♪ >> good morning from london. i'm nejra, this is bloomberg day break europe. the hang seng leads stocks lower as the proposal for a curt law on hong kong sparks outrage. sparks outrage. top state officials echo the sentiment as jobless claims top

two million for the nante straight week. and the fed could hold further guidance until the fall. b.o.j. upped the board for small businesses. the question you may be asking yourself in the market today is where the focus will shift in today's session from reopening to escalation. hong kong very much the focus over the abandonment of the growth target for this year which was widely anticipate. the central bank that we learned overnight is india unexpectedly cutting rates with g.d.p. set to shrink. we had that note from goldman talking about the worst recession ever in the second quarter for india. we've got a 40-basis-point rate cut to 4% from india today. little bit of weakness in the rupee. in terms of the broader market, you're seeing the hang seng lead those losses in asia there is red on the screen across asian

markets. also u.s. and european futures pointing to a lower open. a clear risk coming through today. the 10-year treasury yield drops by three basis points toward the 64 -- and oil as well on the back foot retreating quite significantly from its highest level in more than two months, still heading for a weekly gain, fourth consecutive weekly gain. china has told the national people's congress that beijing will reinforce national security in the autonomous region of hong kong. this after beijing announced dramatic plans to rein in dissent by writing a new law into the city's charter. an opposition lawmaker in the city called the move the end of hong kong. oining us is bloomberg's co-anchor, tom mckenzie. good to have you with us. why is the hong kong security law so controversial?

run us through the details. tom: this is a security law, nejra, that hong kong's own government has been trying to push through an get enshrined and written into the books for years and they have failed. toe de-spite having a majority of lawmakers the opposition in hong kong has been so strong. it led to protests in 2003. when they tried to push the security law through so now beijing is taking the opportunity when much of the world's focus son the coronavirus to circumstance um 1/2 vate the hong kong goff and push the security law through. now beijing says this is necessary to ensure the territorial integrity of china and to give lawmakers in hong kong the power to crack down on what they say are terrorist activities in that city. secessionlaw aimed at and foreign interference. the fear from those in hong kong, pro-democracy activists and lawmakers is that it will

further undermine the autonomy of the city and undermine the free press an free speech that hong kong enjoys. or s you noted there, one both pro democracy lawmakers in hong kong said it could ult montanaly spread the end of that city. the trump administration is new empowered by the bill passed by congress at the end of last year on hong kong to review the city's status. he could revoke some of hong kong's special trading rights that the city currently enjoys with the u.s. nejra: that takes mu me to our next question. we'll talk about the growth target in a second. what we heard overnight in terms of hong kong, what's that likely to do in terms of u.s.-china tensions have have been ramping up recently? >> the situation relationship now between beijing and washington is toxic. the one thing that seems to be holding the two countries

together nominally at least by a thread is the phase one trade deal. we talk about that in more depth. it certainly pushes the two countries further apart and you're seeing the senators bypass it once again in the u.s. pushing a deal that would punish china for any move to impose the security law, it would impose sanctions on entities that would enforce the security law and banks do work an business with those entities. you could then in theory be looking at u.s. imposing sanctions on china's major banks which would be significant. look ld make the push insignificant in comparison. you're seeing this push now and we expect further rhetoric and strong words and potentially action from the trump administration lead ugh up to november elections. nejra: let's talk about the

growth target as well, tom. it won't come as a surprise to many that china abandoned the growth target for 2020. it looks like the focus is very much on employment. what else should we read in terms of the details in terms of what's come out today in tom: first time they drop the g.d.p. target since 1994 because of the uncertainty over the virus, the global economy. not a major surprise but significant nonetheless. emphasis shifting to supporting jobs. s that job mark that's been hammered. you're looking at potentially 130 million people unemployed or furloughed. you're looking at the official unemployment rate at 6%. most economists think it's anywhere between 10% and 20% in reality. of course you get a lot of joblessness in china, that points to concerns about sorle stability and yale how the communist party justifies its existence. this is the issue that keeps them up at nite. you're seeing a target to create nine million urban jobs by the

