after my notion, aust -- --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 unprecedented moment for the

united kingdom, the issuance of a gilt with a negative rate. francine: we have been debating negative rate for a couple of weeks since andrew bailey said they cannot rule it out. is at theates forefront of the next debate. , they say thise is a terrible idea when it comes to pound and then you have a brexit dynamic. negotiations are not going well. andrew bailey testifying in about three hours and a half from now. tom: adrian paul from goldman sachs publishing moment ago, and asmakes a sharp distinction service sector disinflation. in the united states, we see goods deflation and disinflation for some time but a 3% persistent service sector their inflation in the united states,

adrian paul looking at the information saying maybe not. service sector deflation is here. join us fory to moments on the conundrum of small and mid cap. news.ur first word ritika: president trump and republican progression a leaders -- congressional leaders are standing firm against another round of stimulus. the president had lunch with senators at the white house. white house economic advisor larry kudlow says no one can confidently invest in chinese stocks and tells foxbusiness chinese companies are not transparent, do not "meet norms, inulations, the usual laws."

the u.k., inflation fell to the lowest level since 2018, consumer prices rose 8/10 of 1% from a year earlier, fueling speculation the bank of england needs to take more action. about a month ago, you almost had to pay people to take oil away. now prices in new york are up 70%. the turnaround may have been quick but was not easy. --c made painful per duction production cuts. 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. equities, bonds, currencies, commodities, equities are not up

to recent highs but right there. up 29.52 --3, spf 2952 -- snp up 2952. curve steepening. brett --l for the banks and for mr. moynahan. brent crude, $35 a barrel on brent crude. i am watching gold up nine dollars. francine: i am watching gilt to ag as the u.k. falls negative yield for the first time. crude is extending a rally for a fifth day. i am looking at wti. trying toin europe gauge the effect of gradual coronavirus lockdowns whilst seeing whether this 500 alien

euro fiscal stimulus plan will 500 billion euro fiscal stimulus plan will progress. we are seeing a little bit of uncertainty when it comes to european stocks but they are now percent.o 0.0 tom: the pandemic, and certain winners with it, lowe's competing with home depot in home supplies and big supplies -- purchases and the home market, lowe's with a terrific store sales, 11% surge in comparative sales. it is an indication of the evenness out there among the american equity market. it is not often that we speak to david sowerby. he comes from the midwest and we are thrilled to have him here

because of an intense focus on mid-caps and small caps when do these things -- mid-caps and small caps when do these -- caps. when do these things get going? david: the relative valuations of small caps to large caps are at the most attractive levels i have seen in 20 years. the second catalyst will be when the stimulus begins to take hold and expectations on the economy, on the consumer. yesterday, we saw the president talk about our efforts on sense ability when it comes to regulation. say taxes are some of the biggest hindrances to grow. when you put the capitalists -- place, they begin to

outperform large caps, something we have not seen since one a 16. managers andps boards of directors, are they confident of doing a great america roll up? will we see that? david: if you take the premise that you bet on american capitalism, that on small companies' ability to be more entrepreneurial, do not get hung up and some of the overhang and -- ofe and internal capital, you go back to the notion that small caps over the last 60 years have compounded one to 1.5 percentage points more than large caps and that will be the long-term catalyst. i remember when valuations were stretched as they are today between the most and least

expensive in 1999, people saying small caps having their best day and the sun is behind them, and yet again small caps significantly outperformed large-cap stocks it is a missed and a belief that -- premised on a belief that for the beleaguered -- that is well for small caps as well. francine: the premise is that the lockdown ends and we see a recovery in the fourth order or the first quarter -- fourth quarter or the first quarter of 2021. what happens if it doesn't? david: forecasts are hazardous at best. you have to acknowledge not what i don't know, but particularly those who don't know what they don't know, to quote the famous

quote. if it is based on when a consumer enters, you have to wait a bit longer. we have seen the most incredible toolbox for monetary and fiscal stimulus that is now up to 38% of u.s. gdp. when you roll that in with the relative valuations, you have a good backdrop when people are reallocating their 401(k) or pension funds, that small caps are a good place to be for reallocating capital back with the average small caps stock down 30% from its february 2019 hi. -- high. francine: how do you choose a small cap? it has more returns but is more risky. david: i have seen this issue indexes you look at the , when i look at the characteristics behind them, the formula this year so far has been buy the most expensive high

