vision. vision fund loses billions and muslim she some -- and masayoshi son's warns of a bleak future. some analysts start to lean more positive. in the chinese president speaking at the opening ceremony of the world health assembly as hhe country faces hars accusations from the u.s. over the virus. welcome to "bloomberg daybreak" on this monday, may 18. i'm alix steel. richard breslow has this line. we all have good days, we all have bad days. today, we are just seeing a rally. part of that is helped by oil prices over $30 a barrel as supply has got shut a lot faster than we thought, plus

chinese demand levels almost at precrisis level. time for today's market moving news from our washington and new york teams. we want to start with fed chair jay powell's comments on the economy. in an interview with cbs, he expressed confidence in the recovery, but timing is still hard to predict. chair powell: the economy will recover. it may take a while. it could stretch through the end of next year. we really don't know. michael mckee, international economics and policy correspondent, has more. was there anything new on cbs? michael: nothing really new, just summarizing what we already knew from the fed and from economists and disease experts. he suggested that what it is really going to take is a vaccine before people feel really confident and the economy can start to move back in the direction of where it was before all of this started. he said congress and the central bank may need to do more to keep

us afloat during that period. appropriate government policy could buy time for workers and companies, and that might need to span another three to six months. he didn't give lawmakers advice. he was trying to be very political, very careful. but he said they should focus on keeping people in their homes, ensuring they can pay their bills, help companies avoid going bankrupt so that jobs are there when they come back, and he did say that states and localities probably need help. that is something congress should consider. as far as the fed is concerned, there is almost no limit to what they can do. they can enlarge their already announced programs, they can -- newew ones, chained ones, change their asset purchase, which some see as yield curve control. he once again signaled out negative rates. he doesn't think they work.

should mention the virus has claimed another victim, the japanese economy. over the weekend, japan announcing it had gone into recession. the economy shrank by 3.4% in the first quarter of the year, and the revised the fourth quarter down to -10, which means two quarters in a row, the technical definition a lot of economists use for recession. it means bad times ahead in asia. china doesn't annualize their data. japan does, like the united states. china shrank 9.8%. if you annualize that, the chinese economy would have gone 40% lower comparable. the u.s. economy contracted 4.8%, but we are expected to shrink more than 30% this quarter in annualize terms. jay powell was asked about that last night, and said he is not going to put a number on it, but that certainly sounds reasonable. reasonable, but rather scary. alix: indeed.

we will talk more about that in a second. thank you so much. let's turn to washington, where the trump administration is stepping up its campaign to blame china for the pandemic. on sunday, white house trade advisor to navarro suggested china sent airline passengers to spread the virus worldwide. >> the chinese behind the shield of the world health organization , for two months, hid the virus from the world, and then sent hundreds of thousands of chinese on air have to milan, new york, and around the world. alix: kevin cirilli has more. kevin? kevin: good morning. choose your words very carefully. that is what we saw from peter navarro over the weekend, and which i am being told is a foreshadowing of how president trump could escalate his own rhetoric against china heading into the 2020 election campaign season. typically, there's two points i would make here.

typically, this is a strategy we see coming from the administration, where a very senior advisor floats some type of rhetoric, and then the president doubles down. remember, it was last week saw advisors openly talking television interviews about regulations for chinese firms trading on u.s. exchanges, and then the president himself at the windows -- himself echoing those in public interviews himself. i am being told to anticipate that the president's rhetoric will only continue to escalate. over the last three or four days, the president has said he has no interest in talking with president xi jinping of china because it is not someone he wants to talk to right now, according to the president's own words. secondly, expect that the allies on capitol hill to also begin ramping up their own policy proposals against china, especially as it

comes to diversifying u.s. interests from chinese government and trying to disentangle europe's interest from china as well. alix: thanks so much, kevin cirilli. we should point out that president xi addressing the world health assembly said that a vaccine should be open to all, so a different kind of rhetoric than from the u.s.. kevin, really appreciate it. here is one story we are most definitely all following today, a loss for the record books. softbank's vision fund lost $17.7 billion in its last fiscal year after writing down the cost of bad investments. the biggest losers, over, we uber, wework,, and a hotel booking service oyo. >> they have a better states of going through this coronavirus. the exception is wework.

we made a mistake in investing in wework, and i have admitted that several times. i was foolish, and made the wrong decision. alix: it went from its biggest profit maker to its biggest drag on earnings. vision 2 seems like an uphill battle for sure. coming up, more of your morning markets analysis of the in today's first take. this is bloomberg. ♪

alix: time for the bloomberg first take. one may from our in-house team of wall street veterans and insiders, michael mckee -- joining me from our in-house team of wall street veterans and insiders, michael mckee and damian sassower. what is the number one thing on

your radar this morning? isian: this morning, it definitely the negative yielding debt. i did some analysis over the weekend and i have to say, it is not just the negative yielding that. the bloomberg barclays aggregate bond index, 82% of all the bonds in that index now yield below 2%. so if you break it down on a country basis, the 10 countries which actually have yields in excess of 2% are all emerging markets, led by indonesia. certainly, i am singing with a flat curve and all of the tapering going on, creditors are more inclined to move down in quality, move into emerging markets, and take advantage of some of these higher yields, and that is what we are watching. alix: which brings in the conversation you were talking about earlier. fed chair jay powell, how any times can you say we don't want negative rates? however, last week we heard the same thing from the head of the boe, and over the weekend, the

chief economist says we could look at it. why not? michael: they've got a different financial system then we do, so it is a little more possible there. i think this is going to be a clash between the fed and the markets. bowed to the markets over the last number of years, but in this case, i think they are pretty determined to not give in. it may go away. the markets aren't pricing and negative rates in fed funds futures trading until april of next year, so by that time, it may not even be an issue. we may be making much, a mountain out of a mole hill here, and terms of what people are predicting, but i think damian is right. we are in an environment of extremely low interest rates, and it is going to remain that way for quite some time. fed officials and many others have noted that when you get into that environment, markets, bonds, and all kinds of things behind strangely -- all kind of