end of 2023 to have an official unemployment rate of 6%. also more support for small and medium sized enterprises that create the bulk of jobs and employment in china. 5% of jobs created, more tax cuts and more infrastructure spending no big surprise there you're looking at almost half a trillion of infrastructure spending as well. on the monetary policy front, we expect more cuts to the banking system. no, i rah: and the budget deficit target wide tond more than 3.6% of g.d. perform. that was bloomberg markets co-anchor tom mackenzie from the forbidden city in beijing. now to the first nude, india's central banks cut rates in an unexpected announce thment morning. it's ramping up support for an economy facing its first recession in four decades. the benchmark repurchase rate was lowered by 40 basis points to 4%. the reserve bank's next meeting

wasn't scheduled until june 5. president donald trump decided to withdraw from the open skies treaty, an arms control act designed to promote transparency transparency between the u.s. and russia. the president is citing violations from moscow. aying. he move won't take the move won't take place for six months. there are just over 300 pandemic cases and no deaths. with many countries shrinking, the prime minister said his country could still grow as much as 5%.

certain macroeconomic indices as overspending, therefore we have sed the -- set the g.d.p. growth of 2020 to be 5%. i believe this is the highest g.d.p. growth expectation in asia at the moment. nejra: global news powered by more than 240 journalists and analysts in 120 countries. china abandons its practice of tting an annual g.d.p., we discuss this with our guest. this is bloomberg. ♪

♪ no, i rah: this is bloomberg day

break europe. there might be a bit of reatrazal of geopolitical risk in the market today. hang seng down after what we learned from the n.p.c. red then screen in asia and also for u.s. and european futures 10. -year yield dropping. seeing dollar strength across the board in g-10. in dollar general that's reflected not so much. the yen on a 107 handle, oil retreating strongly but heading for a weekly gain. china has stirred big hornets' nest on hong kong. they told the people's congress they would enforce national security in the autonomous region. they announced a new law. an opposition lawmaker in the city called the move the end of hong kong. joining us now is andrew sheaf, chief asset analyst at morgan stanley. before we got this news overnight from the n.p.c., the

market was starting to get, the equity market at least, yitry on the escalation of geopolitical risk between the u.s. and china. are we waking up to a new geopolitical risk today with hong kong? >> you know, i think there are a couple of overlapping elements here. i do think it looks quite clear that -- that china is going to be a central focus in the u.s. presidential election. i think it's notable that i think both candidates, both joe biden and president trump have advocailted a relatively, i think, hawkish position toward china and china trade. so i think this an issue where there -- maybe one issue where there's bipartisan support to remain -- to maintain a relatively tough trade stance. and then i think as you mentioned, there's this specific issue around -- around recent events and whether or not that

would affect the annual u.s. review of the hong kong human rights and democracy act. secretary of state pompeo initially delayed that review. potentially waiting to see potential actions that china might take that review is still to be done. i think that's potentially the next thing that markets will need to watch for to see, does the u.s. take any steps on the back of recent headlines. nejra: with the market watching that, how significant are we -- a repricing could we see, andrew? andrew: again, i think there are a number of moving parts here and i do think timing is important. even with some of this legislation you see in the u.s. senate regarding potentially changing the terms for listing -- listing chinese company rrs making it more challenging for them. it's not clear yet if senate

majority leader mcconnell will allow that to come to the floor as opposed to potentially tabling it and waiting to see if there's a more opportune time to do that or waiting to see what happens, what actions are taken from china's standpoint. i think the better way to think about this is, this is a long-running issue. i think this is an issue that's going to be with us for months. i think there will still be a lot of back and forth. i think there's actually a case that the shortstoppest escalation could occur closer to the u.s. election when the issue is kind of more on the minds of voters when, you know, you could argue there's a stronger incentive for the u.s. to take a tougher line when its own economy is doing relatively better, obviously the u.s. economy is extremely weak at the moment. so -- but i think this is an issue where, you know, investors have to keep an open mind but ultimately, you know, we don't

