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 jobless claims number, and the idea moving towards 40 million

unemployed in america is truly unimaginable. i cannot emphasize enough, francine, in the last six hours, the rhetoric between washington beijing. it is extraordinary, going back to 1972 with president nixon and china. francine: let's get to first word news in new york city with ritika gupta. ritika: good morning. the white house is rebuking china's military and economic policies in a report to congress. themberg obtained a copy of report before its release. it falls china for u.s. human rights -- it falls china for human rights abuses among other things. resident trump stepped up his rhetoric against china on the coronavirus, suggesting xi

jinping is behind a propaganda attack against the u.s. and europe. the senate passed legislation that could result in china companies being delisted from stock exchanges. republican senator john kennedy says he wants china to play by those rules. votedin, lawmakers have to extend a state of emergency for another two weeks. they backed by minister pedro sanchez's plans for a national lockdown. been 20,000 deaths from the coronavirus in spain, the second-most in europe. mortgages6 million were delinquent last month, almost doubling the total number. a federal relief program allows borrowers impacted by the coronavirus an additional six month payment deferral without penalty. about 4.7 million borrowers are

now in forbearance. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, ritika gupta. this is bloomberg. francine? tom? tom: thanks so much. equities, bonds, currencies, commodities. how much is one item today in relatively quiet markets? it has to do with francine lacqua's ability to spend money in europe. it is of course euro-sterling. i noticed the trend of weaker sterling, stronger euro over the last number of days. it is not a breakout but it is situation for europe is busters up against the euro breakout. francine: i would actually fold into that the fact that for the first time we had some and encouraging -- i don't say good news but i say encouraging news -- out of euro area economic data. drawems to have started to

its way out of the steepest downturn because if you look at some of the pmi figures, certainly from may, services and manufacturing, they were terrible numbers but they were better than expected. some people taking it as a positive today. european stocks still uncertain. with this ratcheting up of the tension between the u.s. -- of tension between u.s. and china. -- it is not the goal that i wanted. i was looking at another type of gold. tom: you will take whichever gold you can get. francine: let's get straight to jeremy stretch,'s see idc head of fx strategy. we're talking about the u.s.-china trade relationship, and i don't know if this will have a scarring on the economy. expect a would not

significant the escalation. i was listening to your preamble, and you asked if these trade tensions will go all the way to the election. there is going to be a situation where the person no doubt will continue to rail against china, needing an opponent to rail against and the pressure points in terms of economic performance in the u.s. i would not expect a de-escalation, but i think the mark critz -- the markets are somewhat sanguine against the backdrop here. tom was mentioning about the rapid deterioration in terms of trade. if you look at equity futures, they are not trading substantially lower, risk is off, but we are not seeing absolute capitulations. markets are reasonably sanguine about the rhetoric, but i would not expect a de-escalation either. francine: what does it mean for currencies?

dollar, inis impact an already uncertain time for the world economy? jeremy: of course, we have seen the environment of late where generally when we have a better risk tone than markets that do look for those correlated to risk and will be better placed to do with the recovery process. conversely, when we see risk back on the defensive, we see the dollar and the dollar indices performing better. the question is, do you think we are back into a risk-off environment as we move into the middle part of the year, or are we going to be looking beyond these trade tensions and look for signs of cover? we are a long way away from any green sheets in terms of those euros on pmi's. they are bouncing off what is essentially a very low base, and of course if you set the bow lauren -- the bar low enough, it is easy enough to step over it. be improvements

particularly with the service to levelsoing back that were closer to march at the first stage of the crisis. that is relatively positive, and fends off the risk time amex -- the risk dynamics. them perform a little better into the end of the quarter. tom: jeremy, given pernicious disinflation, and even the discussion of outright goods inlation, and a rollover service sector disinflation -- dare i say true deflation -- in switzerland and other parts of europe, what do currencies do? what does the swiss franc do given this massive disinflationary trend? of course the s&p are mindful of the disinflation or deflationary trends with the over competitiveness of the snb areanc -- the

mindful of the disinflationary or deflationary trends with the over competitiveness of the swiss franc in the european market. it is still the case that markets are, i think, of the opinion that many central banks will look at these inflation numbers in the current environment and say they are specific one-off factors that are in play. it is the medium run prospects that we are mindful over the two to three-year time horizons, and we have not seen an absolute capitulation yet. it is very much a case of near-term weakness, but we are not seeing a material impact. there is a little bit of latitude to be able to not has severally react too aggressively -- do not necessarily react too aggressively. hour, mervynext king will join us for an extensive cong conversation.

