francine: the senate passes a bill that could delist chinese companies from the u.s. before china's biggest political gathering. chancellor merkel says the airline is edging toward a multibillion-dollar bailout. bank of england governor does not rule out negative rates. the fed chair jay powell speaks again this evening.

good morning and welcome to "bloomberg surveillance." i am francine lacqua in london. we discuss everything with monetary and fiscal policy. look at. in london, we your markets. this is what they are telling us . we are getting data out of the euro area that manufacturing is a bit better than expected. 38 that was of forecast. services pmi for the month of may for the euro area, a touch better than expected. overall, i am looking at what the risk in china means for treasuries. they are advancing with the dollar. let's get straight to the bloomberg first word news in new york city. >> tensions are boiling over

between britain's chief negotiator, david frost, and his part, michel barnier. key summit looks certain to expose key divisions between the two sides. the spanish parliament voted to extend its state of emergency by two weeks. plan of a one-month extension did not have the backing to pass the measure. second moste's extensive outbreak, over 230,000 cases and 28,000 deaths. the federal reserve has returned to financial stability, according to minutes from its april meeting published yesterday. the pandemic is causing ofraordinary amount uncertainty, and banks could

come under greater stress. it reinforces a gloomy assessment for the u.s. economy. wall street is starting to take shape. j.p. morgan plans to keep its offices half-full for the foreseeable future. goldman sachs with a maximum of 20% of staff on any given day. they are looking into offices in the suburbs. 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. president trump escalates his rhetoric against china, suggesting xi jinping is behind a disinformation and propaganda attack on the united states and europe. he says it all comes from the top. the series of tweets comes as president trump and republicans try to make china the villain. the senate has overwhelmingly approved legislation that could

lead to chinese companies such as alibaba being barred from being listed on u.s. exchanges. joining us now is james athey, investment director, aberdeen asset management. good morning and thank you for coming on. how much do you worry about the ratcheting up of rhetoric between the u.s. and china? what does it mean for markets? toos: i try not to worry much, but it is a concern for market. s. we have a reemergence of tents narratives bilaterally between the u.s. and china, and more broadly between china and other countries. s atralia is applying tariff the border there. we may have seen after the phase one deal, that we could put these trade tensions behind us, but that is not the case. more broadly on a secular basis

people have been expecting this anyway. what we have learned from the coronavirus is supply chain costs, minimizing costs across leads to vulnerability, and maybe there needs to be a rethink to that model. know china -- we have seen that with the passing of this bill. to be seen as soft on china going into the election in november. the combination of all those suggests these skirmishes and trade tensions will be with us. it is a negative for markets, but i do not see it as a huge negative especially when you see .he damage from the virus we should be more concerned how we deal with that and the aftermath. ,rancine: what does it mean

could this potentially hurt the economy more, therefore it tilts the fed to do more and could hurt treasuries? james: maybe in a minor way at the margin. we are talking about unemployment of 20% to 30%, drops in gdp of 20% to 30%. it is difficult to argue that a few tweets exchanged back and input intomeaningful the policy reaction function. what we have seen from the fed over the last eight to 12 weeks is astronomical in scale. will be ahink this huge concern for them relative to looking at the domestic economy, and thinking we have to assist in allowing people to get tok to work, consumers back

consuming, businesses back to investing in hiring. that is a heckuva job, but i do not think the president's tweets or a few bills passed in congress will have a huge negative impact. it is maybe another sentiment issue for markets. francine: where do you see value in the markets right now? do you see any value what we are seeing in fixed income? james: it is difficult to find value. value cannot perform relative to growth. think that trade looks ridiculously expensive. that does not mean it cannot continue. i would not be buying value stocks, ridiculously expensive relative to the issues we face economically going forward. it is difficult to say treasuries have value, 60 to 80

basis points by any historical metric is a -- is extraordinary expensive. has mandated to be sure yields do not get out of control. all the while we are headed for debt-deflation world, i will not say depression, but it can lead and that should keep nominal and real yields low. it should push treasury yields a lower. francine: there is no danger of inflation coming back up? james: no, there is a good argument to suggest we will have inflation in the future. i recall having this conversation months ago before the virus. when people are saying inflation is dead forever, it makes me think we are at the end of the disinflation paradigm.