think it's an issue that overwhelmed the market negatively now but i think it is a key issue that we need to watch as we head into august, september. nejra: not overwhelming the market now. obviously what we also learn ned n.p.c. overnight with china abandoning its growth target for this year, very much a focus on employment and mfsment coming through and some guidance as well in terms of stimulus. what sort of strategy do you want to take around china at the moment? some people have said that looking with the stimulus on the cards, high yield is a place they want to be in china. would you agree? or are there other areas that atch your interest more? andrew: it's several things. globally, this goes back to my previous point, overall i think it's a constructive back drop. i still think you have large amounts of policy stimulus, large amounts of fiscal stimulus. we saw china announce --

announce yesterday or overnight where they will also be driving some of their largest fiscal deficits on record at the same time the united states is driving its largest fiscal deficits on record. and i think all of this is happening at a time when the global data is starting to improve and investors are understandably, i think, still cautious. so i think all of that is a generally constructive backdrop even in light of kind of recent geopolitical concerns. i think specifically for china, we actually think china, domestic equities can outperform their e.m. counterparts. that's a function of china's larger domestic stimulus. it's a function of china's growth. rebounding faster than the broader emerging marks and a better china consumer story is that stimulus is focused on the consumer more so than the s.o.e. sector.

jra: andrew sheets of morgan stanley stays with us for the hour. up next we discuss the state of the u.s. economy. this is bloomberg. ♪ slt

nejra: this is "bloomberg day break: yurp." the national people's congress has opened in beijing this morning. at 10:00 a.m. london time. shareholders will vote on a call to remove the company's chairman c.e.o. and c.f.o. as director. at 12:30 p.m. u.k. time they release the account of its latest monetary policy meeting. finally, ali baba is set to publish earnings before the u.s. market opens. they're likely to report a year over year market decline in the

march quarter. millions more american applied for unemployment benefit last week, indicates that job losses are continuing two months after coronavirus pandemic started shuttering businesses. initial jobless claims in the week ending may 16. congress will likely have more stimulus legislation. speaker nancy pelosi spoke exclusively with bloomberg about this. >> we know that issues like unemployment insurance, food stamps and the rest really are -- provide stimulus to the economy and we have to do that. and so we think in our package, the heroes act that we do just exactly that. a scientific path to open the economy safely. safely. and soon. supporting our heroes to keep

those jobs in place which is important, which are important to the economy. an again the stimulus, for money in the pockets of the american people provides. >> the question on everyone's minds the prospect of passage of the heroes act or something like that and when it might happen. secretary me knew shin agreed something needs to be done, not sure how quickly. president trump said he's working on a package are you in active gos? how much hope do you have that we'll have something relatively soon? >> i'm optimistic because the american people fully support what we are doing. 2-1 already. they support the provisions of our bill and oppose the senate obstructing it. so i have confidence in public opinion. also when it's bipartisan across the country, we have less than $1 trillion that goes to states,

localities, and territorial governments that provide jobs for people across the country. so we had democratic and republican mayors, governor, county executives and the rest, very enthusiastic about the legislation and making their voices known to the members of the united states senate. this is very unusual that we ve such a strong, bipartisan advocacy for legislation of this kind which is meeting resistance in the senate. but i don't think for long. because what we have in the bill is disciplined, it's focused, it's all necessary. and it has broad bipartisan support in the country. just a matter of time. they want to pause but as i said here before, hunger doesn't take a pause. losing your job doesn't take a pause. all of -- paying the rent doesn't take a pause. we really need to meet the needs of the american people.

and at the same time, provide stimulus to the economy. you mentioned mnuchin but also the head of the fed, chairman of the fed, powell, has said that it's the responsibility of elected representatives to use the tax and spend responsibilities that we have in a way that helps the economy. and he has indicated that there's need for more. >> i wanted to ask you also, the inspector general controversy, just one quick thought about china. another thing that appears to have bipartisan support is legislation including possibly delisting some chinese companies. is that going to make it through the house? might it have ramifications for the markets overall? >> this is something we just learned of that passed with unanimous consent. ere wasn't much debate or --

so we'll review it in the house. i asked my committee to take a look at what that is. i take second place to no one in the congress, house or senate, in my criticisms of china's trade policies with the united states over decades, the proliferations of weapons of mass destruction, right now whether it's the uighurs, the people of hong kong, tibbett, they have been very oppressive and even more. so we have to have relationship with china and we judge every action as to what it means to us as well as what it means to them. so look for it. interesting that it has such unanimous support though in the enate. nejra: that was u.s. house of representatives speaker nancy pelosi. andrew is still with us. do you see risk assets

