francine: jay powell says that that is ready to use all weapons to combat the coronavirus downturn. global coronavirus cases near 5 million. cold water thrown on moderna's vaccine. the bank of england debate continues, andrew bailey testifies today. good morning. this is "bloomberg surveillance ." .rancine lacqua here in london

we have a show full of chief executives and experts when it comes to treasuries. we will have a conversation with scott f. thiel shortly. this is what markets are doing. charts withuple everything from s&p to growth versus value stock. oil is pretty much study. decline in banks. that is pulling stoxx 600 index down. crude, i look at it every day because of what we are seeing. around $32 a barrel in new york day rally.four we will have market checks every 15 minutes. let's get to the bloomberg first word news. >> president trump is hoping reopening the economy will dampen the need for another round of stimulus.

that is shared by republican leaders, with mitch mcconnell sang the only way out of the crisis is for america to grow again. president trump is predicting a great third-quarter. talks have soured with the u.k. negotiator accusing the eu of offering a low quality deal. david frost says it is unworthy of the fair trade agreement. michel barnier a says they want to keep the benefits of being a member state without the obligations. moderna shares tumbled after hitting an all-time high after a publication highlighted the preliminary nature of the data surrounding its potential coronavirus vaccine. new zealand's central bank governor is open to turning the cash rate negative, but only if

it passes a number of tests. he says it has to be seen as necessary and effective. the reserve bank has turned to quantitative easing as its main tool. 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. this is bloomberg. francine: thank you so much. fed chair it off with jay powell testifying before the senate banking committee. powell tried to stay neutral when drawn into the debate over stimulus. powell said stimulus may be needed. has done todays is remarkably timely and forceful. there are scenarios within mainstreet where we could lose all our capital. i whether to call out the risk of longer-term damage to the economy.

there is the risk of permanent damage, and we are conscious of the health issues. it is all about the service sector, and the parts of the service sector where there are lots of in person contact. we do not intend to send anybody back to work without protections. i thought it was safe to testify. i think if we step back and ask over time, is it enough? we need to be prepared to act further if the need is there. francine: joining us now is scott f. thiel, managing director / chief fixed income strategist, blackrock. ?hat is your main concern negative rates in the u.s. or inflation or something else? scott: i think in terms as we look forward, the obvious concern would be how does the virus react as economies open?

investors have looked and focused on how the economies will open, what is the pattern of spending and corporate behavior we will see as we move from the severe lock down to the opening. part of that will be how the as economies reopen and social constraint measures are eased. so far, we have not seen a negativepickup and the indicators around them, but that will be mission-critical looking forward into the summer as the summer turns to fall. francine: that means monetary policy and policymakers in general will have to do more or lockdown.go back into what will be the impact of a second lockdown treasuries? scott: the issue is the policy response, as chair powell has spoken to many times, is to address the current situation. tanks and think

groups have a view the economy will bottom this quarter, then begin to grow again in the third and fourth quarter. it may not be until the end of 2021 that we get back to economic growth, but there is this feeling we will come out of this and re-accelerate. that would be something if there were to be another phased locked down, from an economic perspective it will have implications and could suggest we go back into further policy response. chair is very clear as our policymakers they are willing to do more in the event we need it. we should reflect on the order of magnitude of the policy, we call it policy revolution because in fact not only is it a gigantic amount of a trillion or so of spending, but the qe programs which are greater over this crisis than the whole

financial crisis. plus, the coordination between the central bank and the governments globally. this has been a revolution in response, and the question will be what is the longer-term impact, but more closer is if we need more, what do we get? francine: this is a concern, that we run out of tools or there is policy fatigue at a time we need policymakers make sure the recovery is stronger. how much do you worry about policy? scott: it is interesting, we have gone through in some respects an emergency room analogy where the patient is in the emergency room, you need to keep the patient alive. that is what the government and policymakers are trying to do, to stem the health crisis. as that shifts to looking at the results of those measures, the

economy and social society becomes more of a focus. that is the phase we are entering now. at theare looking programs and costs and applications, obviously it is hard to say given the size of some of these programs, and a lack of historical comparisons. i think we will focus as time marches on on the cost of the , the longer-term implications. in the near term that is not a concern. the fed has said they will keep rates basically where they are to maintain the financial conditions which is critical. it is not like the cost of borrowing for the next three months, but the longer-term is an issue, and something we are focused on. that meanwhat does for market implications? how do you play it? scott: in the near-term, if you

have a lack of volatility and it allowsrates, then to getncome investors positive returns despite the low level of rates. we have seen in particular since the fed's announcement on march 23, we have seen a dramatic contraction with spreads, particularly those that are policy focused. spreads, how well they have done, and by comparison in many respects the market is looking at the policy responses, and making a value judgment. a fixed income investors, the lack of volatility and underlying rate market plus the impact in the fixed

income markets would suggest a carry thesis is an important one going forward. markets can trade, we can type and the white. -- we can tighten and widen. there will be tactical opportunities, but balance seems a sensible strategy. francine: thank you very much, we will get back to scott f. thiel, managing director / chief fixed income strategist, blackrock and talk about the u.k. the bank of england governor testifies this afternoon at 2:30 p.m. london time. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." let's get straight to the bloomberg business flash. >> volkswagen's chief executive and chairman has settled a market manipulation case. they informed markets too late about ignition rigging. they agreed to pay 4.5 million euros to end the criminal case. had the case gone to trial it could have been months of court meetings. johnson & johnson is discontinuing its top and powder baby products after thousands of alleging asbestos contamination led to a decline in sales. johnson & johnson will wind down the product.