things behave strangely. it is hard to say exactly what will happen, but i think the idea of the idea of the fed introducing negative interest rates is a nonstarter, as far as they are concerned. alix: you could get it in the market sense in terms of supply and demand, if you look at it that way. but that also leads me to take a look at china's yield curve, which has been steepening pretty intensely. do you want to buy chinese long dated debt? we are still trying to digest whatever these trade issues over the virus mean for trade or for the financial system. damian: i have been a fan of buying china rates amongst most markets. you are not going to find 2.7% yields in many places globally, especially across the market or an economy as large as china's, but the shape of china's yield curve is largely controlled. if you want to look at the u.s. yield curve by comparison, that

is where the divide is in markets. jp morgan joining the list over the weekend calling for five-year-30 year steepeners in the u.s. term premier gets compressed due to the slower for longer environment. don't get me wrong, there's a negative productivity shock that does equal deflation, and we could see five year-30 year steepening, but this exposes the markets to the risk of a sharp reversal, i.e. hyperinflation. i think the divide really is the big win in the market, and i think that is where you're going to have to see more clarity in order for markets to recover from here. alix: totally. there was a great article on the bloomberg which everyone should catch, talking about carmen reinhart and just that. that was one area where they actually disagreed on where we come out at the end of this in the longer term. is it lower forever, deflation for longer? for at some point it would get a

deflationary shock? it was interesting that that was the place they diverged. michael: nobody really knows at this point. the problem is, where they agreed was at this time, it is different. no one has arrayed the decision to shut down global economy. the impacts longer-term are harder to predict. we don't really know how quickly we can recover from this. when we recover, if it is fast, all of the stimulus money that will go into the economy will still be sloshing around. assets,bly goes into and asset price inflation hasn't translated into regular price inflation over the last 10 years, but it could, so i can see the case for making the inflation argument, but the deflationary impulse is very strong. it is going to be hard to get that up, and part because the world has gotten used to living with low inflation, and

inflation expectations still mirror that. i am not going to get between those two smart brains. alix: no, i don't think any of us are. that sets me up for what we hear tomorrow from steven mnuchin, as will us from jay powell. i feel like the conversation will be happy about how you pay for the stimulus, how it is distributed, and then you have this china-u.s. swirling around. how do you think about that right now? damian: i read that article over the weekend. really great article. the one thing they make pretty clear, and i have to agree, is that we will see a greater focus on the shifting supply chains and people trying to seek self sufficiently, specifically in food production and health care. let's talk about food production because we have talked about health care, and i am probably not the best qualified to talk about that. markets, egypt is buying wheat during its harvest. i think he price for rice in

thailand is something like 200% year to date. , farmers justrong have no money to plan for the next harvest. we know what happened during the arab spring when people go hungry and some of these markets and can't afford to feed their economy. we obviously see commodity markets recovering a bit, but we are still at the low end of the multiyear range. i think that is the real risk, economies turn inward and seek self-sufficiency and some of these key categories. what does that mean for the rest of the world and for inflation? ?lix: and mike we have this trade deal and farmers relying on that in the u.s. for what they can sell. is that now in doubt? what levers can realistically be pulled? michael: the chinese do seem to

be trying to take some efforts to live up to the deal as best they can, and to maybe expand on some of the things that countries have wanted them to do. there are some headlines crossing right now from the chinese news agency, thing that china is going to lower its overall tariff rate and expand its imports. they are also saying they're going to let foreign controlled companies into more sectors and ease market access in the service sector, so the chinese are going to open up more. that, in theory, should be good news. the problem for them is that donald trump is kind of in a corner. stinking andally needs an enemy. it would look like he has settled on china. so even if china is complying, it is not going to get the rally points from 1600 pennsylvania avenue. alix: it is a good point. i also wonder which pressure

this puts on xi ahead of the national people's congress, which was already delayed for two months, and you have to think that there's going to want to be a show of strength in all of this also. damian: that's exactly right. we saw in the quarterly report for the first quarter that china removed the comment on excess liquidity flooding the economy, which means you can express -- you can expect more aggressive policy going forward. expect greater bond issuance, infrastructure, tax cuts, removal of government policy hurdles at the npc. they are going to need more stimulus, but we see now production approach preprinted levels in china, but services and consumption are get to recover, so i would take mike's point in stride. we need to see the demand-side recovering. we are just not seeing it yet. that is the real risk to the recovery here. alix: the headline this morning that chinese demand could be almost back to precrisis levels.

when you guys read those headlines, how do you digest it right away? michael: well, it is always how they follow through really matters. we will wait and see what that actually means, but you saw xi jinping in his television addressed to the world health organization try to make friends with the rest of the world, saying they are going to make $2 billion available to the world to fight covid, and if they come up with a vaccine, they will make it a public good, available to everyone in the world at no charge. we will see how they followthrough, and if they do, if the chinese economy can get going again, that is certainly going to help everybody, and then it is a boost to the united states if they are willing to start trading again. we will see if the u.s. is willing to start trading with the chinese. you can get a v-shaped recovery in western countries versus china. michael: jay powell said no v. alix: exactly.

michael mckee, thanks a lot. damian sassower, good to catch up with you as well. for more on the economic and policy challenges ahead, tune in for my conversation with joseph , columbia university professor, and the next hour. any charts we use throughout the next two hours, go to gtv under terminal. browse the features, check them out. this is bloomberg. ♪

ritika: this is ♪ -- this is "bloomberg daybreak." another sign of massive changes coming to the airline industry. emirates may cut 30,000 jobs. that would be almost 30% of the dubai-based airline's

workforce. they may also speed up the atirement of their fleet's 380s. europe's biggest low-cost carrier boosted its liquidity with a $726 million loan backed by the british government. ryanair expects the coronavirus crisis will reduce passenger numbers by half over the next year. lostank's vision fund $17.7 billion in the last fiscal year after writing down the value of investments including wework and uber. the loss is the worst ever in the history of the japanese conglomerate. the vision fund went from softbank's main contributor of profit to its biggest drag on earnings. that is your bloomberg business flash. alix: thanks so much. for more on that topic, joining me is bloomberg's sonali basak. part of the other conversation having isoing to be

selling some stakes. what are they going to be selling? sonali: alibaba is probably the biggest of that news. it is 11% of their stake in alibaba to shore up some capital. that is the most profitable asset. the becomes then of some of definer's in their portfolio? they expect about 15 companies to go bankrupt, while another 15 will receive. we will see how else they raise money. the strategy of masayoshi son before has been to take out loans against some of the stakes. let's see how much money he is going to be able to borrow from banks moving forward. alix: the other strategy has been calling up saudi arabia and saying, do you want to invest in my vision fund? that have the weekend been denied, bloomberg reporting standing by, that they are pledging some softbank stank for

it -- softbank stake for it. sonali: that is pretty remarkable because they will be pledging part of the vision fund where we have seen a massive decline. this is been very volatile, and saudi arabia and softbank have been major clients of a lot of banks. so banks until this point have been bending over backwards to give them what they want, but again, it is a pretty tough pill to swallow when you see such a major decline in the vision fund, largely led by huber and wework -- by uber and wework. alix: how do they raise capital? is it a vision fund ipo? sonali: it is funny you mention that. columnist raised that prospect, and i have been thinking about it. you really have to believe that the vision in the long term, and in the short-term, a lot of these companies are really vulnerable to economic decline.