outperforming from the stimulus from feds and from congress? andrew: we think that applies on the equity side. overweight u.s. equities real ty to the rest of the world. i think for credit it could be a little bit more even where u.s. credit and european credit i think perform similarly on a risk adjusted basis. we also look emerging market credit. on the equity side we do think u.s. equities will outperform. a big part of that is the largest expected stimulus that we've had so far from the u.s. and further stimulus that we think will pass between now and the fourth of july. nejra: andrew, how does that fit also with your view that one good thing you're worried about is a faster reopening of the economy because that is certainly something president trump has been pushing for. andrew: yeah, so, i think this is really important. i think there's too much kind of market focus and market debate

as we talked about kind of the shape of the recovery on whether it's going to be a so-called u-shaped, slow recovery or so-called v-shaped, faster recovery. i actually think that's something of a red herring as an investment debate. one -- because i think one person's view look -- one person's u looks like another person's v. it's a subjective way of talking about the economy but also because both of those recoveries fundamentally, even if it's slow, a u-shape still implies the worst is behind us, things will be getting better. over and over again markets have proven they can be very forgiving of bad data as long as the bad data is starting to get better. i think where marks can be completely unforgiving is any sign that things are getting worse. that's the real risk that would ome from a too fast reopening. nejra: andrew sheets of mar began stanley stays us. china drops its annual g.d.p. target for the first time and pushes for tougher security laws

in hong kong. the latest from the national people's congress with our guest, jimmy yan. this is bloomberg. ♪

there are times when our need to connect really matters. to keep customers and employees in the know. to keep business moving. comcast business is prepared for times like these. powered by the nation's largest gig-speed network. to help give you the speed, reliability, and security you need. tools to manage your business from any device, anywhere. and a team of experts - here for you 24/7. we've always believed in the power of working together. that's why, when every connection counts... you can count on us.

♪ nejra: good morning from london. i'm nejra cehic. these are today's top stories. sang he think leads asian stocks lower as china's plan to impose a security plan on hong kong sparks outrage. president trump pledges retalluation and senators propose a sanction. treasury secretary mnuchin said it's likely the u.s. will need another stimulus bill as jobless claims top two million for the ninth straight week.

and the fed would hold further guidance until the fall. bets on a quicker b.o.e. journey -- b.o.j. journey, the b.o.j. upped support for small businesses. if we wake up this morning in europe we might ask ourselves, do we reaprice the risk otoward a re-escalation of geopolitical risk given what we heard from the n.p.c. not coming as a surprise for many, that's put to the side somewhat. you're seeing a clear risk off tone. hang seng down more than 5%. red on the screen in asia. downside gaining miami um for both u.s. and european futures. the 10-year yield lower, dollar strength, all of this speaks to risk off as does the lower oil price down more than 7% on w.t.i. at the moment. still heading for a weekly gain, its fourth in fact. now the chinese government has abandoned its decades-long practice of setting an annual the prix mironomic

spoke about the problems caused by the coronavirus pandemic and laid out a renewed focus on maintaining employment and joining us to discuss this is jinny yan. thank you for joining. the abandonment of the growth arget for 2020 has come as a surprise to many but it's looking different to the scenarios you laid out are you disappointed with what we heard today? jinny: i'm surprised, certainly. i have to say that i think markets will be quite disapointed with the lack of quantitative target. dramatic change as we know. we didn't envision maybe there was so much ambition to change it this year and miss the current crisis. but that said, there are some de facto targets and some soft targeting, for example the nine llion jobs and also with

increasing emphasis on fiscal side. there is a much broader and much higher fiscal deficit project. i think all in all, very much a surprise. also, one thing that did come across the report, the report itself was almost half shorter than previous years in words an characters. so that means some look at the processes going forward. that's another symbol from the national people's congress. i think that's a very meaningful simplification of the work. nejra: that's interesting on the simplification, jinny, because you pointed out before that the immediate commentaries will likely miss the important embedded messages that's crucial for china's longer term growth prospects. what embedded medsages are you seeing in today's report. jinny: i'm seeing that social welfare becomes much more elevated in terms of the