according to the company, it began selling baby powder in the 1890's. citigroup's chief executive says take friday off and thank you for the hard work. they acknowledged many have been juggling work, homeschooling children, and taking care of family members. he said take the day to relax. last month 80% of the staff were working remotely. that is your bloomberg business flash. francine: coming up, rolls-royce will cut 9000 jobs. we speak to the chief executive. this is bloomberg. ♪

francine: this is "bloomberg surveillance." . am francine lacqua in london rolls-royce will cut 9000 jobs, and it will take several years for the airline industry to recover from the coronavirus pandemic. the engineering firm says it is a fraction of their workforce. joining us is warren east, ceo, rolls royce. thank you for joining us. i know it is a difficult day. we are looking at the future of the airline industry, and you said the airline must protect future jobs by acting now.

what will be the legacy of the virus on rolls-royce? you, good morning. you are right, it is a difficult day. crisis, civilis airspace represented 50% of our business in revenue terms. for ourquite a blow and therspace business, industry will take several years to return to the sorts of levels we saw in 2019. and over the three to five-year period, we are expecting a decrease in demand of approximately a third. what we are doing today is bringing our capacity in line with that expected medium-term

demand. francine: i know you are considering closing sites, when will you make a decision? does a decision need to be earlier than later? to be taken ass soon as possible. we have to consult with employee representatives and unions, and that takes some time. we are very sensitive to the it is a terrible prospect. you were told you might not have a job, and we want to remove that uncertainty for employees as soon as we possibly can. couple ofin the next months, or longer to make a decision? talkingwe are not weeks, we are talking months, but not many months. the number one answer here is as soon as we possibly can. which is aething

very serious impact for our business, but we need to take action now and protect the employees we will have in the future, and that means protecting our business and getting capacity and demand in line. and the uncertainty is a consequence of that, and we do not want to minimize it. francine: what kind of site closings are you looking at? manufacturing, service sites, both? and is it in the u.k. or overseas? warren: the answer is all of the above. this is a general reduction in the level of demand for our new ofines, and for servicing existing engines. that means we will need to manufacturer fewer parts, fewer

and services for existing engines. much a reduction of manufacturing capacity. but it is also a commensurate reduction in staff required to support that. francine: do you think the aviation industry will ever get in december,it was 2019, and how long will that take? warren: the answer is yes. i cannot tell you exactly how .ong it will take consensus is the order of three to five years. importantly, the shock to a sector like civil airspace, we will probably see some changes in how things are done. if anything, there will be an

acceleration toward more sustainable air travel. as far as a business like ours is concerned, that is an opportunity, and we want to position our business to service that opportunity if we possibly can. francine: what will be the longer-lasting concerns over the next 12 months? how many more job losses can we see with these plant closures? when do you expect to pick up even if it is not back to pre-covid-19? distincthere are two phases. it is about surviving right now. we believe we can get through this period of immediate disruption where air travel right now, in april our flying

hours were down 90%. what we are doing this morning is not solving that, what we are doing this morning will not be affected whatsoever by how long it takes to start recovering. however, when it does recover, this is all about what levels do we expect it to recover to, and we expected to pick up at the end of 2021 back to levels that whatbout a third less than we saw in 2019. then we expect over the following years growth to resume so we get back to the 2019 levels over several years. that could be five years. that is the picture we are having planted. francine: how soon do you hope to reach an agreement with the

unions on the job cuts? warren: as soon as possible. francine: as soon as possible in will it seven days, or take months? what kind of timeframe are we looking at? warren: typically these things take a small number of months. we are quite well aligned with andunion colleagues employee representatives. we have a shared objective of protecting as many jobs as we wesibly can, and that means need to get the business working so we can protect those jobs. i think everybody involved understands that. but we have to go through the proper period of consultation with employee representatives get to as so we can detailed agreement.

francine: thank you so much for joining us, we really appreciate it. warren east, ceo, rolls royce. coming up, bank of england testifiesndrew bailey this afternoon. we will have coverage right here on bloomberg tv 2:30 london time . in the meantime, stocks in europe are down. futures in the u.s. are also down. a couple days ago. european stocks are focusing on the fact that we are not close to a vaccine, and that is adding to the concern out there. this is bloomberg. ♪

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we've always believed in the power of working together. that's why, when every connection counts... you can count on us. francine: this is "bloomberg surveillance." let's get straight to first word news with ritika gupta. ritika: jerome powell dodged efforts to get him to take aside

in the debate over stimulus. he testified at a virtual hearing of the second ranking committee and reiterated his position that more fiscal stimulus may be needed but said he was reluctant to talk about timing or specifics. brexit talks have -- with the thef negotiator accusing e.u. of offering a low-quality deal. negotiator says -- brussels' chief negotiator says they want to be a member state without the obligations. in facing an all-time high after health publication stat highlighted the preliminary nature of the data surrounding the potential modernity coronavirus vaccine. it also cited a press release from officials. in south asia is bracing for the in 20 years.

authorities are evacuating more than 5 million people to safer locations. the cyclone is expected to have wind speeds of over 200 kilometers per hour. bangladesh has raised its warning to the highest level. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries, her. this is bloomberg. francine? president trump's opening reopening the economy will dampen the need for another round of stimulus. that seamless -- that is shared by mitch mcconnell. president trump's is predicting a great third quarter for the u.s. economy. joining us now is a strategist for global asset allocation. great to have you on the program. when you look at the concerns out there, or equity markets just almost getting any excuse to rally? and what does that mean on how

they are perceiving risk? >> i guess that you need to understand what is driving the market. everyone is talking about the bear market rally, but when you look at -- especially on the u.s. market, what drove the rally, it has been mostly defensive stocks, health stocks, health care, so investors are looking for bond proxy rather than anticipating some kind of economic recovery. so i guess that is we are less negative on the u.s. ark at than others on the street. wencine: is there worry that will have a correction if there is a second lockdown, and as a global asset allocation, i don't know what kind of metric you look at to understand those dynamics. sophie: in terms of risk at the

moment, it is clear that a second lockdown is not in the prices. l shapeear that an in they is not a prices. anding between a soft intermediate lockdown, so much less than what we got in wuhan in 2.5 months of lockdown. fact thatk at it, the proxy, iten by bond is geared to a low interest rate environment. if we have a second wave of lockdowns, the market can go down, but it must be driven by a defensive health care stock. there is a downside from here. francine: what do you think of some of the other asset classes? a couple of people are saying in this environment maybe we should also look at cash.