pe stocks with the lowest return on equity and that has been the formula for success. we know that is not the formula for long-term success, so what has worked well over the long term, if you can find small caps stocks we deemed as under followed, only three or fewer wall street analysts who follow the company, that gives you a leg up on the 50 analysts who follow apple. that is a formula for success. while the bloomberg spin out index is down 30% of this year, smallerpanies spin out -- those are two of the best formulas for finding small and mid-cap stocks. tom: let me ask you the ugly

question. i want a stock name. netflixthe amazon, the of the small-cap world? is there a stock that is amazon and net lakes-like? -- netflix like? david: madison square garden has spun out madison square garden entertainment, madison square garden sports. we own both. madison square garden's sports is your rangers, makes -- knicks. it sold off its los angeles property, generated a lot of cash. savings, great cash flow. tom: you are long new york rangers. what else? tell. long genre

tom: i like that. david: the second name is wolverine world wide they make such iconic brands -- wolverine world wide. asy make such iconic brands top-sider's, keds. lessare trading at a pe than 10% but operate iconic brands in the shoe business, another name we own in a significant warsh in in our small -- portion in our small and mid-cap portfolios. francine: thank you so much, david sowerby. coming up, andrew bailey testifies this afternoon. we will have coverage from 2:30 p.m. london time. we will discuss what the second half of the year could look like. this is bloomberg. ♪

♪ what congress has done to date has been remarkably timely and forceful.

>> there is scenarios within main street where we could lose all of our capital and we are prepared to do that. >> i wanted 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, particularly those parts where there are lots of in person contact. >> we don't intend to send anybody back to work without protections. >> i think we need to take a step back and ask over time, is it enough and are we prepared to act further? we are if the need is there. for thanks to our team putting together those terse secretary of the treasury and the president of the federal reserve.

the best essay he has ever written on the austerity of the united kingdom, kevin cirilli in washington. what was the reaction of austered toered -- these two gentlemen? kevin: republicans were more inclined to be supportive of secretary mnuchin. i spoke to the only house republican on the congressional oversight committee that is looking over the cares act, and he really said he would caution against people interpreting fed chair jay powell's comments urging for there to be more economic stimulus as an endorsement of speaker pelosi's plan. what you heard from the conservative interpretation from the fed chairman, he is saying there is still tools in the

toolbox and main street lending facilities will be open, and should congress have to app -- act again they could do so, but that is a stark difference from pelosi's $3 trillion plan. tom: someone like you has never seen this, someone like me has never seen this, and the oldest person in the senate has never seen this, 20 plus percent unemployment. how are the suits and ties and fancy dresses in washington going to react? kevin: there is a topical frustration at the state and municipality level that they are not acting quickly enough. it is one thing to have something like trillions of dollars, the numbers are so astronomical, to say this will support main street and small businesses, but at the end of the day, where exactly is that money going? delaying money just be

furloughs and layoffs until the fourth quarter of this year or the first quarter of next calendar year? be a shaping up to populist election on both sides and it is why elizabeth warren introduced legislation that would draw even more scrutiny to the ceos accepting these taxpayer funds. i have got my eye on the former speaker of the house paul ryan, someone who really rose through conservative circles as trying to cut spending and cut government waste. with a yesterday prominent republican strategist of annandale capital, a former advisor to rubio and rick perry. he already is drumming up the one about reining in wasteful spending and government spending and deficit and debt.

when we get out of the 2020 cycle, that is where the discussion will be. francine: do we know how joe biden will deal with everything differently, or will he? kevin: in terms of the biden respective, they feel confident as they had into this. the more president trump has spoken out, they have really not been running towards the camera so to speak. they have been engaging in some back-and-forth the lyrical fodder -- political fodder, but they are relying on local media appearances in battleground state. they will need an economic plan domestically and internationally, but i still think we are at least a couple of weeks away from that. tom: kevin cirilli, thank you so much, our chief washington or ,espond in, -- correspondent

really interesting to see how washington reacts when we have the jobs numbers for may. guy johnson speaks to mark cuban later today. this is bloomberg. ♪