economies are pushing costs and prices down. if that goes into reverse it is a secular trend. the monetary and fiscal stimulus have a good chance to move in the same direction. that could be inflationary, but i think the inflation comes after the deflation. the balance sheet recession world were corporate's will look into repair mode as we work through the lockdown issues. demand.ds to a lack of francine: thank you so much, james athey, investment director, aberdeen asset management. he stays with us. gathering set to get

underway, here are the challenges facing the world's second-largest economy. sessions ofl two the national people's congress and the parallel advisory body typically bring together 5000 party members over 10 days. however, this time onlookers expect a different format, after the convention was postponed amid the coronavirus outbreak. it is the first change in decades. run shorter. could the number of delegates may be reduced. we could see strict hygiene measures. china's leadership considers the .irus to be contained the agenda may change, including shifting focus on the economy, now heading for its worst performance since the days of chairman mao. the target for gdp could be abandoned altogether in favor of a more ambiguous goal. stimulus measures will be another focus.

the pboc pledged more powerful stimulus. it could include construction, health claire and 5g -- health care and 5g. with beijing arguing for a greater role in politics. the u.s. is the lang its annual delaying the u.s. is its annual report. with the ratcheting blame game and independent inquiry, this congress will be watched especially closely. it gets underway tomorrow. seesg up, as the fed extraordinary headwinds, we will discuss the bank and negative rates. that is coming up next. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ." lacqua in london. let's get the bloomberg business flash. >> astrazeneca has received more than $1 billion to develop a coronavirus vaccine from the university of oxford. they have an agreement to supply 400 million doses and the capacity to make over one billion. it is one of the fastest moving and expects to start supplying doses in september. easyjet is time to resume flights. will apply to

domestic flying in the u.k.. it comes as airlines a try to resume operations and that a collapse in demand. softbank the selling 5%, trying to raise $3 billion in a series of sales to shore up its balance sheet. that is your bloomberg business flash. francine: let's get more on the economic response to the pandemic from the minutes of april meeting that show the fed saw the coronavirus pandemic posing a severe threat to the economy. the bank of england governor is not ruling out negative rates. that's get back to james athey, investment director, aberdeen asset management. bad idea cutting negative rates or having negative rates in the u.k.? james: not so bad for me, i have a mortgage so i would not my not

so much. the experience of other countries, there is something to be learned, that the unintended consequences and costs are meaningful. there are some lessons we should not carry across to the u.k. nus, mainly that japan and europe are dealing with issues that monetary policy will be useless in the face of. they will be trying to find inflation by cutting rates, that is not a learning lesson. to me, the standard conventional monetary policy framework is that real rates are the measure of your monetary policy. if we are in a world were core inflation is negative, and nominal policy rates are zero, then you have positive real

weights, and that is a tight stance a policy when you're dealing with high unemployment and lower demand. it essentially looks like depression conditions. in that world, if that is where we are headed, then i do not discount it. i think there is a reasonable chance that is where we are headed. some of the concerns are ideological opposition amongst the banks might disappear, and they might feel compelled to manage the real interest rate they are applying to the economy. they are trying to tread the middle ground and do not want to give markets caused to get overexcited and be bound by market expectations. equally they do not want to sound hawkish and take this off the table.

there may be a time when they need to consider negative rates. francine: where do you see brexit heading? if you look at what is written about, they are not going great. there is time for this transition period, but how much does the add to what you are thinking? james: it looks like they are talking past each other. i keep saying over and over again from europeans the notion of a level playing field, and ifks from the u.k. side that a level playing field is a requirement for an all-encompassing free-trade a greement -- , am not sure what is going on obviously there is forced trading. i think it is difficult to get to a place where they have a sufficient agreement and anything approaching the aims of these negotiations.

i do not think that is where we will end up, i think we will end up with something more basic that deals with facilitation. parishe u.k. perspective, will not be an issue. be an issue.ll not i think we will end up with something basic, that sort of thing. as always, headlines will ebb and flow. sterling has not really reacted. it does not seem bothered by the headline, i do not know if that means there are bigger fish to fry, or this could be no better time for the u.k. to tear itself away without much in the way of a lifeboat. the european union is looking incredibly weak, and you can

mask some of brexit under the idea of the impact of coronavirus. that is probably a desirable outcome. francine: thank you so much, james athey, investment director, aberdeen asset management. lufthansa is close to a multibillion-dollar bailout deal. we discuss that next, and what the eu will say about it. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. lift onto is looking at a billion dollar bailout deal, -- lufthansa is looking at a billion dollar bailout deal. the european commission would need to approve the deal. latest on the lufthansa bailout saga? we know how much the german government would buy into it? but would they block it? >> hi, francine. i think it is unlikely the eu would throw out the deal, it has been put together carefully between lufthansa and the german government for week's. the european commission might have amendments to make to the

