once that hole is filled, we get into the true recovery which starts late july in our opinion and gathers momentum into the fourth quarter and into 2021 we get a pent-up demand cycle. you need to continue to watch the treatment, testing, and tracking news. ultimately technology gets us through. the biggest conviction is that equities relative to fixed income are much more attractive on a valuation basis, even at these levels, on a yield basis, and on a cash flow basis. we are buyers of weakness. alix: thanks so much. we have to leave it there. merrill and bank of america private bank. that wraps it up for me. will bep, binky chadha

joining jonathan ferro. happy tuesday. this is bloomberg. ♪

jonathan: from new york city for

our audience worldwide, good morning, good morning. the countdown to the open starts right now. let's get straight to it on this risk on tuesday. tuesday morning price action. equity futures higher, positive one point 27% on the s&p 500, up 36 points. we managed to grind out a dave king yet -- grind out a dave gaines yesterday and we had to that. yields higher, up three basis point on the 10 year, and on foreign-exchange euro weakness the story of the morning. tension between germany's top court and the ecb. euro-dollar coming in .6%. that is your price action. let's begin with the bait issue. progress. california starting to loosen up on its lockdown, slowly starting to move forward. governor gavin newsom even sounding optimistic. >> this is an optimistic day