♪ ritika: this is bloomberg "surveillance." rose --ove but lenovo

shares of lenovo rose the most in a year. the computer data division should receive revenue growth, reporting that revenue dropped a smaller than expected 10%. after more than a century, johnson & johnson will quit selling its talc based baby powder in canada and the u.s.. jurors have hit johnson & johnson with aliens of dollars in -- billions of dollars in damages. facebook will take a number of precautions once it lets employees back into offices in july, limiting it to 25% capacity. workers will be put on numerous shifts and will be required to undergo temperature check. equities, bonds,

currencies, commodities, the vix back to a 28 handle. we are not back to the strength of a few days ago, a 26 vix, but getting there nicely. now,doing much better threw two record highs and to record- through highs and elevated. francine: the u.k. sold for the first time a yield in the negative territory. coming up next, we will look at your markets and we talked to joe feldman. we talk retail next. ♪

♪ bloomberg "surveillance," from new york in my home and francine at queen victoria street in london.

that is a good sign. is the foodcourt open, the wonderful food court with better food than new york? is that open? francine: this is my home away from home. it is not open. it is a deserted office so there are about 10 people here and the foodcourt has changed, the layout has changed. you cannot have read that -- bread that is not under package so they are taking precautions to make sure the few employees are safe and not touching food that doesn't have a rapper. -- wrapper. out earlierlowe's comp and target up 11%, store sales equivalent to lows -- lowe's.

comparable sales quarter to quarter, they did much better than that. roseal comparable sales 141% which says a little bit about quarantine. so many digital products at target at the home of joseph elda -- joseph feldman. he is watching the target response come out as well. that says it all, the explosion in digital sales. is it a one off? do you look at the retail surge as we are quarantined, is it a one-off or can it have legs? joe: the surge we see certainly looks to be a one-off, but we think the shift to digital is accelerating the consumer spending patterns. coming out of this pandemic, we do expect more proclivity

as the buying online consumer becomes more used to it. more people are trying it now and you are seeing very good strength, especially on the grocery side. we think there will be a big way peoplen in the buy groceries. tom: i got a million questions, but the main one -- and you guys are expert at this because you actually go into stores -- wall street has a glide path back. do the big box way people buy groceries stores lead this? are they set for people leaving their homes and getting back to shopping? will that happen this weekend and into memorial day? joe: we don't think it will happen that quickly. there will be factors limiting the number of people in the store. you will still be wearing masks for a while.

we think the big box guys will be the leaders in this and their curbsideo allow for pickup and all the ways that you can do digital shopping, the big box guys are leading. they are on the forefront. francine: are we going to buy differently? how we buy will be different, but will it be different items? will people stock up more or less? is there pent-up demand for what people have not been buying for the last two months? joe: we do think you will see food and consumable buying remain at an elevated level, maybe not quite as strong as march, but as people are staying home more and perhaps even working from home for a longer time, as that whole dynamic may shift, you will see essentials

being a main area. i don't know if we will see a big snapback in apparel just yet. people are igor -- eager to get out and shop, but it is not clear if they want to spend discretionary dollars are not. francine: what is the one thing that you worry about? are companies going to go under? when you look at the number of unemployed, if consumers shop differently, will we see bankruptcy across the retail space? joe: we are worried about what the curve will look like and what the second half of this year might look like in a recovery. recession this consumersalf leg, the

are among a tremendous amount of strain. we are waiting to see how that .ill play out j.c. penney, we think that will lead to a bankruptcy down the road, but other stores are likely to respond more quicker and you might see home furnishing purchases pickup. tom: as a heritage of luxury analysis, bergdorf goodman is bankrupt. how will this end? will those stores on fifth avenue, and the bergdorf goodman's across the nation, how will that work out in bankruptcy and's arrival? -- and survival? joe: we believe there is pent-up demand at the luxury and. as -- luxury end.

