hong kong stocks plunge the most since the financial crisis as china announced a security law as disagree. signs of a rebound in asia. meantime, reports of 20,000 job cuts. and richard flick clara of the fed -- richard clarida of the claims athe government

top 2 million for the top two weeks. good morning, everyone. this is "bloomberg surveillance." i am francine lacqua here in london. this is markets. when you look at the markets, they seem to be focused a lot on hong kong. at the same time, u.s. stocks are dropping futures. if you look at washington and beijing, escalating after china announced the national security law. oil snapped a six-day winning streak. we will also have much more. let's get to bloomberg first word news in new york city with ritika gupta. ritika: hi, francine. imposing restrictions on chinese companies listed on u.s. exchanges, but the parliament stop short of passing a vote. the senate had overwhelming support from both parties. rising pushback against china on capitol hill.

president trump has decided to withdraw from the open skies treaty. he wants to promote transparency between the u.s. and washer, -- and russia, citing until there is a deal, "we will pull out." secretary of state mike pompeo says there could be a deal if russia complies with the treaty. and the u.s. central bank unexpectedly cut rates. it is ramping up support for an economy facing its first recession in four decades. the benchmark rate was lowered by 40 base points to 40%. it was not scheduled until june 5. thethe u.k. has posted first budget deficit since modern records began, since the government on nation unprecedented amount of spending to prevent the collapse of the economy. they lost 62 billion pounds last month, equal to the total

borrowing in the whole of the previous fiscal year. global news, 24 hours a day, on air and @quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. francine? francine: ritika, thank you so much. now, china has responded to law,ge over its proposed saying no country has a right to interfere, and national security law andof nationa a constitutional responsibility. --rie lam's comments, as comments come after months of unrest. there's no such thing as

terrorism here. targeted at all of the empty government protests. dan: oh, boy, there is no way for hong kong to manage it. keith: deeply concerning to the united states. hong kong is a great partner to us. hollen: senator toomey and i have been working on this for a long time, but the events of today and the announcement that china intended to crackdown harder and, how -- in hong kong has crackdown with urgency. speaker pelosi: we will review it. has, orn the congress senate. francine: for more on all of this, bloomberg serena wang

joins us. why is the hong kong security laws so controversial right now? selina: the last time they tried to pass a security law was in 2003, and the government actually ended up shelving it. now when the world is preoccupied with fighting the covid pandemic, china is signaling it will push forward with this law by bypassing the hong kong ledges. china says this will safeguard prosperity, but fundamental lawmakers say this will erode the judicial independence, freedom of speech, many freedoms people enjoy in hong kong, and you heard from a pro-democracy lawmaker that if this is enacted, it will be the end of hong kong as we know it. tensionsher increased between the u.s. and china.

the u.s. introduced legislation that would punish chinese officials and entities involved in enforcing this as well as .laced sanctions on banks this is more of the rhetoric between the u.s. and china that is only expected to escalate ahead of the presidential election. year, the chinese government abandoned its practice of setting an annual target for economic growth. do they promised to do and put in place extra? gdp target is the annual anchor that really sets the stage for policymaking for the rest of the year, providing cues for officials to allocate their spending. the fact that they are going to abandon this practice really does signal the extent of uncertainty and disruption caused by the pandemic. we did get specific targets and other areas, when it comes to stimulus and job creation.

whichrget will be 3.6%, surpasses the level in the wake of the global financial crisis, boosting infrastructure investment, especially when it comes to technology, with a big focus, half a trillion dollars of government bonds to pay for that. and clearly a top priority here is job creation, given that the communist party rule legitimacy really requires on increasing wages, increasing economic prosperity. bnp paribas estimate some 30 million people in china were unemployed or furloughed as a result of the pandemic, so they are targeting 9 million new jobs, which is significant, but lower than last year's 11 million. they will commit to this phase one trade deal with the u.s., which is a positive sign that there is a thin thread of --ration amid teary ration thread of cooperation amid deterioration in every other area.