what do you see with cash and what do you see with gold? sophie: looking at the global -- its in early march and is clear that treasuries and gold were put into this asbulence and they were not effective as we would have thought, officially gold. but it is clear that we were more on the side of a bearish scenario so another second wave of lockdowns and the fact that the recession is going to last much longer, than gold and treasuries are in a safe haven. but treasuries would start to be slightly more cautious, as long as the fed doesn't signal they will go lower. so limited for perfection at this point. francine: we were speaking to one of the head of fixed income for the blackrock investment institute, and he said whatever

you do, don't fight the fed. is this a 2020 motto? sophie: don't fight the fed, but i think at some point in 2021, the question investors will like isfocus on will be if there the deficit. for if we have any other recovery shape than an l, the next question for me is going to be about quantitative easing tightening, the fact that we will have to pay at some point for this historic covid deficit. so what will be the impact on asset classes yet, i'm sure at this point it will not be a long-suffering bond. francine: very quickly, what do you do with the inflation versus deflation debate, and does that change her appetite for gold? guess that it depends

on the timeframe you are looking at. in the short-term, everyone is talking about deflation because of recession fears we have at the moment. but it is clear that the debate towards more globalization and change of supply chain, the fact that oil prices are recovering with some kind of base effect, it is going to the levels we have seen since 2008 shows that inflation -- investors are not as complacent as they have been during previous recessions. francine: sophie huynh, thank you so much. now, let's get plenty more on what the fed has been saying. the boston fed president has defended the risky loans being handed out under the central bank's main lending program. rosengren -- eric rosengren told bloomberg that the reopening of

the u.s. economy will be a slow process. eric: we are getting to the point where we can start talking about reopening, but i would highlight that the first step we need to take, consumers have to be comfortable going to businesses and buying at stores, going to restaurants. employees have to feel comfortable going on the subway, the train, or a bus. continuingity spread in massachusetts, i think we are a little ways away from that point. so as important as it is to take the first steps to open up as this is or allow businesses to open up, i think we should be cognizant of the fact that many people, particularly older americans, are going to be leery of going into restaurants, going on to mass transit, or going on the planes until the public health problem is more resolved. what are ceos and

people who run mom and pop stores telling you about their expectations or business with the economy as they reopened? eric: i think they are very much hoping there will be a pickup in the second half of the year. i think in gdp terms there will be a pickup, but unfortunately the labor markets are going to be pretty weak. so in a talk i gave today, i how they did but -- i highlighted that by the end of the year we would be in double digits, so it will be significantly down from where we are right now. the unemployment rate was 14.7%. many americans that took that survey said they were employed but were not working the week of the survey. so the number is probably a little closer to 20%, and we will see in the next couple of months if it goes up a little bit more. but i think by the end of the year we are probably talking in the low double digits. that is still a very high unemployment rate. what that reflects is the fact that i don't think many

employees are going to want to go in to some of the cities having significant problems, and i think consumers are still waiting to feel more comfortable before they go into stores, before they go into restaurants. michael: one of the other programs that has come under some criticism is the secondary market lending program because some critics say you are propping up zombie companies that really cannot continue to survive unless they continue to borrow, and at some point we will have a lot more defaults and bankrupt these. do you see that happening in your district? eric: with the main street program come we are definitely doing risky lending and that the borrowers that we are providing financing for were borrowers that breed in good shape at the end of the year but are facing difficulties as a result -- that were in good shape at the end of the year but are facing difficulties as a result of the pandemic. these are going to be problem loans, so we are trying to get the right outlook from

employment. if all these businesses and up failing, that would be a significant impact on employment. that means we are taking more risk than we normally take in order to try to make sure that there is sufficient financing. i would highlight that during the financial crisis and in new england during the 1990 crisis, where it was a credit crunch crisis, one of the problems was that the borrowers and households could not provide financing. we are trying to make sure that the lack of financing doesn't become a problem right now, and make sure that what is hopefully temporary cells of unemployment actually stay temporary and people are able to be reemployed. but the longer that people are unemployed, the longer that businesses have to finance themselves, the more risky becomes for the economy overall. michael: many companies have discovered the joys of working from home, and maybe the savings of working from home. do you anticipate any problems in the commercial market?