as things improve, the high-end consumer is still employed if the market can hold up and they will feel better about their economic position. they will not be taking a big trip to europe this year and will have more money to spend and will start to buy. i think the high-end retailer like neiman marcus, saks fifth avenue and others like it, there has been a lot of pressure and you are seeing more direct to consumer for the luxury brand, but i think those brands will hold up well. feldman, thank you so much here is ritika gupta. ritika: the trump administration cut royalty payments for utah,rs on the land in paying as little as 2.5% of the value of the natural gas and oil

they extract. it is designed to help oil producers survive during the crisis. president trump says it is a badge of honor the u.s. has 1.5 million cases of the coronavirus, saying it is a result of the testing regime. behind germany. drivers into the u.s. dutch in the u.s. are turning private -- in the u.s. are turning private roads into their racetrack. americans actually drove 19 percent fewer miles. california highway patrol says the number of tickets issued driving over 100 miles an hour has almost doubled. india and bangladesh are bracing for the biggest cyclone in almost two decades.

it is the equivalent of a category three hurricane with winds up to 112 miles per hour. 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. dr.. -- in ritika gupta. am ritika gupta. francine: the testimony of andrew bailey today. also, carson block, known for shortselling. we will see what he has to say. this is blue. -- this is bloomberg. ♪

♪ this is bloomberg "surveillance." the boston fed president defended the risky loans handed out under the main street landing program dust lending program. -- lending program. >> it is wonderful news we are getting to a place where we can start talking about reopening, but i would highlight that is only the first step we need to take. consumers have to be comfortable going to businesses and buying in stores, going to restaurants. employees have to feel comfortable going on the subway, train, or a bus, and with community spread continuing in massachusetts, we are a little ways away from that ain't so as an -- that point.

so we should be cognizant of the fact that many people, particularly older americans, will be very leery of going into restaurant, onto mass transit, or onto planes until the public health problem is more resolved. your areas andn even mom-and-pop stores, what are they telling you as businesses reopened? >> they are hoping there will be a pickup toward the second half of the year. in gdp, there will be a pickup but unfortunately, the labor markets will be weak. expectend of the year, i the unemployment rate to still be in double digits so it will be significantly down from where we are now. the unemployment rate is 14% and any american -- many americans

who took the survey say they are employed but were not working the week of the survey so the number is closer to 20%, and we will see if it goes up more, but by the end of the year we are probably talking low double digit, still a very high unemployment rate. that reflects the fact that i don't think many employees will want to go into the city's still having significant problems, and consumers are waiting to feel more comfortable before they go into stores and restaurants. michael: one of the other programs that has come under criticism is the secondary market lending program because critics say you are sopping -- propping up zombie companies that cannot survive unless they continue to borrow and we will have more defaults and bankruptcies. do you see that? program,he main street

we are doing somewhat risky lending in that the borrowers we are providing lending for were in good shape at the end of the year but are facing difficulties because of the pandemic. these will probably be problem loans and we are trying to get the right outcome for employment. if all these businesses end up failing, that would be a significant impact on employment. we want to avoid that outcome. that means we are taking more risk than we normally would take to make sure there is sufficient financing. during the 1990 crisis where there was a credit crunch crisis, one of the problems was the borrowers and households could not find financing so we are trying to make sure that does not become a problem now, and make sure that hopefully is

what dutch is temporary spells temporaryyment -- is spells of unemployment will be temporary. the longer businesses have to finance themselves, the more risky it becomes for the economy. michael: many companies have discovered the joys of working from home and the savings. have you discovered problems in the commercial market? willmmercial real estate undergo a tremendous shift. there are probably more warehouses than we needed before , and i think that multifamily housing in downtown areas may be challenged whether people rethink whether they want to be downtown or in suburbs. real estate will be going through some dramatic changes. tom: dr. rosengren of the boston fed, always interesting talk with michael mckee.

we are going to come back futures -- come back. futures up nicely. we are going to address the pandemic. i want to talk to lauren sauer of johnson university about the kinds of cases that are out there. this is bloomberg. ♪

ritika: this is bloomberg "surveillance." the turnaround plan at rolls-royce has been derailed by the coronavirus pandemic. they will cut 17% of their workforce, about 9000 workers. tohas prompted airlines scale back years of jetline purchases. >> it is going to take several years for demand to return to the sorts of levels that we saw in 2019, and over the three to five-year period, we are expecting a decrease in demand of approximately one third.