more u.s. goods purchases amid this economic backdrop. francine: selina, thank you so much, selina wang from beijing. coming up, despite the tough talk from president trump, china is still going to enter the phase of the trade deal. we will talk u.s.-china relations and what they mean for the global economy. that is coming up next, and this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." i am francine lacqua here in london. now let's get straight to the bloomberg business flash is

in new york city, here is ritika gupta. good morning. ritika: good morning. the pandemic will probably reach the pandemicus -- will probably reach the peak. a return to growth in china and south korea. one company is considering job cuts. the japanese news agency says it causing pandemic is problems. more details amid it restructuring plan on may 28. the bank of scotland said most of its staff will not return to the office for months. the chief executive office, though, says a small number will return in june. strict socialing

distance measures. others are thinking of moving staff to the suburbs. and that is your bloomberg business flash, francine. francine: thank you so much. china implemented the first phase of its trade deal with the u.s., despite setbacks from the coronavirus outbreak. tensions exit lay between the biggest economies. china will continue to boost with other countries to continue mutual benefits. joining us now is patrick armstrong, chief investment officer at plurimi wealth. will we first of all, see retaliation from the west end some form, but also more protests in hong kong, how much

of a worry of this to markets? patrick: it is definitely a worry in markets. interesting china decided to do it now given all of the other issues it is facing with the slowdown in the economy, with deteriorating relations with the u.s., it is surprising that they decided to do it now. it is a big issue. let's put it in perspective. this time last year, we were worried about u.s.-china trade relations, the s&p had hit 2860. now.e up at 2950 right central bank policy is the only thing that is combing people. that is medicine for a soothing market, keeping volatility down. i think it is a very big event, actually. this escalation, more,ow, will be fed do and what does that mean for your portfolio? patrick: the fed will do more if the tensions have the impact on

the economy, and most likely they will. it is interesting how china is talking about proceeding with the phase one trade deal, and a big part of the main commitment is buying $200 billion more of goods. it is difficult where they are going to get the demand to get those goods from the united states. i think china is in a very weak position and basically promoting this trade deal, with everything else that is going on right now. the fed will do more. it will be a direct response between the tensions between the u.s. and china. the slowing u.s. economy as well. francine: do you buy gold, patrick? patrick: we love gold. if you look at one thing with gold, you want to look at where real yields are. real yields are negative, and that is a huge tailwind for gold. obviouslynk policy is borrowing -- it is almost ridiculous, if you look at m2 gold, it is 8% year-over-year.

that is unprecedented. fromalance sheet has gone $4 trillion to $6 trillion, $7 trillion right now. we have a big deflationary pressure right now, because demand has fallen more than supply, but these that are being put in place and all the debt, the endgame is monetization, and i think gold is the perfect safe haven against that. francine: patrick, is it too soon to think about that and -- this isbt and whether distillation area longer-term, because of the trade war -- dis ininflationary longer-term, because of the trade war? patrick: you have got italy and spain at 160 print sent object 160% debt to gdp.

you have the u.s. probably at 120%. that is the big issue that will be confronting government policymakers. i think the approach japan has taken, the approach europe has taken, the austerity, will not be the approach. negative interest rates, they have not really talked about in the fed minutes. i think helicopter money will be much more palatable than negative interest rates and austerity. i think that is the endgame, monetizing of debts. debt to gdp, you have got a numerator and a denominator, and if you have got no inflation, you have got to generate real economic growth to get the gdp up. you can generate inflation, but that creates nominal growth with no real growth. for me, it is a more elegant solution. it is a more palatable solution, and i think the u.s. will go that direction. i am not sure what will happen in other countries, but i think it is something we have to start thinking about now. francine: are we going into negative rates?

from the fed to the bank of england? patrick: they are definitely talking about it. the fed, i do not think they will go there. the bank of england, i am not sure they do. they will definitely consider it. given enough of a case study, negative interest rates have a lot of unintended consequences. they really don't boost consumption. catches still remaining high in regions where there are negative interest rates, and it is basically -- the banking system, which is a lever you really need located at -- lever. you need located and growth. bank of england is going to discuss it. that one is 50/50 for me. francine: patrick, this is what the money markets are pricing in. they are pricing in 11 basis point reduction, 0% by february, still pricing in a cut by 2021.r