himself believes there will be more pain in the short-term, but they believe in the long-term vision of a bunch of unicorns. so like you said, raising money for another fund, that is very much off the table. but shoring up liquidity through the existing vision fund signifies that it might not be enough for softbank. alix: thanks very much. really appreciate that. coming up, lauren goodwin of new york life investments says the recovery may actually be dependent on policy. this is bloomberg. ♪ staying connected your way is easier than ever.

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faster than a call. easy as a tap. now that's simple, easy, awesome. alix: this is "bloomberg daybreak: americas." is it risk on? is it a melt up? that kind of remains to be seen.

dow futures up now by over 400 points. s&p futures rallying as well, dragged up by europe, which is also staging a pretty big rally as well. no doubt, you have wti over three dollars a barrel, really helping sentiment in that beat up space. . a couple of things to key in here. i am watching the cable rate is -- the cable rate on brexit talks. looking at the 10 year, most definitely because the 20 year is finally going to be auctioned off on wednesday. if we feel risk on, you are also buying gold apparently, sitting at yet another seven-year high. i wanted to dissect the rally in oil for just a second. take a look at the bloomberg terminal here. this is the curve on function ccrv. the rns line is where we are now the great -- the orange line is where we are now. the green line is where we were a month ago.

china oil demand could be almost two precrisis levels. what hasn't changed is the curve , from 2021 all the way out until 2024. that does tell you a lower for longer oil price environment. with are not that is hedging, whether it is u.s. companies, it is harder to restart production when going forward, they are not seeing any real price jump. it is not until december in the futures contracts this year that there seems to be stronger bid for the oil market, so some words of caution therefore you. for more on the markets, we are joined by lauren goodwin, new york life investment economist and multi-asset portfolio strategist. one is that demand is picking up, therefore let's by risk. the other is we still don't know what it is going to look like, let's buy gold treasuries. lauren: yeah. [laughter] there's all kinds of really good

writing going on. it is interesting to see some of the narratives folks are putting out there. for us, and we may have discussed this before, but we are really focused on three key risks, liquidity, credit risk, and health risk. until those three risks are resolved, we are still really cautiously positioned in our portfolios. the reason for that is that really, when it comes to some of the crosscurrents that looking in the marketplace, we are kind of on this race against time. investors rightly look at a contributor to inflation on equities, but on the other site, demande a huge amount of destruction. with respect to the three risks i mentioned, until we see that

clear sense of the economy bottoming and moving back up, which we haven't seen yet, it is just too early to be taking risk assets. potential hiccups between here and there. alix: evercore was when i happened to pick out. many say short-term cyclical are good, etc. but not seeing a lot of signs of general of virus resurgence. there could be a vaccine. hedge funds are net short, and the sentiment is not very good, all implying a snapback potential. what do you say to that? lauren: i think it is really interesting in market internals, what has done well during a

, and what we think will do well after this crisis. it is really tempting to , valuey winning sectors versus growth, large caps versus small caps, and particularly on the other side. cyclicals and small caps and emerging-market equities tend to do really well. thosesitant to advise on tried-and-true strategies this time around because all of those higher leverage, lower cash flows than previously has been the case in other .ycles we are positioning towards cycles that support

you through months of not only zero revenue circumstances, but the low revenue months yet to come in order to protect the portfolio and hopefully add some value where you're relying just on prices to go up. alix: how do you take a look at all the rhetoric between the u.s. and china, whether it is on the virus, trade, whether we are going to pull out a not service our debt at all? how does that feed into your overarching thesis? lauren: in terms of the overarching thesis, this is just one other way in which the past and even the idea or notion of status quo after this virus, should be challenged by investors. but the idea we will get back to , consideringnormal

that tough on china is a bipartisan issue, the economy is really struggling during an election year, which tends to be bad for the incumbent, it is not surprising at all that this pulled to lever being try to make some difference politically and economically. one thing investors seem to be taking from it is that this is not only a shock to potential investors generally, but also a theme that we should be taking up. investorssitate against taking it is purely deglobalization. i think we will see some fortification. some companies might say let's take some of the china risk off the table, some of the potential disruption, some of the costs associated with it. other companies will take it the other way and diversify their helpl reach, invest in

with logistics and fortify, so it is not just globalization. it is also fortification as an investment trend. alix: by the way, my daughter is trying to find something in her room, so that is what you heard. what do you do with something like big tech? microsoftt amazon, immune to the things you're talking about, but everyone keeps buying them. if only the tops are still leading, how do you keep buying them? lauren: i think it is a real challenge, and the theme for investors is just to tread carefully. you see investors being able to bridge the gap, work remotely, help other companies to work remotely, these are characteristics of a covid resilient company. they are not the only companies

that have these characteristics. risks have the potential of regulation or breakup will make these relatively unattractive at these valuations. that said, we have seen the resilience of these during downturns, so i wouldn't expect that to go away quickly. see a real turn away from the tech names. we have to see a durable uptick in revenue potential for the .conomy overall so until we see that, i wouldn't necessarily suggest running away from those companies just because they are expensive. expensive can still work in an environment like this. >> -- alix: great insight. always good to catch up with you, lauren goodwin of new york life investments. some breaking news is an

experiment a vaccine from moderna is now showing some promising early signs it can create an immune system response in the body to help covid -- to help the body fight off covid. this is in the first human trial of that inoculation. that stock soaring within premarket. let's give you an update on headlines outside the business world. here is ritika gupta was first word news. ritika: that chair jerome powell says the economy could drag through 2021. he said the economy will recover steadily through the second half of this year, but a full recovery depends on people being confident, and that may not happen into a vaccine is available. japan has fallen into a recession. the world's third-largest economy shrank at an annualized rate of 3.4% in the first quarter. japanese exports plunging 22% and the economy is expected to grow worse this quarter. and it is the first meeting of

