china warns the u.s. that it risks further worsening relations between the two countries, but european stocks shake off the tensions and start the week higher. bayer settles. bloomberg learns the chemicals giant has reached deals on a substantial number of roundup lawsuits. the stock trades higher in frankfurt. and ire and fury -- boris johnson faces criticism from all sides after standing by his top aide, who broke lockdown rules. this is bloomberg "surveillance." i'm nejra cehic in london. happy bank holiday. for the u.s., let's get the first word news with leigh-ann gerrans. in hong kong, protesters gave their biggest demonstrations in months. against --d two gas was used against demonstrators in a shopping area. at least 180 people were arrested. china warns that religions are

being pushed between them and the u.s. with a new cold war. wang yi, the foreign minister , warned the u.s. not to cross beijing's redline on taiwan. in the u.k., oxford university has reportedly run into a hurdle are developing a coronavirus vaccine. according to the telegraph, a decline in infection rates may make it difficult to prove whether the vaccine is indeed successful. a is said that there is only 50% chance of coming up with an effective vaccine. japan is issuing a state of instituting masses -- massive testing, but it's death toll is far below 1000. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries,

leigh-ann gerrans. this is bloomberg. nejra? nejra: leanne, thank you so much. we are seeing clear risk on an today's session. bear in mind that the holiday in the u.k. of the u.s. will be thinner liquidity, but even with the emergence of geopolitical risks with regard to hong kong, euros on equities in the green. u.k. markets are closed. we have no stock or bond cash trading in the u.s. since it is memorial day, but u.s. futures are on the front as well. the dollar is still in the green for a third day. oil also higher by more than 1%. though it stays anchored, near $33 a barrel. onto the geopolitical risks. china has warned american leaders are potentially pushing toward a new cold war. foreign minister wang yi said the u.s. should give up its wishful thinking of changing china, adding that the situation

is dangerous and could endanger global peace. tensions have escalated over coronavirus, trade, and hong kong. great to see you again. a lot has happened over the weekend. let's start with the hong kong protests. how bad have they been, and where are we in the security debate? don't actually know the devil in the details. that is the problem. what it is really essentially is a top-down approach. be insertedectively into hong kong's basic law. it is a dramatically move. it has been seen as the end of pro-democracyome experts. the end of hong kong as we know it. causeway based, major shopping area, we have seen clashes

between police and protesters, had a gathering taking place. police were waiting for them, by all accounts. using water cannons and tear gas. we have got also the prospect of further battles perhaps later and a national anthem bill that would punish people in any way for criticizing. seen as the biggest erosion of the hong kong economy since china took control of this former british colony back in 1997. it is alarming, already heightening the sort tensions between beijing and washington. this is where we are at the moment. we don't know very much about what will actually be in it. it is said that nothing will

change in terms of moving the dial over this economy, but experts are not so sure. you mentioned that we are likely to see more protests this week. how could this evolve in hong kong as the week goes on? >> it would show that this has to come in. this blame game where coronavirus started, where it's human rights record is. on top of that, tensions that ignited between beijing and washington over taiwan come as secretary of state mike pompeo congratulated president trump when he was inaugurated. of course, china did not recognize taiwan as an independent state. as a result of all this, the

chinese foreign minister, wang yi, warning u.s. politicians that they were pushing relations to a new cold war. itself, it hong kong is a wait and see attitude by the majority of people. many see no alternative but to take to the streets. nejra? rish, view -- as you have alluded to, the impact on u.s.-china relations, we're seeing quite a bit of risk-on today. in the european session we saw a fair amount in the asian session overnight as well. u.s.-chinarisk our relations from all this, particularly if we think about the prospect of further tariffs? at the moment, all we are seeing is a war of words. theaad: we have of course 33 entities are companies that have been highlighted by the united states now as potentially

connected with the regime and potentially in league with the government, in doing something negative toward hong kong itself. we did have china refraining own intercepting its unreliable list. they announce in the middle part of last year, a trade war with the u.s., but it was preparing its own. still, when companies like huawei -- china is not retaliating with a list that we don't know about. but according to the global times newspaper, the mouthpiece of the communist party, they entreated that china would retire using that list in the middle of last year, a paper pointing to his source saying that apple and qualcomm could be targeted. that is kind of where we are.