patrick: i do not know what it is to do it. there has not been an elegant solution yet. the ecb has put in a number of measures. it has not been incredibly successful, and the banks are the biggest victim of it, and it is very difficult. you can have all the goodwill in the world, but if you have a negative interest rate margin, that is a main driver of profitability for the bank. francine: thank you so much. patrick armstrong from plurimi wealth stays with us. coming up, richard clarida says the fed may wait before providing further guidance and balance sheet policies. more on that next. this is bloomberg. ♪ berg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua here in london. let's focus on the u.s. economy. another 2.4 4 million americans applied for unemployment benefits last week. month totalwo- roughly equivalent to all of the initial claims fired -- filed during the recession. >> with the unemployment rate at 14.7% in just two months, the u.s. economy has swung from a 50-year unemployment low to jobless numbers not seen since the great recession. labor department numbers show the most severely affected

sectors, including travel, entertainment, restaurants, and childcare, accounted for just 20% of payrolls in february but more than half of the job losses in april. although the pace of layoffs appears to be slowing, may jobs 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 the science of the 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 signs of optimism, sustained in may is fueling expectations gdp will shrink this quarter by the most since the 1940's, and some service sector jobs may never

fully recover from the crisis. staying with the u.s., richard clarida says the federal reserve may wait before providing further guidance on balance sheet policies and rates. the central bank may have a better sense of the state of the economy. , betsk. central bank increasing on a rate cut, rule out reducing benchmark rates to below zero. still with us, patrick armstrong from plurimi wealth. patrick, i actually want to get back to the u.s. and look at a great bloomberg chart, which is really pretty heartbreaking when you think of the millions of americans out of work at the moment and the future ones that will also lose their jobs. jobless claims set a record, and you see the spike at the end of the chart, completely related to covid-19. what does this mean for the state of the economy but also for the world? as consumption gets lower, how

much can get back to normal when the economy fully opens? patrick: i think it will be a question of -- what will be no normal be? it is hard to see where we can growthk, as far as the rate, probably back to a 90% economy for the foreseeable future, where there a lot of consumption decisions that just can't be made. some will be deferred. , where it in china traffic is basically back to normal, and on weekends, it is below where it was, so people are doing things they have to do, not doing things they want to do. and we talk about government debt, but there will be a lot of personal debt and household debt which will be built up, as well, which is a drag on consumption for it i do not think there will be a v-shaped recovery. it will look like a v-shaped recovery on the chart, because it will be a bounceback in

consumption, but it will not be back where we were for a year. francine: looking at interest rates, do you see any value in certain countries? patrick: we don't have a big position on emerging markets. preferred the asian emerging markets to the commodity-exporting emerging markets. we thank for commodity is probably going to remain, which is a big bet on the oil, which is a supply slowdown of shale in the united states. the massive amount of debt that countries have, fiscal stimulus. francine: yes, patrick, thank you so much, patrick armstrong, chief investment officer of plurimi wealth. coming up, we talk retail and burberry. this is bloomberg. ♪ berg. ♪

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. francine: economics, finance, politics. this is bloomberg surveillance. that's history to the bloomberg first word news in new york city.

>> beijing plans to reign in dissent in hong kong by writing into the city's charter. this fuels a fresh round of street protests. heine says the move is aimed at safeguarding national security. the chief executive plans to fully cooperate. a lawmaker says this is the end of hong kong. china has abandoned its hard growth target, breaking with decades of tradition. is premier says the outlook difficult to predict a uncertainty surrounding the per -- coronavirus. they are centered around increasing stimulus and committed to implementing the phase one trade deal with the u.s.. india's central bank unexpectedly cut rates in a scheduled announcement this morning. the economy is facing its first recession in four decades. the benchmark repurchase rate was lowered by 14 basis points.

in the u.k. has posted the largest budget deficit modern records began. they released an unprecedented amount of spending to keep the economy from collapsing. that is equal to the total borrowing and the whole of the previous fiscal year. oval news 24 hours a day. than 2700more journalists in more than 120 countries. thank you so much -- francine: so much. the british luxury firm points to light at the end of the tunnel even as the locked induced slump is defendant -- deep and elsewhere. how is the industry facing up to the challenge?

the pandemic is hitting the sector from every angle. the industry body is resetting the way that countries and designers work. of theined by chairman british fashion council. stephanie, thank you for joining bloomberg. overall, how hard will retailers and luxury work? or is it a way for buyers to not see it right now? >> yes. the industry is expected to be hit very hard. the luxury sector will contract by 35% globally. and in the u.k., a large portion of the designer sector will be disproportionately hit. they are also a large impact of the landscape of brand britain.