easta: feast says roles -- says rolls-royce plans to make half of the cuts this year. construction of wind and solar farms is being delayed by factory closures, financial pressures, and needs for social distancing, according to the iea. they say the world will add 30% less knowable capacity than 2019 -- renewable capacity than 2019. the majority of workers at visa will work from home for the rest of the year. the ceo says it is wrong for workers to crowd transit systems and roads when they have the flexibility to work remotely. that is your bloomberg business flash. tom: i am glad you bring that up, really going to be interesting to see the actual tangible plans of companies as

they try to get people back to work. emergency rooms in new york city are less busy than they were two weeks ago and certainly for weeks ago. -- four weeks ago. it is still an emergency and there is still suffering, but things are better. yet is the case nationwide, the pandemic continues. lauren sauer from johns hopkins university joins us. in emergency medicine, it is about the cases. they are growing at 1% or 2% it seems. what are the cases like? who is getting the virus? are seeing a lot of cases of middle-aged americans who have comorbidity, but also young people as well. the early data we saw that this

is affecting the elderly with -- comorbidulations populations is not true. ,e have a lot of age ranges essential workers who have been working this whole time, a large hispanic population we are serving at hopkins now, and i think that is true across the country. tom: fascinating to see the idea ies goingain geograph back and younger people going back, when you see younger people trying to get back to what we knew, are they at greater risk because they think the only one that gets the virus is 75 and older? lauren: that early messaging about it only being the elderly did not help. seen young people resistant to social distancing measures we have used. they were still going out and

interacting socially, and we are seeing the effects that resistance to adopting these measures. peoplethink that these are part of the essential workforce, so we are seeing health care workers, across the country seeing people from meatpacking plants, farms, food processing centers, and they are younger folks as well. francine: talk to me a little bit about this vaccine that we had reports yesterday, it did not give enough information about whether it is going in the right direction. will we have news flow like that are regularly? lauren: it is not uncommon for companies to put out press releases but usually they have data attached. this report showed the eight people they had in the study that they conducted the full

review of had neutralizing antibodies, which is good. develop people neutralizing antibodies. the challenge with it only being eight people is because it takes a long time to do the neutralizing antibody research and we did not hear from the other 35 or 36 trial participants as to how they did or why they did not develop neutralizing antibodies or if they did not develop them. we need to understand those data. there is no way to know what these data mean so that is what we are waiting for. we are waiting for that resulting data set to do the analysis, to know if that response will be durable and what the rest of the vaccine population looks like. i think we still have a ways to go. it was a surprisingly up the result andpbeat

definitely a positive finding but we have to see what happens next. francine: what do you make of what we heard from the world health organization overall? who is in charge of refitting the governments? do you rely on the world health organization or is it each country on its own? lauren: the world health organization is still our leading international body serving these member states and they are putting in place the structure on which the international response is happening. it is a digital world health assembly. it is just a couple of days so it will not be the same as it was. on thehere for calls origin of the covid-19 outbreak, which seems to be directed at china although china was not specifically named. there remains some

politicization around china's role in this outbreak response, how that early response occurred. we will continue to see tensions around the assembly but have to continue to support the who and -- in globaledness preparedness and response. francine: lauren sauer from johns hopkins university. conversations every with johns hopkins experts for stats on covid-19. this is bloomberg. ♪

♪ alix: target's profit squeeze.

shares drop as investors show concerns over weakening profitability despite record sayers in the first quarter -- record sales in the first quarter. the treasury is set to sell 20 year debt, while the u.k. sells negative yielding debt for the first time in history. shapiropeak to tom about rapid changes that will transform the real estate market. welcome to "bloomberg daybreak" on this wednesday, may 20. i'm alix steel. in the markets, equity futures in europe were pressured. targetket is digesting results a little less favorably. the big news overnight is the u.k. actually selling negative debt for the first time ever. that sets the stage for investor demand in the 20 year auction here in the u.s.