priorities. obviously you're here -- y'all hear from beijing mentioning of the six priorities. number one is definitely the labor market. we know that social unrest only happens when there is uncertainty particularly on the social front. mass layoffs in employment is going to be seen as one of the triggers of that. anything to prevent that from happening. so really the g.d.p. target moves the emphasis away from, you know, the stimulus and packages, etc., that we saw after the financial crisis. this time around, the social welfare factors are much, much more important. those embedded messages going forward will be very interesting and on top of that, new investments, so things like 5g, high speed railway, target in terms of spending on high speed railway.

i think the loan target too, social financing that is still likely to see growth. so all in all, i don't think this means any lessening in terms of the progrowth measures we have already seen and in fact we'll probably see more measures. certainly there's a toning down of the ambitions by beijing. nejra: so on the supportive measures, then, jinny, one thing again that you pointed out before is that beijing has a deep concern of a prolonged global recession and a second wave of lockdowns shock. were that to transpyre how much more aggressive could -- transpire how much more aggressive could it be? jinny: monetary policy can be even looser. what we can envisage from that is that in the second half, perhaps, when needed, rates can go even lower. so of course with moves away

from sort of the benchmark deposit and lending rates toward l.p.r. which is a much more market determined rate, interbank rate really, that will become really the center of the rate corridor provisions. i think mentioning of further reform on the l.p.r. front and also of course guiding rate expectations down further, especially as major central bank and for that negative rate, i think going forward the emphasis in terms of quality will shift toward fiscal policy. massive tax cuts have been outlined already, we're likely to see further details of that one thing i'm surprised about is the lack of details on boosting consumption. as i have been talking about consumption is such a huge component of g.d.p. growth in recent years. so far it seems that more

policies are needed to ensure that consumption is stabilized but also boosted. of course unemployment rate is going to be important. but our -- but alongside that we need to see more policies to increase and encourage spending. nejra: i was going to say targeting unemployment may be a way of doing that but that's a good point on the lack of guidance around con suppings. we don't have a growth target for the year but what's your outlook for china's growth? jinny: my outlook is actually that first of all, the nine million new jobs means de facto roughly between 4% to 5% g.d.p. growth in previous terms. now of course, the nine million new jobs could mean that we're seeing, you know, job creation perhaps in civil service for example. so maybe the previous metrics

might not work in that sense but certainly positive growth from quarter two onwards. next year, however, we might see a little bit more of an ambitious going forward with g.d.p. growth. in fact, heading toward the next goal which is 2049, i would envisage targeting will be pushing toward that so for example, g.d. perform, you know, may not be mentioned as such but certainly things like shifting investments of focus toward high tech, generating wealth, alleviating poverty altogether from rural areas, these are messages we will be seeing. but these are very much long-term goals rather than short-term. this year, full focus on getting through the crisis. on social welfare. poverty mitigation. nd job creation. nejra: great to have you with us today.

, ny yan, chief economist at and we'll be talking about central banks next, this is bloomberg ♪

♪ >> with the unemployment rate at 14.7% in just two months the u.s. economy has swung from a 15-year unemployment low to jobless numbers not seen since the great depression. labor department numbers show them both -- show the most severely affected sectors including travel, entertainment, restaurants and child care, accounted for just 20% of payroll for february. but more than half of the job losses in april. although the pace of layoffs

appears to be slowing, may job figures are expected to bring more bad news. as consumers' habits change, jobs related to online shopping may replace many retail positions while demand for workers in the health care sector will likely remain strong in the post-pandemic economy. bloomberg economics is tracking the downturn and signs of recovery. retail sales and consumer confidence continue to drop, signaling a slow recovery when the nation reopens. while mortgage applications and the number of airline passengers are starting to stabilize. even as states reopen and some data shows sign ops optimism, sustained weakness in may is dueling expecting as g.d.p. will shrink this quarter by the most since the 1940's and some service sector job mace never fully recover from the crisis. nejra: that was a look at the historic jump in unemployment -- unemployment claimants in the