setting up our conversation with mervyn king, he is always opinionated, always controversial. explain to us, from where you said, the path the king, to carney, now to bailey. how are these three individuals different? jeremy: well, i think -- and i don't know lord king personally, but he is a very cerebral central bank governor who was looking very much at the broader perspective in terms of sort of a long-term view from an academic standpoint. mr. carney was much more market orientated and in tune with what is happening with the daily market actions. i know that from some of my discussions with officials of the central bank. mr. bailey i think is going to be an interesting one because he has not necessarily had direct interaction in terms of the monetary policy perspective until now, until he has become

governor, and he is not necessarily a pure economics phd in the way that his predecessors were either. he will have a slightly different bias, and i think it is interesting in terms of he commented on yesterday, a change in stance forecast onkground negative rates, which got the market quite excited. he has been prudent in that all central bankers should keep their -- they should not want to death they should not want to close off options. and carney from king in terms of their interpretation of the primary operation of policy -- i think mr. bailey is going to be different because he is coming in as a participant who had active participation in monetary policy processes francine: francine: until now leading the bank.

policy processes until now leading the bank. francine: jeremy, what does this do to the pound? jeremy: we started to see some degree of pricing with negative rates, and i am not somebody who think there will be a rush from the bank of england to consider negative rates. in also reason is, i think the evidence in terms of the success or the efficacy of the process i think is debatable at best. it as i say, i think it is prudent for the bank to leave it out there. perhaps it will be prudent to .eave it there as rhetoric i think from a sterling perspective, there are inherent macro headwinds that are going to be relevant. we have seen the flash pmi in the u.s. and in the euro zone. the service sector is still very much underwater, or certainly

below the like bills we were seeing in the first stages the levels that we were seeing in the first stages of the lockdown. i think that the prospect of a contractioncorrect, in terms of gdp as well as the rising brexit uncertainty play from a negative bias in terms of sterling. i think we could easily see that extended up toward 92 quite quickly. i would not be surprised if we saw the sterling squeezed out at the beginning of this week, but we could see it trading sub 120. francine: jeremy stretch of cibc stays with us. in the next hour, lord mervyn king. the former bank of england governor. we will talk with him about negative rates and deflationary

pressures. that is coming up in about 45 minutes from now. this is bloomberg. ♪

>> we are not ruling it out, and now is the right time. also --ay, we will tom: the governor of the bank of england. with us, jeremy stretch, from cibc markets. looking at monetary policy this

thursday and how it links in with all we do. jeremy, we were talking in the last block about the subtle shift that someone can signal when taking over as the leader of the central bank. governor bailey has been handed negative rates. what does he do with that? do the markets tell him what to do? how does he tactically respond to negative rates? well, it is interesting. as you say, somebody who arrives in a new role has an opportunity to look at the remit and the of parameters, and innocencio make sense for governor bailey to do that. came inse, whilst he suggesting that he agree with previous assumption, he is now opening the door to reassess that option. that is not to say he won't come

to the conclusion that in fact the effective lower bound is just about zero because there are some challenges that will need to be faced in terms of the financial sector if there were to be a move toward negative rates, but clearly markets will continue to try and press in that direction. or at least will continue to press in that direction as long as the data remains challenging and as long as the market is concerned that the impact and the ravages of the covid crisis are not showing any signs of interiorly easing. and the difficulty from the u.k.'s perspective is that while the continent of europe is starting to emerge slowly but surely from the lockdown process, the u.k. was both slower into the crisis in terms of the peak of cases, but also slower on the way out. i think that is one of the factors which will be leaving the market pressing mr. bailey to keep that negative rates story under consideration. banking does commercial

respond to this? what have we learned in continental europe about given bank response to these tendencies? of course from a commercial bank perspective, it depends on one of the others around that because there are a number of exemptions in terms of various deposits which have alleviated some of the full effects of negative rates. and of course there will be structural rigidity in terms of bonds in the system that are not set up for that negative rates spectrum. i think talking about negative rates could actually be almost as effective as putting them into place because you have opened the possibility that those negative rates could come into play at some stage. it reminds the market that there could be a penalty to be paid for hoarding deposits. and there is a necessity or a compulsion to try and encourage people to spend, both at the