the world health organization's governing body since the coronavirus outbreak began. china will be challenged on two of its most sensitive issues, how beijing first handled the stages of taiwan's participation. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. alix: thanks so much. more on the backlash on china during the pandemic. the country is growing more unpopular amongst some consumers in the u.s. 40% of americans say they won't buy products made in china, according to a survey by fti consulting. that compares with more than 70% won't buy from mexico -- more than 17% who won't buy for mexico. 78% of those surveyed said they

would be willing to pay more for products if the company that made them moved manufacturing out of china. analysts warn of the danger of public perception feeding politics and influencing policy. it all speaks to how supply chains are going to have to do a big rig think -- a big re-think of this. fascinating pull data we will discuss later. in the. hour coming up, retail -- fascinating poll data we will discuss later in the hour. coming up, i will discuss with bill curtin. us, go online. some very cool features. tv . this is bloomberg. ♪

ritika: this is "bloomberg daybreak." the trump administration crackdown on huawei is sending shockwaves through the asian tech supply chain. the u.s. will now require licenses before allowing huawei to use american technology. officials call huawei a security threat. here is huawei's chairman. >> the u.s. state department notified of particles specifically targeting huawei. our business will inevitably be impacted. ritika: investors fear china will retaliate. shares of taiwan semiconductor are lower. the chipmaker gets about 14% of its revenue from huawei. apple will reopen more than 25 stores across the u.s. this week. another dozen will reopen in canada. that adds to the almost 100 apple stores worldwide that have been reopened to customers after coronavirus forced them to close.

some will offer only curbside or storefront service. uber may reportedly raise its takeover offer for grubhub. according to dow jones, the ceo has said the company could boost its all stock bid for the food delivery service. people familiar with the matter told dow jones the deal is unlikely in the next few days. i'm ritika gupta. that is your bloomberg business flash. alix: thanks so much. penney file for chapter 11 bankruptcy, and it is not only j.c. penney having some trouble. we could be looking at a lot more consolidation among retailers to try to survive. let's bring that down with bill curtin, hogan lovells head of m&a. now that we are starting to see restructuring for the likes of j.c. penney, nordstrom, nieman, etc., when do we start to see consolidation? bill: good morning. i think consolidation isn't far off at all because we've got

another wave we are watching as well with lord & taylor, gap, and macy's. it is really not individual companies in distress. it is the sector under pressure is the move from blick it -- move from brick-and-mortar to a click and mortar model. so they can either seek protection through the courts as neiman marcus has, or look for a transaction opportunity where a new source of capital can come in at lower valuations. i think that is a key point because the valuations have been so extreme in the past that they resulted in a very significant amount of debt and leverage on these businesses, that they couldn't service and sustain going forward, which is why they come themselves in such dire straits. alix: but why? those that are successful in the click versus brick-and-mortar retail stores, why would they need the likes of macy's or j.c. -- or thethe cap?

gap? well, they are still interested in scale and brand loyalty. at the same time, those companies themselves need a transacting partner that can help them move into a more facile e-commerce come online oriented way of transacting and generating revenue. . we heard not long ago the ceo of discover saying they were seriously considering making acquisitions in the contactless payment space. for m&a, you need to parties to come together. each has its own need for a transactional event to occur such they cannot rely on organic growth, and thus pursue the facilitative accelerator that is m&a. for those that are not yet in distress, but can see around the corner that experience retail is not a place to be entirely

need to make they them selves more facile in the e-commerce space. and for those that are experienced in this new economy, they can bring know-how and capital so long as the valuation is not overstated, and so long as the debt servicing and leverage is not disproportionate to the opportunity. bid: so where are we in the spreads? bill: they have come down to a level that now i think puts us thatmore tolerable place will show some glimmers and flickers of life. april year on year was a really difficult time for m&a. m&a in the u.s. and globally was down by almost 50% year on year. a very severe of downturn in m&a, about 33% to

40%. inside it that downturn is the reality that valuations are resetting to a more sobering level. one thing to be learned from 2008 and 911 is that carrying out programmatic m&a, staying true to your course, pursuing strategic opportunities, those companies that did so in 2008, those companies that did so after 9/11, it took some time that they consistently outperformed peers who chose not to continue in programmatic m&a because they were so concerned about preserving the status of and their capital. i think to begin the spread narrowing and the valuations coming down which means we will have more opportunities as we thatinto h2 of this year boardrooms ought to remember from 2008 and 2011.

alix: in the meantime, how many deals get pulled versus how many are rewritten to include things like a pandemic or to negotiate a lower price? bill: not only is m&a different today, dramatically so in terms of the volume, but so too is the way we are doing m&a in the contract terms. we are in a limit -- we are in a new landscape for how we transact. over the weekend, communications with china will call to mind how the treasury department and the related agencies view investment for china going forward. on top of that, inside our contracts there are now more specific provisions contemplating natural disasters. transacting parties realize that the target cannot operate in a way going forward that would be

ordinary or normal when compared to how that company acted in the past. if this goesns from being a very severe natural duster type event in covid, we enter into a sustained recession, even with chairman powell's reassuring words? we can't have stimulus forever. we are going to have to have this economy come back. where you cross the line in terms of having to complete your transactions as opposed to having an opportunity to think about them one more time? alix: that's a good point. and is it up and up opportunities -- and does it open up opportunities for other guys? bill, thank you very much. coming up, turkey and south africa expected to cut rates this week. we will break it all down in today's trader's take. this is bloomberg. ♪ [laughter] [applause] -- ♪

alix: time now for trader's take. joining me is damian sassower of berg intelligence -- of bloomberg intelligence. i feel at this is your week. what are you looking at? damian: specifically come on thursday we see central banks in turkey and south africa meet. both are expected to slash interest rates further. in turkey, markets are calling for as much as 75 basis point of rate cuts. in south africa, the market is pricing in 60 bips. you still have positive read in turkey, they are decidedly negative. when central banks cut rates in environments where real yields are negative, i.e. argentina in 2018, things can go off the quickly.y

we are concerned about some of the policy errors we are seeing and potentially going to see in turkey, whereas in south africa, they really have little other choice than to slash rates further and reduce their borrowing costs. its foreign debt levels are high, and the reserve cover is relatively weak, so both economies need to do something to get their economies kick started here. alix: how much of all that is factored already into the market? damian: i think the markets are pricing in what central banks are going to deliver this thursday, but that is just speculation. the fact of the matter is, these markets are very difficult, in terms of signaling from the market, it is difficult to draw anything from it given the current environment, but rest assured, these two economies must do absolutely everything within their power to stimulate and get things righted. rate cuts are the most obvious choice here. they don't have much ammunition other than that. alix: no kidding. look at india.