u.s. don't miss our special "coronavirus: america's employment bust" airing this weekend. andrew sheets of morgan stanley with us this hour said you to properhaps wait until august to reappraise the market. but we are seeing red in the mark. hang seng leading asia, stronger dollar also a stronger yen. and oil retreating quite strongly but still heading for a fourth queekly gain. india's central bank cut interest rates in an unscheduled announcement today ramping up for an economy it expects to contract for the first time in four decades. the bang of japan launched a new lending program worth $279 million to support small businesses through the crisis. it kept its policy interest rates and asset purchases unchanged. data released earlier in the day showed japan's key inflation rate falling below zero for the first time in more than three

years. in other central bank news, the e.c.b. publishes the account of its latest policy meeting when it cut funding costs for banks. an true sheets of morgan stanley is still with us. an true, looking at whata pan as done today and the steps it has taken, i want to ask you how strong you see a risk of deflation globally? andrew: i think the risk of deflation this year is very high. it's almost baked in given how weak the growth is. going to be in 2020. but i think the real question is probably looking out into 2021, 2022, is it more likely we get a deflationnary or disinflation air outcome or inflationary outcome and i think an inflationary outcome is more likely. that's view we have at morgan stanley, the view of our economics team. i think it's driven by the unprecedented policy easing we're seeing out of central banks, the unprecedented stimulus and the fact that we do

think growth will be better by 2021, 2022, to chose some of that output gap and drive more inflationary measures to market. nejra: if the deflationnary pressure becomes powerful enough that even a federate at zero starts to look restrictive, could we see negative rates in the u.s. and would that be a good or bad thing? andrew: i hope we don't. for the perspective of marks and what we think would be best for market performance. it's certainly possible. the market started to price that in the u.s. starting to price that in the united kingdom. i think it would be a difficult step, a risky step for a few reasons. first, i don't think the track record of negative rate policy looks particularly successful. if we're being honest. if we look at countries that have implemented negative interest rates.

they've generally had underperforming economies, underperforming loan growth, underpmping stock marks, relative to countries that have not and i think that indicates that there are a lot of negative extra -- externalities to negative rates that it candice rupt the financial system, disrupt lending, affect confidence. it can negatively affect consumer sentiment. it can do a lot of things that actually tighten financial conditions even if the goal is to ease financial conditions. i do think the fed, i do think the fed think this is way. i think that explains the fed's long-standing reluctance to negative rate which is goes back to the last financial crisis, the time of bernanke. but we will obviously have to see how that evolves. ewe do not think the fed will pursue that and move rates negative. nejra: you don't think the fed will pursue that richard said the fed may wait until fall for

more rate guidance. do you think the bank of england will pursue that? we see in the last 24 hours pricing around negative rates getting more aggressive. andrew: we think with the bank of england it could be a little different. we do think the bank of england could introdause a funding scheme for banks whether it be potential for banks to borrow at a rate that would be slightly -- slightly below zero. but again we don't think the bank of england cuts its target rate below zero. again, you know, there's enormous amount of uncertainty around this. i think it's some of the same drivers that we do think the negatives on the banking system in the u.k. and the ability of banks to intermediate credit could be negatively affected for relatively modest gain. it can be a negative impact for consumer sentiment because obviously the focus becomes on well, why are -- why is the central bank taking this action? does it indicate the economy is

worse than i expected? i think there are a number of factors that i think reasonably would give the bank of england pause. i think timing could matter here. by the time -- if we're looking forward a couple of months, i do think some data will start to look less bad and that could remove some impetus to take on such drastic measures. nejra: andrew sheets, chief analyst at morgan stanley, stays with us. lenders led by credit suisse are targeting the family assets aze they try to recoup losses in loans. this deal soured after the mpany became embroiled in an accounting scandal. i.b.m. the latest tech giant to cut jobs. declining to comment on the total number but pearing back staff in at least five u.s. states. it's unclear how many cuts are due to the pandemic. the company suffered years falling revenue. back in january they discussed -- discussed recused cost