it goes much deeper than this. the administration has been move,ing things over this but they have to balance cash penalties aimed at beijing being limited to doing harm to china itself and certainly not to harm the interests of the united states, and of those in hong kong. washington has to have a narrow approach. other states could also do new their come if you would, -- that requires the secretary of state to certify whether hong kong still continues to warrant special treatment. it is employed, and it says it does not need that she does indeed warrant special render it it could

the same as any other chinese territory. the wealthext, globalist management cio. don't miss it. this is bloomberg. ♪

nejra: this is "bloomberg surveillance." journey is now is haefele.irly -- mark i was looking at your letter from may, title "second wave, second wind. this is what markets are

grappling with in terms of the coronavirus risks. talk about that in a moment. over the weekend, we have had the reemergence of geopolitical risk with hong kong protests, were of words between the u.s. and china. how much do you expect risk assets to react to this reemergence of geopolitical risk? climbed a in mind, we wall of worry last year with heightened geopolitical risk. that is the first thing. and we think secondly that it is --neither johnson nor the either in china or the u.s. interesting bring you the economy back up to escalate an economic conflict at this time. that said, there are a lot of forces at work here. there are tech issues, there are trade issues. there are financial regulation issues, and maybe some national

security issues, so it could be volatile as the different sides sort through which bucket they are putting everything in. did see a weekly gain for global equities last week, we are seeing green on the screen today, so took some extent equities are shrugging off this risk at the moment. then of course the focus turns to the easing of lockdowns, and you have some really interesting observations in terms of the relationship between lockdown and virus transmission and whether we actually get a second wave. to that.our assessment mark: thank you so much, nejra. i think there is a lot about the virus that is not proven that learning we go, and what he did was we went through some of the mobility data, because you can track now with people, how much of a lockdown different countries have had through cell phone data. what we found is that there is little correlation between the

mobility and the success in reducing the reproduction rate of the virus. so then we tried to fit that to the data, and it seems somewhat possible that in some cases, if you look at, say, london, the serology is showing that 17% of london has already been infected. that raises questions about, in some of these areas, do we have something like a modified herd immunity? it is a theory, but it might be one of the reasons why we should be less worried about a second wave that some of the historical examples going back to 1918, or the middle ages. nejra: interesting. so if the data in the coming weeks supports that scenario that you have outlined in terms of a diminished risk of a second wave, what does that mean in terms of further upside to equity markets, given the rich valuations we are already at

daca -- we are already at? mark: i think there is some reason to believe, given the central bank and fiscal bank stimulus that multiples could go higher and markets are forward-looking, so it is forward multiples, more on normalized earnings, that the broader indices could trade higher. however, we would look for a lot of the gains to come from the parts of the indices that have not rallied at all. so we would be looking more at the cyclicals and some of the value names to kind of catch up to where the broader indices are. that, you are looking, for example, at germany , i believe, and small caps as well in equities in terms of some of these cyclical and value sectors to outperform. but if you look at equity versus credit, which look more

attractive as a risk opposition right now? mark: i think we do see these pathways to a much stronger upside, but i think you have to recognize that a lot of the policy is not being determined by the emerging science. eventually it will be, but right now it is political. so the political outcomes about lockdowns and things can be very different. in the central scenario, we do see the risk-reward for credit still more attractive, so kind of buy where the federal reserve is buying. we like investment grade, we like u.s. high-yield. we also like the emerging market , dollar-denominated sovereign debt. ok.a: in terms of volatility -- go ahead, go ahead. mark: i was going to say, but one of the clear trends that is emerging from this is the success of sustainability, both

on the equities inside and also on the green bond side. that is a trend that we see our clients really gravitating towards. ish because the line -- it in line with their long-term view, but also because of the success of those assets through this crisis. nejra: got it. we have talked quite a bit about the potential for upside and where you would take those opportunities, mark. what about the downside risks? what would you put in the portfolio to deal with that? mark: well, one of the things that many of our clients are looking to his goal. think, ourthere, i concerns about the growing pile that is being added globally by governments, and also the chance spikehe dollar has seen a in the kind of crisis stage, but the dollar could weaken given