it is a very difficult time, as you mentioned. there are a number of aspects from the business model supply chains, orders for retailers, , and a large portion of the industry are freelancers. it is really being hit at all angles. how many companies will have solvency problems or cash flow problems? i don't know if we are talking about bankruptcies, but a lot of people in the fashion world, the luxury world, and freelancers in the government standards don't extend to them. an industry survey, we heard from businesses part of the british fashion council. half won't revive until the end of the year unless they have external support.

the government's 330 billion pound package has gone some way to help the industry and freelancers, but it really isn't tackling issues of the luxury industry. we have a fundraising target of 50 million and we are asking governments to match that and asking large businesses to contribute to the ecosystem. reset. an opportunity to beyond the economic crisis, there is a silver lining. we have an opportunity to rethink the industry. the business model in a more sustainable way. there are things about the luxury industry that have been challenging. the pace of connections, the

fact that there has been a disconnect for quite some time between the delivery date and what the fashions are delivering to stores. forces and issued a joint statement. we believe we can find some real opportunity to assess this for good. francine: is there a worry that -- what will happen to that stock? >> it is a huge inventory risk and we think 20/20 is a year where the business will have to manage. retailers have to optimize that stock. be much less and

there will be discounting. it should not be endemic to the industry and that is where the reset for 2021, we believe brands can start to lead the way in rethinking cycles. issues, overstock, insolvency. some of the we hope issues should be solved. francine: some of the things that have been laid down, for , wille, at the moment this be an opportunity for the luxury industry to rethink and regroup? >> absolutely. many groups have been calling on this. reflectjoined forces to on what the members should be

saying. a crisis like the coronavirus has catalyzed it. there is too much inertia. there are a few secular trends. we talked about the cycles. they are coming to stores in may, but really, customers are iny thinking about buying the northern hemisphere in august and september. by that point, the items are discounted. if we can start to shift deliveries to the date with which they are intended for customers, you start to build a world where these items reclaim their value and they are on the shelves for longer.

aboutll start to think less collections. and frequently, there is a problem of overproduction and overstock. a designer sector and the industry has taken a leaf out of fashion. and to remain economically viable, think about slowing down and focusing on creativity and already. one of the biggest impacts, and still the largest single problem in the industry is sustainability. that will be huge. items and products to landfill, and less travel. so you don't think that we will go back to the fashion world as we know it? we will see collections more virtually?

we may see some of the collections in june. will that be here to stay and change the supply chains of some of these companies? >> i sincerely hope that we will see change. of necessity, we have called for london fashion week for men and women. .t will be gender-neutral this will be the beginning of a pattern of change. we believe that it will be a mixture of online and off-line. the move to online and innovation, there are many ways to find connections. there has been a not -- there has been a rise in digital showrooms, for example. all of this to allow us to bring the best of technology and

innovation, combined with what is necessary to keep the industry what it is, and institute of creativity and connections and talents. to really combine the two. francine: stephanie, thank you for joining us today. it chair of the british fashion council. coming up, as we focus on a multibillion-dollar bailout deal that will see the german state become the biggest shareholder, we will look at the coronavirus. that is the conversation up next. this is bloomberg. ♪

francine: this is bloomberg

surveillance. i'm francine lacqua in london. german bailout rescue will see the german state become the biggest shareholder in the troubled airline with a package to include a 3 billion euro loan. a german news agency has reported the company's supervisory board will not meet today. forave been expecting that a couple of days and for the moment, not yet. saydealmakers at citigroup that we could see european authorities push companies to combine. for a conversation on this, we are joined by philip drury. great to have you on the program. when you talk about european champions, will they be champions or industry leaders coupled together rather messily? philip: thanks for having me on this morning.