eric: i think commercial real estate is going to go through a major shift as a result of the pandemic. -- clearlyice betas office space is going to be one area. i think multifamily housing in downtown areas may be more challenged as people rethink whether they want to be downtown or in the suburbs. i think we are in a period where real estate will go through some pretty dramatic changes. francine: that was boston fed president eric rosengren. coming up, the bank of england takes a first step toward easing its lockdown. is this a good or bad time to invest in property? we will ask the chief executive of northacre. that is coming up next, and this is bloomberg. ♪

francine: "bloomberg surveillance this is -- this is "bloomberg surveillance ." let's get tea bloomberg business with ritika gupta. ritika: the company signed the deal with joe rogan. gaining occlusive rights to his podcast. signing rogan is a coup for the company, which has invested hundreds of millions of dollars in original podcasts over the past few years. his show greg italy ranks at or near the top of apple that his show regularly ranks at the top of apple's podcasts. sources tell us a private share transaction that pushes the company valuation up by a third. it reflects that the video -- despite the pandemic. francine: let's focus now on the

u.k. property market. according to a report, prices in central london have dropped 1.3% over the past 12 months. with england taking the first step toward easing its lockdown, will buyers return this summer or will fears of a second rat wave keep the market frozen? always great to speak to you. thank you for joining us. i guess one of the problems you have is that people are not viewing properties. there are properties for sale, but they either need to go are people really buying high-end luxury property without having specifically seen them? it goes without saying that it has been a quiet two months. we don't have any data points as far as what demand would look like coming out of this, and what price limitation buyers will have. having said that, there are big points we can analyze. what the markets

look like before the lockdown. at the end of the year the market was very strong. and the gone away beginning of brexit was sorted. so we had at that point the best two months we had had over probably a two-year period. seeill be interesting to what the propensity to spend going forward will be when we come out of this. it is interesting see -- we did a webinar the other day with some clients in the far east, and we did a sale through a webinar. -- i thinklieve in it will take some time to conform into new sales when we come out of this. have there also been canceled deals? i don't know if there have been construction delays, but for the pent-up demand that you talk about, are there also people that have just pulled out?

we really haven't seen that. eight has been a quiet market. inare talking delays construction of two or three months. that will probably materialize. there are going to be some issues with construction going forward. withill also have issues general contractors being under financial duress, so there will be a solution on that side, too. that will take some time to materialize. are you anticipating stimulus measures to get the housing market going when the lockdown in the u.k.? would we have something like a staff duty holiday? expectingernment health properties? niccolo: i think general taxation will be going up and not down, so it is difficult for the government to start lowering

that is goingnk to have a material impact on the market. i material impact on the market will be how will people want to spend their money and what kind of luxury goods, and in this we are positive in the long run because in the last two months we have seen our homes are central to our well-being, and they are much more important than they were a few months ago. so we believe there will be a flight to quality, and i think spending on luxury goods will be focused on homes. overall, how much demand have you seen from chinese buyers. last time we spoke, it was chinese buyers that were locked down and therefore were not being able to come to london. has the chinese demand picked up, and are you seeing more caution from other parts of the world? i don't know how that is panning out. niccolo: it is really early days. that fact that people cannot see

the properties -- there is so much that you can do in a virtual world, especially with things like homes. so it is very difficult to see where asia will be going forward, but it would is so strong when we left that we believe there might be a few months or maybe several quarters that we do see that it is still there, and people still want to buy homes. it is a question of actually than focusing on the higher quality homes. and i think that is what is going to be happening, but it is going to take some time. francine: when you talk about time, is it a couple of months, or will it take longer? niccolo: predictions are very easy to get wrong. if you think about economists until about a month ago, they were saying we were in a v shape to recovery. i think that the macro economic impact is so huge that i think it is more --

francine: i don't know how much truth is this, but people want to moved to london, the countryside, and suddenly if you cannot go to bars and restaurants, you want nice open space and the hillside. is that a trend that will stay, and will that hurt demand for some of your properties? niccolo: first of all, i think we are all reticent to go back to bars and restaurants at this point, but we will be going back. to be in thent city. but priorities when looking for homes will be slightly different. a park, having fantastic views. were overlooked dramatically in the last few years are back in vogue. home to work from home but also to exercise will be hugely important. i think people are focused on

different aspects than they were focusing before. and itdon is london, will be difficult to move away completely. francine: i know a lot of people will be working for more and we will have to do some of these interviews like we are doing now a lot more. will it change the way you design a flat, an apartment, going forward? accolo: i mean, yes, but to certain extent we have been doing these things all along because our homes in general are fairly large, so they do incorporate a lot of things that people already want to see post-pandemic. so in that since we are quite lucky. also i think in general the way,tition -- in a certain once we get to recovery we are in a better shape than we were before. francine: thank you so much, niccolo barattieri. coming up, the bank of england governor, andrew bailey, testifies this afternoon.

we will bring you coverage of that at 2:30 p.m. london time. this is bloomberg. '

>> it has got to jump the hurdles, it is going to be seen to be necessary, effective, efficient, and operationally capable. francine: that is the new zealand central bank governor, adrian or, speaking about the possibility of cash in the future. said it would leave the cash rate at 0.25% through the first quarter of 2021. here are some of the stories. ther this morning, commission -- the european commission will unveil its spring package. taking the virus impact into account. at 2:30 p.m. london time, the bank of england governor, andrew bailey, will testify before the u.k. parliamentary treasury committee about the economic fallout of the pandemic. informationrgy

administration will release its report. youat 7:00 p.m., publishing the minutes of an april meeting. it will be a packed week, although it has been a pretty packed news agenda for the last eight weeks or so. this is what u.s. futures are doing. they are now actually rising. looking at european stocks, a little bit of green on the screen. yesterday we did see a selloff when there were reports questioning the coronavirus vaccine. that seemingly adds to a concern the there is a way to beat pandemic or that it remains a long way off. up next, tom keene joins me. this is bloomberg. ♪

francine: ready and waiting -- jay powell says the fed is

willing to use all weapons to combat the coronavirus downturn. global coronavirus cases near 5 million, as one report throws cold water on moderna's vaccine testing. stocks and futures trade mixed. and the bank of england's own debate with subzero policy continues. andrew bailey testifies today, this as the u.k. chancellor sees a recession unprecedented in scale. good morning, everyone. this is "bloomberg surveillance." i'm francine lacqua, here in london. tom keene in new york. i am not excited in a good way about what is seen in the u.k., but the bank of england issuing a bond with zero yield, we will hear from probably andrew bailey when he talks about negative rates and more appetite for doing qe. francine: it signals how so much has changed in eight weeks. and the united kingdom going to negative rates, alluding to chairman powell sup a strong