through structural changes. bank of scotland said most employees won't return to the office for month but a small number will return to work in june. they're planning strict social distancing measures. his comes as other banks are cutting occupancy levels and moving staff to the suburbs. now coming up, emerging markets remain vulnerable to a fresh selloff. they've begun to make early bets on potential growth recovery. we'll discuss next, this is bloomberg. ♪

nejra: this is "bloomberg day break: yurp." goldman sachs is bullish on the

hardest hit stock market, down more than 46%. it says brazilian stock wiss benefit from growing appetite for risky asset and recovery in the second half of 2020. in a rare moment of political consensus, president bolsonaro and state governorors yesterday announced a proposal to freeze public servant's salaries. brazil had another record day of deaths with 1,188 fatalities. emerging markets remain more vulnerable to a fresh selloff but investors and analysts -- analysts are making bets on growth. earning bets for developing nations are rising once again. ollar bonds, the refuge of investors in bouts of weakness, began in april. now sovereign bonds over treasuries is dropping at the fastest pace since 2009. andrew sheets is still with us.

you recently upgraded e.m. credit. what was behind that decision? andrew: thanks, so, there were a couple of things that we in our emerging market team are looking at. one is the yield pickup to emerging market credit had really lagged the improvement we've seen in equities and developed market bonds. i think secondly more confidence that the global economy hit bottom in april and that growth is picking up and that ultimately does help and will mean that maybe the economic damage and e. -- in e.m. is not as bad as in irblely thought. third is as you correctly mentioned maybe some of the technical factors are looking better, the fund outflows are slowing, potentially reversing. a lot of indicaters that emerging market strategists follow suggest caution among e.m. investor, cash planses are high, investors are relatively cautious on the amount of beta they're taking. so i think we put all those

things together and think that the risk-reward is favorable in e.m. credit and moved it to overweight. nejra: interesting. on the dollar bonds as well. i mean we talked about the fact that the extra yield over treasury is dropping but still remains 23% above its lifetime average that does suggest potential further bond gains once the virus is contained. but andrew, earlier we were talking about the potential of repricing of geopolitical risk particularly with regard to u.s. and china. a lot of people flag this as a big risk for emerging markets. is that something you'll keep a close eye on and perhaps reassess the overweight in the autumn? andrew: it is something we need to keep an eye on. very much to that point. i do think that the -- maybe the greatest pressure point or risk point to the market could sit in in august or september where you have the confluence of the approaching u.s. election, maybe

greater temptation for more hawkish china policy, if we see a second wave of cases in the u.s. from coronavirus, we think also that timing is potentially when when it could happen. but i also think for emerging market there's a difference between the credit and the equity here. i think, you know, i think equity markets are probably more susceptible to uncertainty over just how fast the recovery is. do you see further trade tensions that could impact earnings. i think the credit space, the fixed income side of emerging marks will be less sensitive, i think at the margin, those trade tensions. i think that's what we saw if we look back to 2018 to 2019 as well that the equity side was more effective than the credit side. that's a bit of the way we're thinking about that nejra: still on the credit, given that you've said some of it is predicated on a growth recovery or growth perhaps not being as bad as some expect, sit

more china that you're positive on in that e.m. credit space latam?than, for example, andrew: within latam, we are seeing signs that maybe there's enough negativity in the price, we had been more bearish on the brazilian real. we moved that to neutral. moved to a positive view on the mexican peso. again not that, you know, all is all clear, all is clear in these economies but that i think market sentiment moved a lot. moved to be quite negative even as in the case of mexico the economy is linked to the united states and the u.s. data does look like it bottomed in april and will improve from here. even in latam there are places where we think the risk-reward is favorable. nejra: interesting. thank you for joining us. andrew sheets, chief asset analyst at morgan stanley, great to have you with us this

morning. that's it for "bloomberg day break: yurp." the european open is up next, looks like a lower open, futures down more than 1%, risk off across the board. this is bloomberg. ♪

>> welcome to bloomberg markets: european open. i'm live in london, alongside matt miller in berlin. matt: play nice. asian stocks head for their biggest slide in a month, dragging down european futures as hong kong tension threatens to resurface. here are your top headlines from the bloomberg terminal.