deal. the european commission is coming under pressure to not go easy. ryanair is making a lot of noise about lufthansa's bailout. lufthansa to a drunken uncle at a wedding. francine: how likely will this go ahead? we have heard carriers against it. will the german government get its way? how likely is the deal? >> the deal looks like we now. a deal broadly following the shape lufthansa announced this morning is likely in the coming days. francine: thank you so much to our reporter covering airline. coming up, as president trump

sets up rhetoric against china, we will discuss international relations. --will focus in the last couple of minutes, we did have encouraging news out of the euro area, the euro economy seems to be picking up by some metrics. it is coming back from the deepest downturn ever, as there is relaxing of the coronavirus lockdown. bloomberg. on this is "surveillance." ♪

francine: economics, finance, politics. this is "bloomberg surveillance ." london.cine lacqua in

here is ritika gupta. ritika: president has escalated his rhetoric against china, pointing his finger as xi jinping, saying he is behind a propaganda campaign against the u.s. and europe. in a series of tweets, the beijing wasid desperate for joe biden to win the presidential race and november. the bank of england is studying how well -- how low u.s. interest rates can go, and governor andrew bailey is not ruling out rates below zero. that while comments policymakers are not ruling negative rates out, they are not ruling them in. chinese companies in the u.s. are facing scrutiny on finances. the senate has passed legislation that could bar chinese firms from raising money with u.s. investors.

"when doing business in china, a certain level of fraud is expected." >> the reality is that china, a company that invests 30% of its revenue is considered real. because if you are taking other peoples's money in china, i mean, there is an expectation that there is some level of graft and fraud. ritika: 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? francine: thank you so much. we are getting breaking news out of the u.k. data is better in the euro area, also in the u.k., this as they lockdown is gradually being eased. this is for the month of may, it is services pmi. in the u.k., it has risen to 27.8 instead of 24. the base action of forecast is so low, anything below 15 means

we are in contraction. normalr like 27.8 in times would be horrific. given that it comes when we are predicting something so much lower, 24, this is seen as quite positive. 40.6, isring pmi, still a contraction, but it is better than the 37.2 that was expected. president trump has escalated his rhetoric against china, suggesting xi jinping is behind a disinformation and propaganda attack on the united states and europe. the was president says, "it all comes from the top." our next guest says the visual images are vital to understanding global diplomacy. callahan, is bill from the london school of economics. thank you for joining us. i know you spend a lot of time

with visuals. there is a mistrust between the u.s. and china. how much does it have to do with the president's beliefs? bill: i think separating the two issues, that china really is putting forth a huge topic and a and disinformation campaign against the u.s. and europe. there is really no contesting that. and they are doing it through visuals as well as just -- yesterday the chinese central television put out a video about hong kong which basically told a series of lies, that the hong kong protest movement is about independence and it is all violent and it is controlled from abroad. what is interesting about the hong kong protest movement, and you can see it in the visuals coming out of hong kong, is that it is almost entirely nonviolent. the violence comes from the police. doing is spreading

these messages not just abroad but to its own people to kind of rally around the troops to be patriotic and not think about the covid virus. and we had that from a number of countries in the past. is the u.s. doing the same thing? we are looking at a number of poles, and the u.s. -- the administration but also the consumers -- mistrust china. so this is the other way around. are they and are we doing the same thing as china in certain cases? bill: i think we have to be very careful not to demonize china and not do things like trump does that could lead to racism against asians. but there is a good reason why people in the europe and the u.s. do not trust china. china and the prc and the communist party are doing some pretty nasty things. they have over one million

people in concentration camps. now they are transferring those people to forced labor and the rest of china. that is a huge problem. even before covid, there are huge problems. i think there is a rational reason to be mistrustful of the government in china. it does not mean that the chinese people are bad. but if the chinese government is doing things that we see as bad, that is a good reason not to trust them. as in the u.s. when trump is not doing good things, we have to criticize that, too .to francine: are they unable to talk to each other because they do not trust us and because of the various campaigns about misinformation? are ai think that there couple of people on both sides who are still trying to have a , like theiscussion

chinese ambassador to the united states is usually seen as a levelheaded person, and he can deliver messages to washington, and washington has people that deliver messages to beijing. what is a bit disturbing is how u.s.,ides, china and the are riled up to be anti-this and anti-that. rather than seeing this in terms of geopolitics, whether china is going to win or the u.s. is going to win, what we have seen from the covid-19 situation is medium powers are taking the lead. taiwan has only seven deaths in .he hole covid-19 experience they have done a great job of controlling it and are a model of how to deal with these things. same thing with new zealand and germany.