statement yesterday that the united states will not take that path. francine,ld notice, i'm sorry, i am doing the centigrade to fahrenheit calculus, and 28 degrees is 82.4 degrees fahrenheit. to westesting a trip glittering beaches -- is that is what it is called -- it is summer. is quite exciting. which is the only one that matches celsius and fahrenheit. we do random fact in lockdown. with francine. francine: i know, on a wednesday morning. let's get straight to first word news in new york city with ritika gupta. ritika: president trump and republican congressional leaders ,re betting that states reopen

standing firm against another round of stimulus. the president has lunch with republican senators at the capital. which mcconnell says there is only one way out of the crisis. america has to grow again. white house economic advisor larry kudlow says no one can confidently invest in chinese stocks. kudlow told foxbusiness that chinese companies are not transparent. he says they don't "meet the norm for regulation." slowed to., inflation the weakest ins -- to the weakest since 2016. the prospect of persistently low inflation will fuel speculation that the bank of england needs to take more action. that could intensify debate over taking interest rates below zero for the first time. about a month ago you almost had to pay people to take oil away, now prices in new york are up 70% since the start of may. the turnaround may have been quick, but it wasn't easy.

the opec-plus coalition claims painful production cuts, and the world starts taking the first steps out of the coronavirus lockdown. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries, ritika gupta. this is bloomberg. francine? tom? tom: thanks so much. equities, bonds, currencies, commodities. i like what the washington post said this morning, markets are unsteady. that pretty much describes it. as francine mentioned, green on the screen, futures up 25, which gets your attention. i am really watching the vix. on the thermometer with the unsteadiness in the market, the vix just under 29. that is a constructive statistic even with all the back-and-forth. gold out near record highs. francine: i like gold. we have talked quite a lot about gold, and unclear, or at least let's see what it tells you. a couple of people have talked

about going to cash and we need to look at that as well. since i did a data check, about 15 minutes ago, european stocks have prepared to decline. they are putting much unchanged, with the briefly flirted with green numbers. u.s. equity futures are now rising. yesterday the market really sold off after this report questioning moderna's coronavirus vaccine was not exactly what it was meant to be, meaning people are concerned that there is a successful way to beat the pandemic or if there is a good way to beat it, it is a long way off. that is kind of the stress of what we are seeing. and then we are looking at sterling, on .22 at the moment. -- 1.22 at the moment. jay powell testified along with treasury steric and very -- treasury secretary steve mnuchin the senate banking committee. >> what congress has done to

date has been remarkably timely and forceful. >> there are scenarios where we could lose all of our capital, and we are prepared to do that. >> i wanted to call out the risk, which was the risk of longer-term damage to the economy. >> there is the risk of permanent damage, and we are conscious of the health issues. >> it is all about the service sector, particularly those parts of the service sector where there are lots of in person contact. >> we don't intend to send anybody back to work without protections. i was prepared to come there today. i thought it was safe to testify. >> when you take a step back and ask over time, is it enough? are we prepared jack further? i would say we are if the need is there. francine: joining us to talk about all this is joyce chang. always great to see you. thank you so much for joining us. before we get onto treasuries and all of that, there is a

raging debate both in the u.k. and the u s about negative rates. of central bankers think this is an incredible idea. can any good come out of negative rates? joyce: i think the u.s. is going to hold the line here, francine, and not go the negative rate route. you are either going to stick with the zero rates, the forward guidance, increasing the purchases. the treasury announced a whopping $3 trillion increase in so i treasury into i issuance, don't think the u.s. is going to go this route. you can still get pushed into negative yields, but as deliberate policy, the fed is clear they are going to hold the line here. all this debate is bringing it closer to the question that is this going to hurt the u.s. banks. as we talk about negative yields. i think that you have negative yields that worked.

that is a debate that is raging and is going to continue. i think the u.s. will avoid that is official policy. they don't see the evidence that that has worked. francine: joyce, what do you worry about overall when you look at some of the fed policy? is it that they will not have enough in the recovery phase? what does that overall mean for how we should look at american debt? ance: we are looking at increase in the public sector debt that is going to be on the order of 15% or 20% over time. maybe a third from fiscal, a third from lower growth, a third from contingent liability. this is a long-standing -- you have to look at the income cost and also the balance sheet costs over time. i think that is something that is not a one-quarter story, not a second-half story. 2021,ooking at the end of our economists are forecasting that you're still about four

percentage points below the baseline you were at before the pandemic. i think that is the real story, and that is why this debate in congress for the need for more fiscal report and having to do more on the fiscal side is going to be ongoing. tom: joyce, good morning from new york. your economicd data at j.p. morgan -- how do you your economic data at j.p. morgan into a market analysis? how do you use them as a tool to uess the markets? joyce: we are seeing a debate between economists and strategist on this as well. we are taking a look at which companies are spending their dividends or cutting their dividends. we have seen in the s&p 500, 33 companies have spent their dividends, 12 have cut their

dividends by an average of 63%. one thing we are looking at are the earnings numbers and the outlook, but we are also taking a look at the various sectors of the economy. you've got a rally that has been very concentrated in a handful of sectors, the tech sector being the winner. a lot of other sectors being left out of this. tom: so with a partial differential there? come on, joyce, you are the expert here at mathematics. companies catch up s go the tax, or do the tech down while the others catch up? which is it? joyce: i think you're seeing more of a strategy where it has been winner take all, and it still has been very much a story -- outside the equity markets, the markets have been supported by the central banks have been the ones that have been favored,

and the ones that have not received central-bank support have lagged. all of this is still very much driven by where we see the policy support being targeted, and also where we see this return as we all talk about reopening and returning to work. we are seeing everything more reliant on the tech more so now than ever before, so i think you're still in a winner take all strategy at this time, where a lot is being left behind, and that is going to play out as we take a look at the earnings numbers. what would ane, impact of a second lockdown have on the economy? how difficult is it to model? a couple of people are trying, saying every extra week we are in luck town, it does this to gdp -- in lockdown, does this to gdp. joyce: i mean, we have taken a interesting really work at j.p. morgan.