consumer and corporate level. the threat of action may be as effective, and certainly the evidence in terms of the effectiveness of negative rates i think is compelling. it may be that the threat of negative rates could be more beneficial and more directional in terms of having an effect than actually the policy itself. at some: i am looking data. first of all, the cost of the lockdown stimulus definitely dwarfs the 2009 financial crisis. when you look at a lot of the debt generated out there, how will it move currencies -- looking at currency pairings, what do you look at as attractive right now? jeremy: somebody who asked me earlier in the week about the state of the u.k. deficit, talking about borrowing numbers and -- in excess of 300 billion sterling, look at 55 billion as a deficit target shows the scale of the fiscal capitulation.

talking about may a budget deficit of 15 to 17 gdp. but the u.k. is not having a budget blowout in isolation, and that is the point to remember. even in the context of discussion of what that might mean for rating agencies for sovereigns -- because we are not talking about isolation buyers, it may well be the case that that doesn't necessarily have a direct cause of impact. i think for those that have the wherewithal to have significant fiscal injections without causing significant stress in terms of thomistic treasuries, then there can be some -- of domestic treasuries, that there can be some scope -- norway is interesting because norway went into the crisis having a budget surface of on average of 7% the last five or six years. was positive. even though we have seen

significant spansion because of the size of the sovereign wealth fund and the potential repatriation flows that we have provides an obvious thee for countries like norwegian krone to perform well. francine: thank you so much for all of the insight. stretch, of cibc. the world bank chief economist, a conversation a negative rates. much more also on this debt created out there. that conversation 8:30 a.m. in new york, 1:30 p.m. in london. this is bloomberg. ♪

ritika: this is "bloomberg surveillance." let's get to the bloomberg business flash. the u.s. has given astrazeneca more than a million dollars to develop a coronavirus vaccine on the university of oxford. british drug maker hopes to have dosage ready as soon as september. the u.s. is also given money to sanofi to develop a vaccine. generic drug maker acorn has filed for bankruptcy. controversy about its quality control methods. it also has reach an agreement -- that is your bloomberg business flash. tom? francine? francine: thank you so much.

this is what i am looking at when it comes to your markets. first of all, stocks in europe, but also futures in the u.s. are pointing lower. it has to do with the chinese-american ties, about this trade that has actually deteriorated, or the rhetoric is getting more aggressive. it is definitely catching a cloud over the recent rally that tom,d with treasuries, aligning with the dollar. tom: the euro stronger against sterling. coming up, wolfgang munchau -- really been looking forward to this -- wolfgang much out on the future of germany. please stay with us. this is bloomberg. ♪

francine: this is bloomberg surveillance, tom and francine from new york. another lengthy conversation on

negative rates. ratesl be talking about and what it would mean for banks if the u.k. were to go there. europe,about the u.k., wolfgang, thank you for joining. i have like, 25 questions i need to ask you about euro area. do we know how brexit is going? moment, they are treating barb wire's on both sides. we have a deal at the end? wolfgang: it is possible but you especially from the noise because whether or not you get it you will be at the position where we are now.

negotiatorshe indicated where they are willing to compromise. we are seeing u.k. is ready to compromise. e.u. is probably going to compromise on the level playing field. to eunot sustain demand regulation after brexit. that is a demand too far. u.k.s a case, to ask the to respect the level of regulation, the level playing field at the point of departure. there is compromise on both sides. in the end, it is a political decision for johnson and the council to decide whether they have enough or whether they want to walk. we cannot deduce, from what we know, what the outcome will be.

howcine: the handling and itnson dealt with covid-19, makes face-to-face meetings much harder. brexit gets sure done in time? wolfgang: there is a case for him to accelerate the process. it would not be in his interest to delay. one advantage he would have with a hard brexit would be the economic cost would be hidden by the covid crisis. no one would be able to disentangle it. for most people, it would not be a real number. runs a good way to hit and if you want to go ahead with it.