the fiscal and monetary stimulus being applied in the united states. so gold is one asset. unfortunately, a role for bonds, as we all know, is going to be somewhat diminished going forward, and the role it can play as an asset allocation stabilizer, simply because yields are so low, and if you get it wrong, you're almost guaranteed to destroy value. so there, we have to look to alternatives. there still can be a role for hedge funds, which are not as correlated to either stocks or to bonds to provide some portfolio stability. nejra: it is interesting what you say on bonds, mark, because the volatility in treasuries particularly has been so subdued. if you live at -- if you look at the move index. we were talking about u.s.-china relations more volatility ahead, and i believe you were referring mainly to equity markets. if you are expecting more volatility ahead, how should

investors take advantage of that? mark: well, this high volatility has led a lot of clients to look for structures, right, where they can earn yield but then kind of benefiting from behavioral economics and kind of get -- say i am willing to buy into the market if we could volatility down to a certain point, but i will earn a yield in the meantime. we are seeing clients look for those to you structures, selling options to try to get a yield now, but also position themselves to get in or out of the market should we see a big volatile move. i finally get your assessment on u.s. versus european equities, and where you would actually express a preference, given that we do have the prospect of this economic recovery deal in the e.u. inching along, but still a lot of question marks and

stumbling blocks? that thel, i think geopolitical risk background is harder to predict, perhaps than where the sectors have really been, who could benefit coming out of this? as you have highlighted earlier, in a more favorable economic environment, germany can do well, or european industrial can do well, and u.s. mid-caps, which have not risen as much, can do well. in asia, you can look because the consumer is coming out asia, so you can look at u.s. auto and transportation. this is a time to focus a little bit more at the sector level rather than just the macro situation, which is so complex. of ubsmark haefele wealth management. we really appreciate your time. hour, ap in the next

fixed-income strategist, at 6:30 am in new york, 11:30 a.m. in london. this is bloomberg. ♪

nejra: leigh-ann gerrans, let's get the bloomberg business flash. a shakeup is on the way at aston martin. bloomberg learned that the british sports carmaker is set to replace the ceo.

the new chief executive will be the head of the mercedes amg performance division. aston martin is struggling with debt. ass than two months ago, billionaire investor became the company chairman. reacheds -- bayer has an agreement surrounding the we kill around. estimated 85,000 of the 101 if i thousand cases. as far as a 10 billion plan to end the legal problem it inherited when it bought monsanto back in 2018. and bain capital is preparing its second-round bid to buy virgin australia. the alternative asset manager is four in place to buy the airline. in globalthe plunge travel. that is your bloomberg business flash.

nejra? nejra: thank you so much. despite the escalating tensions between the u.s. and china, the war of words, we are seeing some risk on in european equities today. the u.s. and u.k. markets closed for holidays, but u.s. futures on the front. the dollar giving up some gains after two days of strength, and oil on the front. next, the img chief economist joins us on the show. this is bloomberg. ♪

nejra: this is bloomberg surveillance. i am nejra cehic. we have seen risk on. it is a bank holiday in the u.k.. memorial day in the u.s..

there is liquidity but green on the scene -- on the screen despite the war of words between the u.s. and china. a lot of news coming through on europe. today, at least the survey showing german businesses are counting on an improvement in the economy in the second half, this after the coronavirus pandemic pressed private spending and investment in plunged the economy. joining me now is carsten brzeski. great to have you on the show. i did speak to clemens fuest ,arlier and he said, businesses they are still pessimistic but they are less pessimistic than before. does that fit with your assessment of germany's economy? carsten:

nejra: we've got a little bit of an issue with carsten on the phone. let's get first word news. >> good morning. in hong kong, protesters -- demonstrations this week. they have their biggest rally in months after china's plans to area.-- shopping at least 180 people were arrested. the u.s. will prohibit the entry of noncitizens. the country now has the second number -- second highest number of coronavirus in the world. boston fed president expects companies to start receiving money through essential bank programs within a few weeks. the main street lending program is keeping credit flowing. it is designed for $600 billion

in credit. lawmakerse u.k., attacking boris johnson's top aide. -- that happened at a time when he was isolating with coronavirus symptoms. johnson calls his eight actions sensible. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra. nejra: thank you so much. let's get back to carsten brzeski. really great to have you with us. earlier.e eco-data german businesses counting on an improvement in the second half

after coronavirus depressed spending and plans to the economy. i did speak with clemens fuest earlier and he said, there are still pessimism. business is just lest -- less pessimistic than before. does that fit with your assessment? carsten: yes, it does fit. level at the ifo index. i think this coincides with real-time data that activity in germany has picked up again, but we are 20% off the levels we have been generating. nejra: ok, and if you look at the eurozone more broadly, you have signals in one of your latest notes that the -- is already behind us. this was sort of mid-may that