when thissaw is that lockdown started, you had actually about a 40% decline in household credit card spending. so if you see that this progresses, the outlook for essential and nonessential really isctually going to take a hit. when you look at the reopening schedules, they all have to be phased in. even in the places where they have had the most success in asia, you have had the second waves. so the persistence of this -- the duration of this, which is still playing out even as we have gone to reopening strategies -- you know, the infection has peaked. that part of it seems clear in many of the advanced economies and many of the parts of asia, but now you're in the chronic phase. it is not acute, it is chronic, and we are in this malaise phase. so watching the market on a daily basis, there may be the realization this is going to be a longer period to work through.

as we take a look at the losses coming out of this crisis. is prettyjoyce, this historic. the u.k. has sold 3.7 billion 2023 bonds and the average is negative, barely --ative but it is minus -0.003%. we want to get joyce's thoughts on this. this is pretty unbelievable and something we had not even thought could be possible a couple months ago, and it goes straight back into the debate over whether the u.k. can go into negative rates and what that means for pound. a lot of people are saying this is a terrible idea, tom. tom: it is usually controversial. we could do without later. the honor ofving having joyce chang with us from j.p. morgan is a big deal. joyce, is it a slippery slope

that london awaits? joyce: i think it is a slippery slope. in the u.s., everyone is looking at london. there are a lot of difficulties that are going to be challenging going forward. they have not done the extension on the brexit discussion. are you going to have a difficult second half of the year? it also seems like the u.k. had more issues in bringing the covid-19 under control compared theermany, other parts of euro area. so i think that, you know, the view from here is that we have not seen the proof that negative interest rate policy works. but what we are seeing ahead for the u.k. is, given where there isances are right now, there downside risk that lies ahead. particularly as the brexit discussions get back on the agenda again. francine: do you worry about the u.k. in general? ,ust for all of our viewers

andrew bailey of the bank of england will testify today. he will probably address qe and subzero rates, especially as we had that subzero yield, and this is the first time that the u.k. did a bond sale at subzero yield. we understand brexit negotiations are not doing great. also take a look at the current account deficit and where their numbers are. here is where we have just seen that there is more challenge for the u.k. versus the other countries. so we have been more cautious on the u.k. we think you could continue to see more downside playing out. for they is waiting u.s., how they are going to go about the reopening strategy because there are numbers that are challenging getting under

control with covid-19. so will we have a second wave as well? there is quite a bit of caution looking at this, where is everybody has looked at germany and they have been quite surprised. there is a lack of weakness in the numbers and germany in march. there is a lot of talk over here on whether that type of approach should be adopted in the united states or in other countries. so i think that the u.k. is still standing out where it is seen as having more risks that lie ahead, not just related to the infection but related to the brexit discussions that will be coming up in the second half of the year. francine: joyce, thank you so much. joyce chang of j.p. morgan stays with us. also coming up, the bank of england governor, andrew bailey, testifies this afternoon. we will bring you coverage of that here on bloomberg tv at 2:30 p.m. london time. up next, we will discuss what the second half of the year

could look like for the u.s. economy. this is bloomberg. ♪

francine: good morning -- tom: good morning, everyone. an historic moment for the united kingdom. gilts traded at a historic interest rate. bailey making comments later, but truly a massive shift out of this pandemic with depression .conomic statistics like the continent, the united kingdom now has negative rates. we are thrilled to have with us this morning joyce chang of jp morgan. joyce, i want you to pull out the mathematics here and i one to go back to the late marvin -- i want to go back to the late marvin goodfriend and that

jackson hole speech. a two-part question -- the first one is simple -- does the amplitude or magnitude of negative rates matter, and is this just almost a market technical function of the united kingdom, or is this a path to a greater negative rate like what we see in germany and switzerland? isce: i think the magnitude something to focus on and also the duration. if you are talking mildly negative, let's say -10 basis points or so, and you are looking for a period that is not too long. we are talking not more than a year. i think that is very different than what you are talking about as far as the structural changes that come about. i think the key issue is, you know, we begin to see real questions on how this could impact the outlook for the banking sector. so if it is mildly negative and not that long in duration and you really believe that this is

an economic crisis which is short-term, that we see the path out of it, that it will be something where it is a quick shot down but also a quick bounce up, that is what the market is really debating right now. tom: what is so important here, joyce chang, and i am going to use dr. folkerts-landau at deutsche bank -- and you know how upset david is about the pernicious negative race of his germany and the continent as well -- london is different, new york is different. our negative rates in the united kingdom, with a more money economy, is there a sharper distinction that is much more commercial bank driven? joyce: i think that is a big distinction, and when we just look at the numbers, the role of the financial sector as a percentage of gdp and the u.k.,