that tilts the playing field slightly in favor of a harder brexit. last time, he needed a deal. he would have been in trouble if he did not get a deal in october. now, it is different. tom: wolfgang, good morning from new york. one of your great expertises, and i say this with great respect for the european experiment, i see you and many others, about the germanness of the moment. the airline is going bust. robes,standing up in red galvanizing the nation. tell me the linkage now between the german ethos, the people and the elites. are they remotely on the same page? wolfgang: at the moment there is

a disconnect. you can see this in an opinion poll by the german government; trying to clamp on investors in china but others are pro-china, interesting development. you see this in the ruling by usingnstitutional court, very old arguments about national sovereignty. we have to see how the handling is going down in the public, which has not resonated yet. germany have a good crisis response. it have less covid infections than other countries. impact on industrial germany will be one of the worst in the eu and the big dramas are yet to come. tom: is there a point, and

folks, we should mention, wolfgang, one of the great experiments of journalism, ft deutschland, is there a point where the german people -- do they rebel? i don't understand the protest mechanism in germany like i maybe understand it in france or the u.k. or america. today protest? -- do they protest? wolfgang: no, it is more hidden. 2000s, the politics of reform, it happened when middle-class, the children of middle-class people became unemployed. the pressure rose on the government that they do something and finally it happened. no one went on the street. it was a quiet protest. at the moment, that is the case.

money, full employment, furloughed people receiving compensation. the country is at equilibrium. situation -- to a -- this is aation country most dependent on global selections. v one can tell me this is a shape recovery. germany will be hit structurally by this. government is trying to keep structures alive, rather than adjust. that will probably happen in the next 12 months, before the election. it will be interesting to see the reaction. i would not pay too much attention to the counter opinion polls. they show a lot of stability.

the situation may look different in a years time. tom: we will come back with wolfgang. good conversation to drive forward, thursday morning, mervyn king with us in the next hour. the new chief economist of the world bank scheduled for later this morning, with bloomberg television. attack on china over isonavirus, suggesting xi behind a propaganda attack against the u.s. and europe, also that china is desperate for joe biden to win the presidential race. china is accused of human rights violations in intellectual property theft. maeregulator for fannie wants them to hold billions of

dollars in capital, to guard against losses, but that could have an impact on mortgage rates s. in central michigan, another threat of floodwaters forcing the evacuation of 10,000 people. watersmical says the have begun mixing with the on-site eight minute pumps -- on-site containment pumps. the flooding was caused by potential, torrential rains. boiled over trade talks between eu.u.k. and thae it underscores how little they have achieved at the bargaining table. they could leave at the end of the year without a trade deal. global news 24 hours a day on air and on quicktake from

bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you. exclusive conversation with nancy pelosi to discuss the cares act and covid-19 relief for americans. this is bloomberg. ♪

tom: good morning. bloomberg surveillance, francine and tom, thursday means jobless claims in america. r 40 million.

these are shocking numbers. they will change the discourse in america. we consider the discourse of munchau.th wolfgang wonderful work, he has done over the decades on germany and the continental mess europe is in. the numbers are shocking for europe. do the elite of europe, does brussels, the rest of them, do they understand the lethargy in europe? visit business as usual? -- is it business as usual? anyoneg: i don't think in brussels or germany would put it as dramatic as you would. there is a sense of, emmanuel macron, did a thing, and it was fine. you will hear the hamilton moment of the eu, the act of

symbolism. the reality is, this $500 billion is not a lot. it is a seven year budget. economy,ion euro heavy even over three years, it is barely 1% of gdp. most of the lifting would be from the member states. by theconstrained negative bond or interest-rate, by legal constraints on purchases. the german court is not responsible for the ecb. it indirectly places a limit on what they can do in the future, long-term. the governments will have to act. i don't think it will cut it. we hear the dutch and the austrians, the swedes, want to curtail some of the functioning of the fund. i also think the germans in the

french want some money for themselves. frenchgermans and the want some money for themselves. if you look at the document, it says investments in robotics, and health industries. apportioned,fairly may be more for italy and spain, but not all that much. the deflationary shock this has produced for eurozone is likely to be immense. this was unimaginable six months ago. again, know whether, does this because of cal's roi, that they are worried, this is a make or break moment? this is not a perfect plan. does it not show the willingness of the german government to go a step further? wolfgang: that shows a .illingness