damian sassower, bloomberg intelligence, always great to catch up. coming up in the next hour, seema shah, parts of investors chief strategist, will be joining us. european indices up by over 3% and dow futures up by over 500 points in early trading. this is bloomberg. ♪ "bloomberg daybreak -- this is bloomberg. ♪

♪ alix: bochum to -- welcome to

"bloomberg daybreak: americas" on this monday, may 18. i'm alix steel. let's take it from the top. >> i think the fed has great power, but not forever. i know that the fed can close markets -- can cause markets to rise and stay up as long as it buys, but i don't know if it can buy forever. alix: that was how would marks of oaktree capital ash that was howard marks of oaktree capital -- that was howard marks of oaktree capital talking about how the fed could have a technical issue. on the one hand, european equities still having a strong rally here. dow futures up by over 500

points. oil also catching a bid. bb-8's technical, but reports indicate that china oil demand could actually have reached -virus the pre levels, but can we replicate that everywhere? joining is seema shah, principal global investors senior strategist. i feel like the narrative is throw a dart on the board and picked the narrative. what do you make on a day like today. seema: i think the market is really excited about what we see out of china. is looking atrld china to give us an idea -- -- i have to cough that went out. so sorry. they are looking to china to give us a guide as to what we

can inspect from a recovery in the rest of the world. certainly with regards to oil being back into the sort of demand they saw -- [indiscernible] -- the u.s. and europe. we are unable potentially to contain the virus and provide the kind of confidence that may be households and china have with were guards to going out and going back to their business as normal, and suddenly, governments have the ability to almost convince people to get back to work in the way that china has. so it is a good sign, but it don't think we can expect a complete replicate what we are seeing in china. alix: fairpoint. so what do you do want a day a arer of, when there negative headlinese -- when there are tons of negative headlines and then go buy equities? seema: i think the key is in this kind of environment, we are always trying to play catch-up.

, we dogards to this think that april was the bottom for the economy, so that does suggest there should be a market recovery. we have to look at when there will be a reckoning. i think the markets may be too optimistic with regards to q4 and 2021. we hear about retail and airlines talking about struggling to recover, how they don't see activity returning to normal until 2022 in the case of boeing, i think it becomes a hard argument to see that the recovery is going to be very quick. in that regard, it is important to be risk on, but also be defensive, so don't go straight back on to risk on positioning just yet. alix: j.p. morgan had a note out -- [indiscernible] switching to value -- but better

and might not actually last might not be reflationary. is that the short-term versus medium-term outlook you need to be considering? seema: yes, absolutely. i think that speaks to valuations in technicals, which could drive markets in the long term. with regards to value especially, value is a screaming buy. udc it performed pretty well for a bit, and then because the economic recovery is still quite weak into 2021, it starts to fade out again. certainly that is what we would be anticipating. alix: so how nimble do you have to be? what do you do? [laughter] seema: well, as i said, we still think it pays to be defensive. technology has been extremely well performing. it is also expensive. but because we expect positive

-- that plays well. that talks to mega caps. there are going to be companies which can pivot to take it vantage of this new environment -- to take advantage of this new environment, and as long as they have a good balance sheet and positive cash flows, there are going to be specific cases which are convincing buys, but you have to be very selective of where you are looking within cyclicals. alix: what do you do with the treasury markets? if you take a look at what we are seeing today, really strong buying over in europe, but in the u.s., a little milos selling -- a little modest selling. the fed is reducing their twenty-year purchases. how do you think about all of that supply? seema: right, i think we know that supply is going to be significant to meet the markets, but given that we still have a very cautious environment, given all the risks, risk of a second

wave, things weighing on investment, it makes sense that there will still be demand for safe havens and sovereign bonds. even with regards to treasuries, another very expensive asset, it still makes sense to have some hedging in your portfolio with that kind of positioning. alix: do you see the possibility of negative rates not from the central bank perspective come about from the markets pushing it and a supply and demand perspective? out, your that to play almost need the worst case an area to be playing out. that worst-case scenario is the risk of a second wave, which is so severe that it requires a government shutdown. it is definitely not our main scenario because governments will be really reluctant to go down that route again, but let's say in that worst-case scenario that it does happen, and central banks have to plow right back into the market. then it is a possibility, but it is definitely not our main scenario at this stage.

alix: do you foresee any big surprise to the upside friday with the national people's congress in china? --talked about china about what china could potentially do. stimulus have greater repercussions around the globe? seema: never say never. certainly, when we thing about where they have come to, there's a chance we could see greater infrastructure spending than maybe we had been anticipating, even with regards to what has happened with the oil markets, so just give them a little bit more legroom. but i don't think they will be back to 2015, 2016, where they through so much money at it that it almost lists the entire global economy. i think there is just a small chance you could see positive action. one thing for china is they have brand at theoving moment. they have to show the world they are not the enemy, as others are

potentially painting them out to be. for example, a vaccine being a global public good, these are showing that china definitely could be the good guy in all of this. alix:alix: 100%. i feel it that has been in the making for years when it comes to the geopolitics of a u.s. versus china situation. when we get mnuchin and powell testifying in the senate banking committee to talk about stimulus, what are you going to be looking for and reading the tea leaves into what comes next in the relationship between treasury and the fed? it is a similar thing to what powell has already been saying, it is really important that fiscal policy clay --s to be in in play. they will not be withdrawing any stimulus. it is what powell is working on the entire wafer. alix: thanks so much. really great to catch up with you. coming up, more than 36 million

americans have lost their jobs since february. we will look at some of the structural changes in the labor witht and the importance joseph stiglitz of columbia university. this is bloomberg. ♪

alix: some economists are now talking about the fact that our jobs and lives will be changed forever after the pandemic. them, a great article on the bloomberg. i encourage everyone to go check it out. here were some of the longer-term applications. one was saying that we are going to have negative productivity shock with deglobalization.