what is interesting is that these are women leaders who are running these things that show -- to trust the science -- who trust the science and show compassion. rid of this geopolitical view of the world of superpowers and looking how smaller countries are doing a great job of dealing with the coronavirus. francine: bill callahan, thank you so much. a lot of scientists also say it is much more difficult for a big country with a big metropolis such as london to get a handle on covid-19. -- he is professor of a professor of international relations at the london school of economics. liquidity dries up in many places. we will be speaking with a global fixedd of income distribution. he is paul hamel, and that is

coming up next. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua here in london. how did one of the world's s operaterading shop during one of the biggest pandemics in the world? the plan seems to have worked, with a 90% jump in electronic treasury trading in march, even as liquidity dried up in many places. i'm delighted to be joined by paul hamiill. givingys, thank you for bloomberg surveillance a little bit of your precious time. talk to me about what the march

of volatility taught you about the markets, but also how nimble .ou were able to be paul: if we start with the treasury market, particularly in march, it started with some imbalanced, heavy selling. that was driven by real money investors with yield concerns, currency concerns. the other things that we observed were certain large dealers pulling back from providing as much liquidity as consistently in the market. we saw a couple of really notable things. the first was market participants who rely heavily on access to funding markets, the repo market, to manage their portfolios again to become a little bit concerned about their access to that market and they began to de-risk their portfolios, which also contributed to that selling. then we saw some unusual

transactions that were specific to the circumstances. we partnered ourselves with the large pension fund in america, who is selling a very large portfolio of treasures to raise cash, to help families in distress and hardship because of the pandemic. so a mosaic of very important transactions going through the market at that time. what does it tell us about what could happen in the future? we saw fed intervention. did everything work as it should, or are there concerns about how that could unfold? monetaryhink from a decisively,cted aggressively both to ease monetary policy and provide a backdrop of liquidity for many asset classes. i do think what we expect going forward is a closer look at the

plumbing. after any crisis, the fed and the treasury will look at the plumbing if the market has seen that before. as we have seen before, the funding market, the repo market stands out is an area that comes under stress during this period of volatility. frankly, that is a function of there being fewer and fewer players in that market with less balance sheets to supply. with less uncertainty, less availability, and higher costs. the solution to that is a clear market for repo, and we expect a fed -- we know chairman powell has talked about plumbing in the past as something he is focused on. the other area is around transparency. reporting for the regulatory community a couple of years ago. there is an expectation that will extend to the public market soon. that is critical because one of the largest markets in the world does not have any real time

available information to investors, which they could benefit from in calm markets, but certainly in extremely volatile markets, the ability to see where the market is through real-time data is critical to investors. so we expect plumbing to be a real focus of the fed coming out of this. francine: we also learned yesterday that actually in minutes, the fed is worried about financial stability. do you think we need to worry a lot more about this going forward? think chairman powell has made clear that there are a number of think that they are worried about. i think it is too early to say which of those is going to dominate. there will be a resurgence of the pandemiconce fades into the background -- of the trade war, and once that fades into the background -- yes, the fed made it clear that we don't know, that there is a lot of uncertainty, but they

also made it clear that they will be patient and accommodative to the extent necessary to keep the markets calm and functioning. francine: if you look at the markets, if you look at the markets now and what you see in the future, strategically what does it mean for citadel securities? where do you see opportunities? we saw during this period, which clearly the first session was dominated by assuring the safety and well-being of employees as a number one priority. alongside that is being there every minute of every day to provide liquidity for our clients during these times of stress. and of course in these periods of time, it is not just enough to be there. you need to step up. this is when investors need to trade, as we saw in the treasury market. we saw that in the retail equity market as well, where mainstream investors need access to their portfolios. this was a real-time crisis.

we saw our share volumes in equities jumped to about 3.3 billion shares a day on average. to give you some context around 2019 the largest we saw in was 2 billion shares. in the treasury market business, which you referenced earlier, we saw electronic volumes jump 90%. we saw liquidity be very challenged. the third thing which i think is really fascinating as well is the capital markets continue to function exceptionally well. our dmm theme, the largest on the floor, actually led 11 out of 12 ipo's during that period of time. not only is that fascinating because ipo's happened remotely for the first time, but it is fascinating that people are still in the market. underpinning that is a fundamental commitment to be there for our clients both in the good times and the bad times, and that requires repair

this and readiness. cannot -- it has to be something you are ready for, ready to do in the crisis itself, and we are happy with how we performed there. francine: i know jay powell for the moment says it is a terrible idea going to negative rates, but if they are, how would he change the treasury market? said well, what he had repeatedly -- and it was interesting, we saw governor bailey talk about this yesterday as well -- it is not clear what the benefits of negative rates exactly are. he has made it clear it is a difficult strategy to exit, and he has noted that it tends to cause stresses on the banking sector as they find it difficult to pass those negative rates to depositors. what he has also made clear is that he has more tools in the toolbox that he think would be more productively used as a