much has thee very ability to produce regional champions. sizeve companies of large with domestic country borders. the combination of those businesses can realize significant synergy across europe and on a global scale. and i think given some of the transformational change across geopolitics and the recognition from countries and the risks associated with independence, i think it does make sense to have combinations closer to home and we will see more of it. francine: what have we had so far? if you look at the things that we need in lockdown, mobile phones. , the fact that5g we are always on zoom, there is

no european championship. why not? i think it is very early right now to see the immediacy of change from the covid that really started at the beginning of february. we have seen signs in the year from asia. everyone right now including sovereigns and corporate's are focused on near-term liquidity. bank lending to very high volume in the debt capital we have also started to see a wave of equity recapitalization. it is not until we get beyond looking at the next two quarters of the next 12 months. we will start to see strategic repositioning. 2021 and 2022

event as we start to see termsgic repositioning in of some of the largest industries. but even if we strategically reposition in compete withurope a conglomerate from china or the u.s.? in the luxury sector, we don't seem to have these champions like the other parts of the world. is the problem symptomatic? are our companies too small? is it funding? where is the sticking point? >> i think funding capabilities will definitely be there. covid, certainly before we had very much focused on globalization. you may see advisors.

william hague talked about covid being the great accelerator. i think european champions can become the catalyst of a great accelerator. change often tends to be the result of necessity. cani think certainly, covid represent that catalyst or that accelerator to change across europe. francine: is there a danger that some of the mergers won't work? some were not a good fit. there is always that concern. as we see in the middle of covid at the moment, m&a activity has stalled medically. -- stalled dramatically. greateresulted in

collaboration, and that will manifest itself in combinations. this a great question over europe as we move forward, again, i think as we start to , itgeopolitical shifts affects regions across europe. we saw a historical funding package between germany and france. greater levels of allegiance and collaboration. greater m&a activity. that is a difference of what we might have seen historically. francine: what are the sectors that are ripe for consolidation right now?

philip: two of our great was as, telefonica -- it combination in order to create a position aampion and leader for the convergence of mobile telecom. sectors under covid that are greater stress. create collaboration. these are basic things that will result from covid that were already important pre-covid. the highlights in the beginning of our chat this morning, and also sustainability.

this is strategic positioning around those two things. francine: cross-border? philip: i think certainly cross-border. up with today, it was a prospect for inter-european combinations, not just looking towards the u.s. or focus onh an increased integration and with the focus and acknowledgment of risks independenceth that has been exposed during this time. do you thinkine: that kind of economic activity will pick up by the end of the year or will we have to wait until 2021? philip: i think it is a little bit further out. i think everyone is trying to get a greater sense of clarity

and outlook. most asset classes have been buoyant, generally speaking. not this morning, not yesterday, but of late. we have seen a tremendous rally of equity markets at the tightening of credit markets. most prices are not pricing in a second wave or a further reset. there is still near-term focus. and we will start to see strategic transformational repositioning later in 2021 and 22. francine: thanks for joining us. philip berry from citigroup markets. airline andow-cost we will tell you what else to watch out for later today. this is bloomberg. ♪

francine: economics, finance, politics. this is bloomberg surveillance. here are the stories we are watching out for today. the people's conference is open

in beijing this morning. at 10:00 a.m. london time, a couple minutes from now, easyjet kicks off. shareholders will kick off a conference to remove the company's chairman, ceo, and cfo as directors. 12:30 p.m. u.k. time, the ecb releases accounts of the latest monetary policy meeting. finally, alibaba is set to publish earnings before the u.s. market open. they are likely to report year-over-year profit decline in march quarter. there's a lot going on in china. we were talking to the national people's conference and hong kong activists that have urged protests against sweeping national security legislation that china introduced on friday. authorities in beijing are bowing to and what they call a defensive posture due to those trying to have trouble.

helping complete hong kong's curbingon, basically subversion. this is what the protesters are really worried about. down 6.7% is exactly what we have seen in the last one to four hours. we will have plenty more from hong kong and we will be joined by selina wang and hong kong. bloomberg surveillance continues in the next hour. tom keene me in new york. talking withe investor mark mobius. this is bloomberg. ♪

francine: hong kong stocks

plunge the most since the financial crisis as china announces plans to impose a national security law on the city. there is a call for protests. warning of a severe downturn, but signs of a rebound in asia. nissan reports 20,000 job cuts could be imminent. and richard says the fed could hold guidance until the fall and suggests the u.s. will need more stimulus. --less claims top $2 million top 2 million people for the night week. another packed show. with many retail companies around the world now abandoning a lot of forecasts. we are now seeing the amazing gdp target being abandoned by china. this is quite significant. early, there is no other story in washington on this