that is the difference. the question is, is this something that is more exceptional, and it is going to be mild and short-lived because we see our way out of this crisis in the second half of the year, or is it something that becomes a much longer term policy as we saw during the euro zone crisis, where everything got extended into the longer-term strategy? and the market has not decided on that yet, but there is a lot of risk in the u.k. just because it is a time where there are a lot of challenges in the second half of the year related to brexit. -- could you see also the combination of the ?allout from covid-19 the brexit discussions, the negative yield policy that is becoming something much more of ? vicious cycle

i think there will be more of a focus on the magnitude and duration. francine: thank you so much. joyce chang stays with us. we will also have an exclusive conversation with the vice president of the european commission. 8:00 a.m. in new york, 1:00 p.m. in london. this is bloomberg. ♪

francine: good morning, everyone. tom and francine from london and

new york. it bit of a reversal when it came to european stocks. they were down, now they are pretty much flat. you could say they are unchanged. investors weighing conflicting signals on the outlook for the markets. had first time ever yield on bond option for the u.k. being completely negative. u.k.?ve rates in the he thinks it is a dreadful idea for the pound. we will also hear from andrew bailey of the bank of england later. also later, a conversation on if he asian with the jetblue chief executive. this is bloomberg. ♪

♪ hurdles got to jump the , it has got to seem to be necessary, effective, efficient, and operationally capable. francine: that was the new

zealand central bank governor discussing negative rates. let's get back to joyce chang. we spoke extensively about negative rates overall, and the u.k. for the first time has a negative yield on their bond options. will this debate take center stage more than whether people are worried about whether this will fuel inflation in 12 months? how do you see it panning out? joyce: the focus is not on inflation now. maybe by the end of the year, that is where it will turn. focusedet will remain on what the path of the recovery look like so trying to first in, first out, but see the third quarter of the year come back strongly. we have the third quarter annualized 37% up.

-- the third quarter, will that be the most powerful comeback quarter? you can get to concerns about marketon, but what the is focused on now is have we bottomed? are we passed the worst? how will this recovery play out with the risk of a second wave of infection and how much fiscal support will be needed and what policy tools are left? there are negative yields but in the u.s. there are questions about the mainstream lending -- main street lending program. everybody will look at the fed closely because with negative rates in the u.k., that will keep the question on the radar for the fed when you look at the way the recipe of advanced economies have gone. francine: talk to me about

emerging-market. we talked about advanced economies. how difficult will this period be for emerging economies? tom spends time looking at brazil. are we underestimating the impact this has on some economies if it last longer? joyce: that impact is being underestimated. in china, we have seen numbers surprise on the upside. retail sales were up 9%. experts were better than expected. you have three different parts of emerging-market, china and the economies closely tied to it , korea, taiwan. then you have the emerging markets middle income countries which are in a fragile ,ituation, brazil and turkey

and then you have distressed emerging-market companies -- which will be creditors for debt relief and extraordinary financial assistance. china will continue to take the market's attention. will that recovery remain on track? they have been quick to even if they only see a hand full of cases in a province, to go into lockdown mode. they are trying to contain a second wave. in other countries, it is much harder, or his ilk, india, to india, to -- brazil, put social distancing into place. tom: deutsche bank is talking about mergers and acquisitions and make clear they need to be more profitable before m&a i

would suggest -- m&a. i would suggest about the case of j.p. morgan that in this shock, the lack of revenue, the lessening of profitability, do you just assume we have a big world roll up, that we have mergers and consolidation? seeingone thing we are that really is off the charts is where the investment-grade issuance is coming out. if you look at the high-grade u.s., $1.6 in the trillion in issuance. $1 trillion despite the end of may, that is extraordinary. one difference with these facilities that have been put into place, you are looking at a strong backs drop -- backstop to a lot of companies. what we will see in the u.s. is

are there more difficulties in the nonbank sector? on the capital markets activity in the u.s., partly because of the facilities that have been in place, we are hitting numbers we have not seen previously as it is possible to build up a fortress balance sheet and safeguard in this market and come to the markets. there will be concerns about the debt word -- burden, but that is a longer-term issue that will not be on the discussion screen in the near term. tom: let me give you a 100,000 question, i don't know where we will be flying, 60,000 feet or 100,000. in all of this crisis, and when we come out of it, these yields we are seeing, including a negative yield in the united kingdom are a complete fiction. how do we normalize that?

joyce: i think this is just it, a lot of these qe policies become permanent. i don't think it gets normalized quickly at all. the deflation debate will be with us and that is very much on the discussion on the outlook for japan right now. one reason we have moved the currency forecast, because we see the deflation debate playing out going forward in japan. i think the normalization discussion is far away right now. about not talking so much the architecture is fighting the crisis, but everybody is hoping in the third quarter you will see a bounceback and a path towards more glove -- growth normalization. the cumulative losses that you have on the income side and balance sheet side will prevent

normalization from occurring quick we, even if you see the headline growth numbers come back. francine: overall, what do you do with europe? it seems like a make or break moment. we have this fund by france and germany which seems to rival the commission, which is unclear. --l the euro area be unclean of concern? joyce: this crisis, fear has been a great uniter so even if you don't see debt until his asian is being possible, the fact that macron and merkel came out with a declaration that the european commission would be used on the recovery fund, that is a good first step that you are not at the path where you will have either symbolically or severedialogue any one way from trying to work together

, even if the amounts you were talking about in the recovery fund are relatively small in the scheme of things. the challenges are big in the fiscal cost of this and we are looking at fiscal cost that go up 9% on average. you go back to the issue on normalization, that is a long time away. francine: thank you so much as always for giving us a little bit of your time. let's get straight to the bloomberg first word news. ritika: president trump says it is a badge of honor that the u.s. has one point 5 million cases of coronavirus. he says the total is a reflection of the successful testing regime. u.s. testing levels are not extraordinary, trailing company -- countries like the u.k. and germany. the trump administration has cut payments for drillers on federal lands in utah.