monetary policy, for a monetary policy standpoint. i think for now we are focused on that outcome. not spending too much time on what negative rates mean for the u.s. market. --is somewhat underinclusive ofonclusive as to the impact negative rates. francine: with negative treasury securities, where are we at on that? -- i we continue to expand should think about back to when we do tradee -- every treasury security available in the market. we are in the process of expanding our global footprint around that. as we saw in march with those kind of volume jumps, it is clear the offering we have, the ability to stay in the market

and provide that precision price to clients is very important, not just to you and's -- not just a u.s. investors but to european and asian investors. we have a great product and we look to expanding globally somewhere and more clients can benefit from the investments we made in the treasury market. francine: last time we caught -- you also talked about there is talk or speculation that they may roll it back in order to deal with the pandemic or to give people a bit of a break. is this a good idea, or does timing actually maybe not work in disfavor? mifid is large and complex, as we have discussed in the past. but generally speaking, what we see is the appetite to accelerate the implementation. the expectation investors have

to see safer, more robust, more competitive, more transparent markets from the regulation of mifid that it is supposed to deliver has not lived up to expectations yet. one area that we have talked about in the past that continues to be a focus for us is transparency. to link back to the earlier point, investors during periods of volatility would benefit enormously if they could see some real-time information about what is going on in the market. we do know the european commission is making strides on this and making progress, but we think that is the number one priority to be implemented and there may be other aspects of this into that could be perhaps delayed, but there are critical components about market function that could be accelerated so that when the next crisis hits we are much better prepared, and we use the time between now and then to get the market to a much better place for investors. francine: do you think markets will be in a much better place in the next 12 months?

paul: i mean, hard to say. i think what we are certainly seeing now is the effects of monetary policy calming the market, and that will certainly help. of european announcement this emergency package or the idea of an emergency package of fiscal support is very important, and that is something that christine lagarde has talked a lot about, a complementary feature with monetary policy. we are seeing similar things here in the u.s. if that track continues and we see partnership on the fiscal side and the monetary policy side, that is likely to be a good thing for the markets over the next 12 months. francine: paul, thank you so much for speaking with bloomberg. that is paul hamill, head of citadel securities head of global ficc distribution. we will be with mervyn king in one hour. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ."

stocks are declining. alsoequity futures are down. this goes back to the u.s.-china trade war, or certainly a lot of these deteriorating ties are casting a cloud over the recent rally that we saw with risk assets. treasuries are advancing with the dollar after the u.s. senate overwhelmingly passed a bill that could bar some chinese companies from listing on american exchanges. president trump also sewing criticizingby presidency -- president xi jinping's leadership. , theu look at renminbi, offshor holding steady -- offshore holding steady. tom and i, on "bloomberg surveillance" yesterday, spent a lot of time talking about gold. treasuries higher.

we are expecting to hear from jay powell a little bit later on, and then astrazeneca received more than $1 billion in u.s. funding to develop a covid-19 vaccine. let's also take a look at what you should be watching for today. at 12:00 p.m. london time, turkey's central bank is set to publish its latest rate decision, expected to cut rates for the ninth consecutive time after the pandemic forced the economy to a sudden halt. it is a big day for u.s. releases as well. fed chair jay powell is also eventled to speak at an on how covid-19 is affecting u.s. communities. that is at 7:30 p.m. london time. bloomberg surveillance continues in the next hour. i will be joined by tom keene. ♪ staying connected your way is easier than ever.

you're just a tap away from personalized support on xfinity.com. get faster internet speeds with a click. order xfi pods to your home in a snap. or change your xfinity services with just a touch. all in one place. you're only seconds away

from all of that on xfinity.com. faster than a call. easy as a tap. now that's simple, easy, awesome. francine: the senate passes a

bill that could delist chinese companies from the u.s. as the president ups his rhetoric against beijing, this on the eve of china's biggest political gathering. lufthansa shares push higher as chancellor merkel says the airline is edging towards a multibillion euro bailout deal. it would see the state become its biggest shareholder. and bank of england's governor does not rule out negative rates. fomc minutes outlined considerable risks from the coronavirus, while the fed chair, jay powell, speaks again this evening. we speak with mervyn king in the next hour. well, good morning, everyone, surveillancemberg ." tom, there is a lot going on when it comes to china looking at the onshore yuan, moving a little bit on the increased rhetoric between the u.s. and china. a lot of data out of the u.s. later on. tom: certainly the data is important. at 8:30 we have the jobles