you are making that assessment. do you feel the same? coincidest really with the lockdown measures. i look back in austria, there been lockdown ushers in april. the other countries are following. ,e have probably seen the worst even though the incoming data, the traditional macro -- but i think we will see this rebound in the second quarter which then leads to a pickup and growth. what is hard to really assess is how big and how deep will the permanent damage be. nejra: on how deep and how permanent the permanent damage will be, what do you think if you look at manufacturing versus services. one interesting thing that clemens fuest said that and

manufacturing there was a lot of pessimism but there was less pessimism starting to emerge in some of the retail sectors, which i thought interesting given there's some sort of lockdown in place in europe, even if it is easing, and given there's fears of a second wave. carsten: true, but the single -- this a perfect is the lockdown already shows that services can become more optimistic. the problem for manufacturing is there will be higher demands for german for manufacturing products. see a strongon we increase in china and asia. this is a global shock, i think there is a sense that the german economy demanding growth -- therefore, germany will have

to see services improving. it makes sense given that the lockdown edges are lifted. nejra: given that demand will remain sluggish, if you look at germany, we keep throwing out all these lessons. one of my favorite has been a square root change. do you think we will actually get back the level of economic activity that we were at pre-pandemic, or is that out of the question? carsten: we will get there. one big trump card is that the -- 30% to 35% of gdp on the table. this should help the german economy. economye german returning to its normal level in the second half.

we will return to the pre-coronavirus level. is the fiscal stimulus provided by the government? there is a high risk that the willern european countries get out stronger and faster than the southern european countries. nejra: it is interesting. you bring out the fiscal side. reiterated -- the netherlands aid programhat any must have a time limit. we are talking about the 500 --en euro economic recovery 500 billion euro economic recovery plan proposed by germany and france. there were signals the budget hardliners were edging towards a compromise, including the possibility of france. they emphasized a call for time

limit. do you feel optimistic around a compromise with this packets, given what we have learned from these countries? carsten: yes, i do. i think we now have two proposals. it will take longer because it has to be decided unanimously. we will gettic that this european recovery fund. temporary.it will be it will be limited in time. morninginteresting this is the group leaders [indiscernible] whye are two main reasons the party had a change of heart. want to show european solidarity. -- one to show european solidarity.

there was also a clear portion of self interest for the other european countries. nejra: absolutely. wolfgang schaeuble backing that recovery plan as a key voice to the standoff we will talk more about that next. carsten possessed key stays with us -- carsten brzeski stays with us. this is bloomberg. ♪

nejra: this is a bloomberg surveillance. in london, carsten brzeski is still with us. just before the break, we were talking about the 500 billion euro economic recovery plan proposed by france and germany. you said you were feeling more

optimistic that a compromise might be reached. does that take pressure off the ecb to expand its bond buying in june? carsten: not really, to be honest. will onlyry front become effective as of 2021. the ecb's ppp program, the pandemic qe program. there won't be anything left. the pressure on the ecb to still step up on the side of the program, and i think they will deliver it. nejra: interesting. some looked at the minutes of the account of the april meeting and saw signals tensely of june

stimulus coming then. so, you expect perhaps an expansion of the ppp. what do you expect about the -- what do you expect out of the june meeting? the ppp program will be extremely powerful. .he ecb stem is ready the widening of spreads between countries. the other thing that we could , that they move along they could include the fallen angels in their qe programs, so they will buy up bonds of companies that have seen the downgrade of their ratings. i think, that could be something. for the rest, for everyone, it

is still the june meeting. it is still too early to tell which scenario will play out for the european economy. nejra: it is interesting, you brought up the fallen angels there and the prospect of buying junk debt. is that going to be a big priority for the ecb? what impact could that have in a second degree affect on spreads? carsten: i think it is an issue for the ecb. when you look at some of the -- that access isay pressing problem for them. it is higher. therefore, it is burned into this fallen angel market. it could help the eurozone economy.

a way forward is for the ecb. if they were to go there, we would see a further narrowing of spreads. nejra: carsten, we've got some breaking news that i want to bring to our viewers. apologies. lufthansa and the german government, we've got reports coming through, have agreed on an aid package. this is a red headline. bloomberg.ng the the german environment minister commenting on the lufthansa deal saying that confidence is to include the co2 element. just want to get your first reaction to this, in terms of list anza and germ -- in terms of lufthansa and german government agreeing on a package. do you expect to see more of this sort of thing in terms of the government stepping in to help stressed companies? carsten: i think there are.