another says that supply chains won't return to their precrisis normal. we will be more inward looking. let's get a third perspective now, joseph stiglitz, columbia university professor of economics and nobel prize-winning economist. what do you think? joseph: they are correct. there are some more elements in the short run. there are going to be some major structural changes in demand. some of this is obvious. we will be using more zoom, the remote. less airlines. there's going to be very big effects on balance sheets. many of the firms are going to have a high death overhang, even if they survive the pandemic. they are going to be more in debt, and debt does affect behavior in a multiplicity of ways. at least in the short to

medium-term, it is going to be a ,ot of precautionary behavior which means investment and consumption are likely to be dampened. i think that there will be these major structural changes, supply-side changes, and it will lead to the short and medium-term demand problem. alix: let's talk about supply chain, short and long-term. the conversation has really been about how we are going to make it closer to home and a just in case inventory situation. ftin there was a poll by consulting that set a large portion of americans don't want to buy goods made in china, and are willing to pay more when it comes to goods that don't come from china. can you walk me through what you think the results of this will be coming out? joseph: first, a lot of that doesn't fully take into account the interdependence of our

economies. when you buy something like an , whether it is assembled in china or not, it has lots of parts in lots of different countries. can't really take it apart to figure out what comes from where. fromof our medicines come china. they are not sold as chinese medicines, but some of the key ingredients are. separating the two is going to be very difficult. the people are hoping that on shoring process you described will bring back jobs to the united states, but i think that is a fallacy as well. as jobs get brought back, and i think there will be undoubtedly a lot of that going , as we realized that we

contracted eighth ash we constructed a supply that was constructedt -- we a supply chain that was not resilient, not looking at the long run risks. but when they bring it back, it is going to be with more robust manufacturing, not with labor that has been displaced in the midwest and the south. so it is going to be continuing -- process of de-industrialization. alix: that is really interesting. i wonder what that winds up meaning want a company level. many talk about how we are at the point of structurally lower margins. do you not see that as being true if this really moves the shift into robots and ai? joseph: the issue on margins i think is more related to the problem of competition.

that is a problem that has been for aeated in our economy couple decades. in my recent book, "people, power, profits," i focus on the .ncrease in monopoly power in sector after sector of our economy, there is very limited competition. and competition from chinese companies is going to exacerbate the market power of the firms that remain. so what i worry about is quite as we onshorethat , as we focus more on domestic those within the united states will have more market power, and there's margins, but the ones who survive are going to be greater. part of the structural change we

are seeing is that right now, companies that were at the edge have gone over the edge. brick-and-mortar retail stores. there will be some sectors that obviously are going to be suffering a great deal. sector,he way, that again, competition be less. so we will have a less vibrant economy emerging from this crisis. alix: i want to focus on those companies that survive and you well, what they look like. what is that mean for the workforce? how do we then employ people? are we going to have to look for the government for a massive public works program to keep people employed? joseph: if we stimulate economic demand enough, then of course the market will create the jobs. but i also want to emphasize that we are going through a

structural change to a service sector economy in which a number of the key service sectors are sectors where we naturally turn to the government. the health care sector, the education sector, caring for the aged, and in fact, the crisis has exposed the importance of one sector that has gotten very our research and university sector, higher education. these are all sectors that necessarily need a lot of government support, so what worries me is that there won't be enough government support. people will say we spend so much money to save the airlines, to save the old economy, we don't have enough money to shape the kind of economy we should have going forward. alix: so what does that mean for the unemployment rate and for growth, if you were to model out

a little bit? 12, 18, 24see in months? joseph: quite frankly, i am rather pessimistic. the uncertainty associated with the pandemic is not likely to go away. we could be very lucky. we could get the vaccine very quickly. it could go into mass production. that is a possibility, but it is one i put at a low probability, and i think most of the experts share that. as long as there is this kind of uncertainty hanging over us, that combined with the devastation to the balance sheets of so many households and firms is going to mean that aggregate demand is going to remain low unless we have adequate government support. the only way for this in the next 12 months or so is adequate

government support. the fed has said as much. what worries me is that many people in the republican party have said, go slow. have not wanted to support the state and local governments. the state and local government'' in 2008 ats fell twice the rate of the gdp, and that means, because they have balanced-budget frameworks, they have to cut employment and expenditures. that by itself, we don't have money, we will be with a weak labor market and in a recession. alix: so is that -- what is that, negative growth for how long? unemployment rate of 30%? what is that? joseph: we are going towards an unemployment rate of at least 25%, and there are different measures of unemployment.

there's a more comprehensive measure that includes those who have given up looking for jobs because there aren't any, those who are working part-time involuntarily because there aren't full-time job. that broader measure almost surely is in the range of 25% or even higher today. so we have a very weak labor is moreand unless there government support, better that is likely to continue. maybe a little abated, but we won't be back anywhere near what we would normally say is a annual of 10% to 12%. we spent almost $3 trillion.

it was a badly designed program. a fractionries spent of what we spent and avoided the increase in unemployment because we had the most poorly designed program. quite frankly, the democrats tried, but there was a political battle at play. alix: professor, you have also talked a lot about argentina, and we have the debt deadline coming on friday. one viewer wrote in and asked you, you support the deal that the economy minister wrote out. do you think a deal with creditors is really possible right now? joseph: absolutely, a deal is possible. fundamentallys whether the creditors act even in their own interest. a deal has to be sustainable. it doesn't do anybody good to

make an agreement which, in five years time, isn't able to be fulfilled. in the history of credit restructuring, half the time timen five within five years, they are back with another default. [indiscernible] so that is really what the debate is about. i think it is in the interest of the creditors to make an agreement because with the pandemic, argentina is just the first in line. there's already been a debt default in lebanon. but there are many coming up. argentina hopefully will be a model of how this can be done with goodwill, with both sides walking off saying we wish this hadn't been, but we have to live with the reality, not with a fictional world that we had

hoped maybe. alix: we have to leave it there, professor p. great, -- we have to leave it there, professor. great, great points. this is bloomberg. ♪ oomberg. ♪

alix: buying the losers. that is what the theme is of this morning. huge rally underway with dow futures, and seeing stocks like royal caribbean, united, delta, mgm, all of the travel and leisure names seeing a big rebound. oil also back above $30 a barrel. this is bloomberg. ♪