energy companies will pay as little as 2.5% the value of the oil and natural gas they extract, 1/5 of the previous rate. they say it will lead to immediate oil production. india and bangladesh are facing the biggest site in two decades. -- cyclone in two decades. it is the equivalent of a category three hurricane. global news 24 hours a day, on air and @quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. tom: thanks so much, greatly appreciated. zhiwu chen will join us. he is the definitive expert on financial china, just an extraordinary history and extraordinary present as he

looks at the state of china asia's global institute direct. this is bloomberg. ♪

♪ morning, everyone, bloomberg "surveillance." fong and hislliam brother and you would like to endow a chair at the university of hong kong, you go out into the world and find the single best voice on finance in china. that is what they do and that is what they have done for years.

they went to yale university and found zhiwu chen, the number one voice on finance in china. we are honored that dr. chen could join us with the asia global institute. what is the financial integrity right now of president xi's china? zhiwu: right now, the financial system on the surface is well and sound. arethe official statistics not signaling any crisis coming. know, theause, as you banking system is by far the biggest part of the financial system in china, even though market it isstock -- even though there is a stock

market, it is a marginal player in the system. explain to us how you interpret the battle between president trump, his rhetoric, and that of what we hear from president xi. chen, thew dr. statement to the world health organization, that how do you cosity of the beli the white house? how will that play in china? zhiwu: the main fundamental cause for the super highly charged rhetoric is something you always keep in mind, because china, as president xi and others would like to say, has been trying to go back to its whennal roots in terms of

the people's republic of china was founded in 1949. it was founded by the chinese communist party, the ccp. for the last 40 years during the economic reforms period, more or less the whole country put a fight. the communist roots, but over the last few years the new president has told everyone to go back to the original roots and intentions. that has set up china and the u.s. to get into this flash of -- clash of ideology and values. , thethat in the background coronavirus crisis has taken all , as clash to the forefront the ramifications from the coronavirus and the different

systems have created. in that context, especially given the upcoming reelection faces,e president trump given all the damage the coronavirus has created in the u.s. and beyond, it became very easy scapegoat for president trump to use to mobilize his support try to win more from the larger electorate base in the u.s. how will coronavirus change leadership of china in the longer term? say whether hard to any leadership change at the top will take place in the next five

or even 10 years. clearst, i don't see any and real chance for a top leadership chance -- change to take place. the coronavirus of course has shaken things up internally in thea as well, in terms of andbelt, one road project many other international and domestic policies have gone under the new leadership in china. all of those earlier efforts now are showing up in very different forms and shapes, but for the most part presenting a lot of challenge to top leadership in china at the moment. tom: we saw a remarkable statement by the president two days ago to the world health

organization and in the middle of it was a reaffirmation of the united states' relation with taiwan. the tensionpdate of , of taipei strait and beijing. to describert way presidention is that xi has stated very clear taiwan being part of china, that is the top of our national interest in terms of how china wants to deal with the u.s. and other countries. the u.s. side has realized this as well, so you can see all over almost the last four years, whenever there is anything the trump administration would like to get back to put pressure on china, taiwan has always come up

on top. , becausen president when president xi won reelection, today she was sworn in as president for another term. in this context, the taiwan strait issue has come to the forefront for the two sides to show their visions and to go at the other side. we: we are out of time and look forward to speaking to you again, dr. chen with the asia institute. this is bloomberg. ♪

ritika: this is bloomberg "surveillance." let's get your bloomberg is this flash. after more than a century, johnson & johnson will quit selling at talc based baby powder in the u.s. and canada, facing lawsuits over cancer risk.

j&j has gotten many verdicts reduced on appeal. renewable energy is heading for its first decline in two decades. constructionr farm are being delayed. that is according to the international energy agency. addiea says the world will dean percent less renewable capacity this year than 2019. the majority of workers will work from home for the rest of the year. the ceo says it is wrong for these workers to be crowding transit systems when they have the ability to work remotely. shares of lenovo rose. they should resume revenue growth this quarter. they reported revenue in the latest quarter drop a smaller

than expected 10%, and that is your bloomberg business flash. francine: thank you so much. this is what your markets are doing. a lot of us focus on the markets on what we heard from a dharna a couple of days ago -- moderna a couple of days ago. in the u.k., this is the first time we saw a negative yielding bond sale and the debate on whether this country will see negative rate. bonds rising, european stocks bearing declines. the bond is 1.2259. tom: i look at the green on the screen and it is a nice update. ae vix at a 28 handle, now to 26, but worth watching. worth watching the enthusiasm we see in the market. switzerland at a critical point,

when i look at euro-swissie, and it is one of those disinflation deflation indicators almost on a global basis, it was surprisingly weaker yesterday. that is reversed and we see new strength. jeffrey kendrick reaffirmed swiss franc strength with a vengeance, and that is something worth watching on global wall street to see how the dynamics of the disinflation call play out. that goes right back to governor bailey and the comments we will see this morning. francine: we are expecting governor bailey to talk this afternoon. we will bring you that coverage on bloomberg tv. going back to what we heard from the u.k. today, the timing for investors betting on the first ever bond seal -- sale with rates below zero for the first

bailey said he does not think it is something we will see right now. the dmo selling 3.5 billion of -0.003%.a yield we will get into the debate on negative rates and what it means for pound shortly. this is bloomberg. ♪

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--er steven mnuchin, austere look for further stimulus. markets well this morning, "unsteady." this positive recovery prediction is dampened by when will we see vaccines? yes, brazilica -- -- on the pandemic. will africa spread from cairo south and dutch of the virus spread from cairo south -- the virus spread from cairo south and south african north? an