when they created the stability fund for german corporate, they euro.reserved 100 billion to eventually participate in bigger companies -- to support bigger companies. left the first one here. -- lufthansa the first one here. government would intervene. it is as clear and shows how difficult it is with the state aid rules. -- to really get it done. yes, we could see other companies follow. nejra: carsten, just a very quick question on the euro. it has been fairly range bound.

given what you have said about expansion of ecb stimulus in june, and that you are little bit optimistic on compromise on fiscal stimulus, where d.c. the euro going from here? -- where do you see the euro carsten: the eurozone economy somewhat earlier than the u.s. economy. i think we could see somewhat stronger euro? nejra: great to have you with us. thank you for joining us here today. coming up, we will delve deeper into the breaking news that lufthansa and the german government have agreed on an aid package. this is bloomberg. ♪

nejra: this is "bloomberg surveillance." i am leigh-ann gerrans. it's bankruptcy on the collapsing air travel caused by the coronavirus. that is according to a new filing. the rental car giant says the pandemic devastated its revenue in the first quarter after the

coronavirus took hold in the u.s.. revenue plunged 73%. -- it is seeing 20 straight weeks of increasing demand. the ceo told cbs news his hotels operating at 50% on the occupancy level. that is your bloomberg business flash. nejra? nejra: thank you so much. as a china moves to impose a secured a law bring volatility to the market, investors sees -- investors see probable stocks. feel.ke to alex -- alix steel. >> the intentions has been going on for quite some time. a number of other factors, so that we can't expect to see any

let-up. nevertheless, there are lots of stocks in china that can be purchased, that are very profitable and are growing. it byk we have to take stock, rather than making in general picture of the chinese market. help me understand how you screen stock and how it plays into what the government is going to do in terms of stimulus? >> we look at stocks that are not going to be impacted by a trade war. number two, looking at stocks that have a global footprint. you have these chinese stocks -- alibaba is the obvious one. they have a global footprint, in addition to having this incredible market share in china. number three, we want stocks that have very strong balance sheets. at the states, we have to have companies that are able to acquire other companies and gain

market by doing so. >> can you give us some names? i and up hearing about chinese companies and how much debt they end up having? what are these names? names like alibaba would be the obvious one. i can't give you the names because we may be buying them. i don't want to be in that position. alibaba,ese names like like tencent, these are the companies that we look at. >> fair enough. companies,hese big is that how you think about them? -- accounting practices, the

companies listed in new york. i don't think there will be any problems for these companies, because they are already doing international accounting. it will be very easy for them to come up with best accounting practices. i don't see that is a big problem. what you have got to see is any problems in the space of sink --s, as regard to technology. if you look at tsmc, they will be able to survive any problems with the market in china. simply because they are global company and supplying people globally, including many of the u.s. manufacturers. >> are you worried we are good to see any supply chain shifts because of the virus -- going to see any supply chain shifts because of the virus? >> this is already taking place.

the american companies that have the supply chain problem. it is the chinese companies as well. they have to look at fields out of their own area to find out where they can get their supplies. that is going to be sanctioned by the u.s. in one direction or the other. many chinese manufacturers are moving outside of china and manufacturing and other countries so they can get under the u.s. trade banner. that is another thing you have to look for, and we are looking at such companies. they are moving globally and are becoming more of a global supply chain company. >> that was mark mobius. bloomberg'sing to alix steel. they were discussing the u.s.-china tensions. we saw weekly gains. see green on the street today for years on equities.

trading.something u.s. futures on the front foot. the cash market is closed today at we were seeing some dollar strength in the asian session. and some green on the screen for oil as well. rally for oil markets so far this month. a little bit of assent. city economic director will join us on the show. this is bloomberg. ♪

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warns the u.s. that it risks further worsening relations between the two countries. a chemical giant has reached a deal on a substantial lawsuit in frankfurt. is and fury, boris johnson -- johnson faces backlash after his top a broke the rules. with the holidays and some markets closed, balancing the reopening of economies against the escalation of tensions between the u.s. and china. let's get to first word news. >> good morning. kong, protesters staged the biggest demonstration in months. they