this is-- alix: "bloomberg markets" -- no

"bloomberg daybreak: americas." i do this every time. it is monday. energy stocks getting a huge boost. whether that can last as different story. demand from china could be at precrisis levels when it comes to oil. some of that optimism coming through the markets. in other asset classes you can see the 10 year trading at the longer end of the curve. -- the fedy continuing to pervak its bond buying. all of that weighing on sentiment within treasuries. it is time for our what comes next series, where we speak with economists, investors, and top industry voices on how the pandemic will change how we do things. citigroup is joining other wall street banks and returning to .ffices

for more on how the industry can respond to the pandemic and what banks will look like in the next five to 10 years, bob diamond, atlas merchant capital founder and ceo derek he was at the helm of barclays during the financial crisis. years been quite a 12 since last financial crisis. what you think banks will look like coming out of this in terms of work from home, the services they can provide, etc.? bob: we just had our staff meeting this morning as we try to kick off every monday during this work-at-home period. it is hard to believe we are in our third month of working remotely.

we have been pleasantly surprised at how efficient they are, how effective they are, but also how challenging it is becoming to not be with our clients, not be with our customers, not be with our team. from thiske lessons in financial institutions about the ease of technology and how effective it has been in many ways. in many areas of financial services, there is a need for people to be working more closely together, to have those interactions, to be traveling to see the companies they are investing in and the different markets. i think it is a balance and i think people are anxious to get some normality back, but have also learned to work efficiently and effectively when necessary. alix: what kinds of financial firms do you think will be the strongest coming out of it? i'm thinking about the big banks, the regional guys? bob: there has been a trend

since the financial crisis 12 years ago. , every financial institution was becoming more global, more universal. ever since then, away from the larger interconnected banks, businesses that are more national and more regional, both in europe and in the u.s., and businesses with more focus and selectivity around a specific product or a specific technology have become a lot more nimble, a lot more agile, and we have certainly seen, in that case of , our europeanote equity sales trading and research business, that kind of focused during a period like this has been enormously help all. -- helpful. we will continue to see a trend

away from global and universal to more regional, more national from a geographic point of view. those businesses and financial services that will become global will be much more around specific products or specific technology. alix: does that wind up leading to consolidation? to eatbigger guys want up the pockets of innovation in the sector? how do you see that you evolving? it is different areas. in the largest banks, the capital rules have been clear. much higher levels of equity are necessary. we have seen little consolidation amongst of the largest institutions. what we have seen in this market dislocation is those larger financial institutions have become more interconnected with

the government, or maybe it is better to say public policy in terms of executing on loan guarantees, capital levels going up and down depending on specific public policy. that probably will not change, but i think below that the ability to be focused and selective on specific products and specific technologies will continue. we will also continue to see, and the larger institutions in the insurance area, the need to when more and more equity there is a market dislocation can happen by going to the markets to raise equity or by exiting pockets of risk. we have seen in our insurance platforms within atlas merchant capital, significant opportunities where some of the larger insurers are exiting,

particularly where there are enclosed businesses and enclosed pockets of risk, but they are exiting those and we are able to take those on on our platform. can you give me some examples on the prices that are coming out? bob: probably the best example of that was the investment we made with a group of others a couple of years ago in a transaction where the variable annuities, which were large portion of the hartford insurance company, were in essence de-merged. it was an exit of that business. in that case, the transaction was about 1.7 going dollars -- $1.7 billion in equity to take that outside of hartford insurance. alix: do see a lot of buyers sales happening?

how are things in your world right now? bob: many have talked about this. banks are quite healthy, particularly in the u.s. the impact of a lot of the changes after the financial crisis and the strong economy over last 10 to 12 years. it is very different in europe versus the u.s. in europe there are still a number of financial institutions. the royal bank of scotland in the u.k. is still majority-owned by the government. commerzbank in germany. a lot of the things that were done in the u.s. around the tarp program and dodd-frank, qe1, qe2, the speed at which those things were done allow the financial services industry in the u.s. to repair itself. that was not necessarily the case across the u.k. and your. as an investor we are seeing an interesting perspective, which is if you are just focused on valuations, the valuations

across europe are enticing. the quality of some of the operations in the u.s. and the ability to execute on investments in the u.s. is significantly better. , you have very enticing valuations across the financial services sector in the u.k. and europe, but not as positive in outlook going forward for the economy, and institutions or an industry that was not as repaired as the u.s. was post crisis. another good example would be the death of the capital markets in the u.s. has allowed phenomenal capital markets activity. areaal raising in the debt has set records every month during this crisis. alix: we are even seeing it in the energy sector.

does that mean you're not deploying as much capital or you would like, or you are but it is more focused in the u.s.? bob: i would say we are balanced in our pipeline between the u.s. and europe. that is why was pointing out the difference between the two. the other area we are very excited about is the distressed corporate area. we just launched a credit strategy and did our first investment in that area. we believe that over the next three months, six months, probably longer, probably over we next six to 18 months, will see very good opportunities to invest in below investment grade companies, companies that have had too much leverage or

are truly distressed. taking risk out of the larger insurance companies in order to increase capital levels. we are also seeing a very exciting opportunity in the broker/dealer space. south street securities in the u.s. is a repo business. not a bank holding company. it is a broker-dealer. it is independent. standalone. very focused on one specific product. we are seeing more opportunities. go, backore i let you in 2008 after all of the bailouts, you big banks were vilified. do you think that will be the case for things like private equity this time around? bob: i think when you throw a word like private equity around 70 different investors, it is too broad. we look at what we are doing at

atlas, and we think of ourselves as merchant capital because we can extend our a while. -- we can extend our capital a while. the value of having capital going to small and medium-sized at a time where monetary policy and fiscal policy coming from the government. the last thing we want to do is not encourage private investment right now. positivet is a strong that firms like patchett -- firms like atlas merchant capital have capital to allocate to the businesses so there is private investment alongside the many things being done by the government. alix: really good to catch up with you. thank you so much. bob diamond, atlas merchant capital founding partner. stay safe. good to chat. for more on banks after the

pandemic, do not forget to tune into david westin's interview with the goldman sachs former chairman -- chairman and former ceo. coming up, we will dig into the trouble and retail. the laundry list of struggling names. freakleypeak to simon on what can be done to save the industry. that is next on bottom line. this is bloomberg. ♪

alix: time for bottom line. we will look at the sectors and companies worth watching. today the focus is on retail. late friday j.c. penney filed for chapter 11. joining me as simon freakley, alex partners ceo. alex partners is a global

consulting firm serving fortune 500 companies and works with companies like jcpenney. if you will call guy to help you restructure, you call simon. can you give me a world -- can you give me idea of what the world of retail restructuring looks like? simon: thanks for helping me back. obviously penny and j. crew are in the headlines. generally and retail it is a terrible situation. there are winners and losers. winners tend to be the online providers, particularly those servicing people's needs. grocery being very well looked after. target, peloton is crushing it. there are losers. in april apparel dropped almost 90%. that is just one of the headlines. any store based business is having a terrible time.