merkel, she did not want to pay in 2012.sand 12 -- pay the pressure grew. people were saying, if the ecb comes with a heavy lifting, we have to do it. that.s sensitive to to fightt going another election. she has some political capital left to spend. it is not that simple, in a sense. first of all, 500 billion is a small some. -- sum. if that gets watered down, which they might do, with this kind of operation, you have to see what actually filters through the

system. we have had a lot of this stuff in the eu. you may remember the investment by the younger administration -- juncker administration. they have to see how much of it was actual stuff. i don't think much of it was. here, you have to generate real money. this is unusual for the eu. they made a step in that direction. i am not hopeful. we need a bailout at the end of this? and if it does, or if other countries need a bailout, will it be seen by lack of solidarity and will euro actually break up? wolfgang: i don't think the euro will break up but there are dangerous scenarios. i cannot see italy getting a bailout in the classic sense. stabilityan

mechanism, the debate is almost quaint given the science of the italian debt and the availability of money in the european bailout system. i could see a debt restructure. that is a far more likely scenario. ecb. of it may involve the that is part of the bank refinancing operations. that is what we have to discount, rather than the breakup of the eurozone. tom: that is brilliant. what a way to end this conversation, a quaint idea of going back to a debt restructuring. our original, like back to the '90's. wolfgang, providing value, thank you so much for being with us. equity markets, one day off, one day on, i don't even know where we are.

i will look at the bloomberg terminal on my cell phone. this is bloomberg. mervyn king, the next hour. ♪

tom: good morning from london and new york. it is truly one of those tansa,rs we all know, luf the reef formation in 1955 and the absolute development of major hub developments, 30 years ago or so. crisis mode. guy johnson is expert on loose uftansa. what a fractious relationship between management and the pilots union. betweenthe relationship management and the german government? uy: they don't want the

government to be too heavily involved. they are worried once the crisis passes, if the government is involved, they will no longer be competitive with the government on its board, the union involved, there will be a much bigger green agenda involved. the results of which, when all of this is partially over, they will not be able to compete with iag or ryanair on short haul flights. that looks like they will have to bite the bullet. it looks like the german government will get a 25% stake, plus one share, giving it a majority, ending up on the advisory board, as a result of effectivelynd them being run for the benefit of the german government. that is a different proposition

to running an independent airline. it will look more like emirates than iag. tom: i like that idea but i was thinking of air france. always a distinctive structure of a german model, 20 some percent, versus the french model of peeling back on air france over the years. guy: to get the same situation with both airlines. the state will be heavily involved. -- you get the same situation with both airlines. analysts think you get a situation where you have two camps in europe. the state run, state organized to thes, similar operating brief emirates had -- you are here to serve the german people, german business, and that is your objective. it is not to make money in the same way iag is designed to make

money or ryanair is designed to make money. the equity ultimately gets diluted. basically, a state run carrier. basically the same situation over air france. iag came in with initial balance sheets. air france did not. they thought the income and assets -- it hasn't. it had to go to the state and effectively allow the state to take control of business. francine: what are the chances that you say yes to this? guy: there is a high chance the eu says yes. we are probably going to have to change rules a little. euould be surprised if the ended up blocking this. two major airline groups in europe, close to collapse.

if they collapse, thousands of jobs ultimately will go. jobs will probably have to go, despite government involvement. surprised if they decided to block. doesn't have the ability in the same way to stand up to be governments. berlin will force this one through. tom: events are moving through may, guy johnson, thank you so much, in london today. much more coming up. francine, what a treat. our extended conversation with governor king in this coming hour. tom, it will be interesting to see what he has to say on negative rates. thanks are breaking the possibility -- banks are

breaking the possibility of negative rates, many saying it is a possibility. the market seems to be pricing in more than they were two months ago. if they go ahead with negative rates, you wonder how you mitigate the impact on banks. do you offer specialized lending? at the margins? it will be a great conversation. that is coming up in a couple minutes. this is bloomberg. ♪

tom: this morning, in our many

distractions, there is one reality. america stops every thursday to assess the number without jobs. this morning, toward 40 million the sized, joblessness of california. against euro, negative rates, the alchemy, mervyn king will join us in moments. well, it is not "as fun as comedy." 1972, a week that change to the world. changed thet that world. state sendsy of direct greetings to taiwan. the people's liberation army respond. "firm will and full