online is next. those businesses that have omni-channel strategies which should be well set up might see the revenues holding or in some cases like amazon and walmart going up, but the marginal cost of servicing the fulfillment of online sales is higher than that of in stores. while revenues may hold or go up , operating profits will go down. we have seen a couple of people warned of that. it is a mixed bag. q2 will show problems. alix: how quickly do you think companies that wind up having to declare chapter 11 can go through restructuring? simon: it can be done quickly, but it is not just the financial instruction and the liquidity and financing that goes with that. people have to think about what the restart strategy will be, when they can reopen post pandemic. that is now happening in several

states across the u.s. what is there restart strategy. how can they learn from their customers behavior over the last eight to 10 weeks for things like curbside pickup. the restructuring itself can be done quickly. it is the restart plan people have to focus on once they've gone through the immediate liquidity needs. the truth is that for retailers, they are generally data rich but insight poor. do, every retailer has to vertically those going through restructuring, is learn from customer behavior as they put their restart plan into place. alix: which calls into question all of the retail space. and the liquidation risk of here is the mall, here is our space in the mall, no way i will use it. it will be a fire sale. simon: great point. that theep in mind u.s. has more retail square footage per capita than anywhere

else in the world, we are over stored in the u.s.. coming out of this we will undoubtably see a drop in retail square footage. what most retailers have done is simply not pay their rent in april or may because the cultivation of liquidity has been the absolute priority. our view is that coming out of a pandemic, we might see as much is a 20% drop in the retail square footage per capita in the u.s. alix: i wonder what the trickle down of that is. i will use j.c. penney as an example. you can make the argument for target or macy's. sometimes smaller stores want to be near one of the big box retailers and i am only here because macy's is there or j.c. penney is there. what will be the second or third round of facts? simon: i think we will see a profound effect across the entire retail sector. back to the point about learning

from customer preferences, i think there is learning for every retailer and how people have behaved in the last eight to 10 weeks. i mentioned curbside pickup. what are their new models? how will they adapt to change customer behavior coming out of the pandemic. what we have seen as a massive swing towards online purchases, particularly the essentials like grocery. will people ever move back. the truth is that many of them will not. there is a permanent shift to online and maybe a permanent shift to things like curbside pickup. the people who will survive this and ultimately thrive will learn from that change customer behavior, whether that is the smaller stores near the big malls or the standalone independents in main street. there is real learning to come out of this. this, dowe go through you see restructuring that pushes those who survive into the more digital or curbside

pickup, or you see it moving into more m&a? what is more likely? simon: the one thing to take away from this time is the move to online is permanent. people up and making purchases online they have never made before. or othersn has shown that have a fulfillment capability like walmart, is once you've cracked it is easy to do. the learning is it is a permanent shift. do your second point, there will be consolidation because there will be winners and losers. consolidation will happen. flights to safety, opportunistic purchases which will drive m&a. we are seeing the early signs of m&a activity. one thing is for sure. there will be people that thrive coming out of this with the right restart strategy. most of the work we are doing today is not the formal restructuring work. it is preparing our clients for

the restart and those who use their data to get insights, those who learn from the customer behavior over the last eight to 10 weeks will be the winners out of it. alix: what does that wind up meeting for operating margins going forward? simon: as i mentioned, the cost of fulfillment online is greater than that of the store. people understand that with a permanent switch in the center of gravity moving to online. people have to evolve their operating models to a shrinking in-store capability and expansion of online capability. people making sure they have their fulfillment processes down have their delivery capabilities properly put in place. people will therefore have to manage their margins accordingly. i think this proration of a better online -- this generation of the better online -- this curation of a better online

platform, they can protect their margins going forward. alix: how quickly can companies do things like this? simon: very quickly. with our sleeves rolled up over the last is pier 3 months, the best people have moved -- over the last two or three months -- the best people have moved -- the best of class retailers have swiftly moved into the playbook for how they restart their businesses post pandemic. as we've seen in the states that have already opened up, people are fed up with staying at home. people are getting out and going to malls, but not in the numbers they were. people with proactive strategies in terms of promotions and incentives are being smart in capturing those customer dollars. having survived the initial liquidity challenges, as many retailers have, the real

battlefield will be around the restart. conversation.l exactly what we wanted to get to. thank you very much. simon freakley, alex partner ceo, thank you. this is bloomberg. ♪

alix: that does it for me on "bloomberg daybreak: americas." we want to give you a quick check on the market. a monster rally underway in the dow, up by about 800 points. s&p futures up 81 points. the long end of the curve in the u.s. is trading a little bit heavy as we get more supply coming online and the fed paring back what it is buying. typically risk on freight across different asset classes. oil in particular getting a strong boost. over $30 for the first time in

two months. is it a sign of true oil demand or just a nice relief bounce we are seeing within the markets? coming up, jon ferro on "the open." he will be joined by chris harvey. that is coming up next. happy monday, everybody. this is bloomberg. ♪

♪ jonathan: from new york city for

audience worldwide, good morning, good morning. "the countdown to the open" starts right now. 30 minutes away from the opening bell after a week of losses. firmer this morning. equity futures rallying 86 points, up more than 3% on the s&p 500. in the bond market, exactly where you expected to be. treasuries lower, yields higher on the 10 year. demand in china normalizing. brent up 6%. wti up 9%. that is your price action. here is the big issue. a recipe for a monday morning equity market rally. an ingredient is a supportive chairman jay powell. >> there's a lot more we can do. we are not out of ammunition. there is no limit to what we can do with the lending programs we have. we have the tools