>> the ecb will, within its mandate, continued to support the recovery with all appropriate measures. are adapting to what central bankers are doing these days. imbalances isbout that at some point, they reverse. this is true about income inequality in the u.s., too. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. "bloomberg surveillance." thrilled you are with us on this simulcast.

good morning on television worldwide and across this nation. good morning to the thousands of you listening at your homes, still socially distanced. so much going on here. market pullback today. i will give you some detail on that. seems correlated. a little bit lower futures, higher yields as well. looking forward to a fed meeting which may be will be interesting, maybe not. we will have to see how that works out, but within the mystery, huge success for those long in stocks. low.s been 53 days off the it is only comparative back to 1933. yet you and i are hearing from guest after guest after guest that there isn't an effervescence. there isn't a hysteria to this. it is measured. jonathan: i don't know about that because for every jp morgan, there is a car rental bankrupt company absolutely

surging. is it a speculative phenomena over the last couple of days? i described last week as an uncomfortable calm, a market that kept pushing higher even with the social unrest happening in america. i would describe it as an envious exuberance. we see the riskier parts of this market really pick up, and in the yes because i know so many people that have not faded in this rally that -- that have not participated in this rally over the last few months. that ithis an hour ago, is only a bubble if it is a market rally you did not participate in. many people did not participate. tom: along with the idea of others,d the discount brokerage shutting down because the huge volume is a true value of the rotation, where things were not moving for months and months. lisa, it is really extraordinary 's simply doon-faang

better day after day. lisa: it takes me to the banks in particular. they have had a dual aspect propping them up. we had the steepening yield treasurye gap between yields, but also the expectation that consumers are going to be in better shape than previously expected because of the stimulus we have gotten from congress, as well as the reopening and the benefits there. the question i have is how do we even gauge fair value at a time when we have so much liquidity, we have so much cyclical support, at a time where valuations are based on historical -- are rich based on historical standards? tom: i've gotten tons of mail in the last hour demanding that "real yield" return. give me a sense of the bond market you see. if you were doing the real yield today before the fed show, what would you focus on? jonathan: we talk about the steepness in the yield curve. if we are going to focus on

sovereigns, we talk about the steepness in the treasury curve. how sustainable is it, and how comfortable the federal reserve is that as well? morgan stanley said they would take that steepener off just to wait and see what the fed delivers this coming wednesday. tom: it will be interesting to see. income, no in fixed one can do that better than societe generale. decades of history in the derivatives and the fixed income market. joining us now is subadra rajappa. thrilled she could be which is -- she could be with us this morning. what is the signal that describes the fixed income market to you. what is the chart that says it all to you right now? subadra: for me, i thicket is the steepness of the curve.

i am very much aligned with the view that over the near-term, that part of the curve seems to have gotten a little ahead of in the and it seems publication that we pointed out that it is more correlated with equities, and you have the fundamental drivers you would assign to the steepness of the curve. typically under the circumstances, especially headed into the fed meeting, you could see the past steepening, and that is exactly what you are seeing in the price action today. jonathan: just to build on that, what is the biggest headwind were several headwinds you see to the steepness in the treasury curve? subadra: i think the headwind is going to be weakness in the data. i think a lot of exuberant is both in risky assets, as well as in the bond markets. the risk is reducing reversal in the data. if you see weakness, you should

start seeing a little bit more of a bold flattening of the led by the back in the are seeing today. jonathan: to be clear, you don't think this is a supply-side story about extra supply from the treasury. you think this is just a risk appetite story that has led to people fleeing the 10s and 30's part of the curve. subadra: i think it is a combination of factors. one, it is the supply story. we have seen a lot of supply from the treasury, a lot more than the market anticipated. the second is you are starting to see a decent amount of steepening in the bond curve because of the meal us and fiscal packages there. that's because of stimulus and fiscal packages there. i think the fed -- because of stimulus and fiscal packages there. leaves room for

treasuries there. when you see positive elements on the data front or in risky assets, you should see the part of the curve steepen on the optimism. lisa: i've got to say, this market confounds me in many ways. if you have globally, countries selling loads of debt, it is going to slow roast going forward. economistst a lot of have been talking about. inflation expectations are basically flat. it is the steepening in the yield curve hinting at more inflation, or is this the return of on vigilantes? are you going to get people pushing back and saying your debt is not worth what you think it is because you are selling so much of it, and your economy isn't has strong? subadra: that is a very good question. i think for me, the focus is on inflation expectations. i think probably speaking, the 10 year part of the curve and beyond should trade very much in

line with fundamentals. if you see a steepening of the curve, the twos-tens or the fives-30's, as well as an inflation expectation, i think that is a good thing. the target of bond vigilantes is being played out more around the supply, so when you see supply coming into the markets, the market has wanted a little bit of a concession, but oddly speaking, the real story is going to be on the inflation. higher as we see gradual inflation expectations, the fed is going to be tolerant of ac per curve -- tolerant of a steeper curve. lisa: what is the upper end that the fed will tolerate? do we have a sense of how high they would like to even see? versus the expense of the united states to actually manage its debt at those higher costs?

subadra: i think that is really the crucial question in this particular cycle. we are seeing a tremendous andnt of fiscal stimulus, deficits are close to $4 trillion, and he will see that continue to rise. concerned definitely it is not part of their mandate, but for the most part, i think that broadly speaking, the fed is going to be supportive and keep yields somewhat anchored under these circumstances. jonathan: subadra rajappa of socgen on this stock market. lisa abramowicz wishing it was the 1980's and we had the days of the bond vigilantes. you are wishing we had the bond vigilantes this morning? lisa: it just would make more

sense to me. when people say the fundamentals in the bond market, what fundamentals are we talking about? are we talking about the massive supply, the fundamental premise that the fed is going to buy whatever the usl? defendant ash whatever the u.s. sells?whatever the u.s. jonathan: the central bank slaughtered the bond vigilantes, didn't they? and they make a comeback? tom: it is going to be fascinating. subadra had her research on the said acquisitions -- the fed acquisitions. it is not the gloom, but nevertheless, it is a completely artificial environment. with that that mob got too much respect for the bid ask. bob doll was brilliant today, with nuveen. the market is saying something, and everybody is trying to rationalize it.

the highest thing i heard this week was stand rick and miller. an thatst said -- was stn was stand drunken -- was stan druckenmiller. he just said, i missed it. you.han: stan is with [laughter] good morning to you all. i'm jonathan ferro, alongside tom keene together with lisa abramowicz. let's get you some of the price action. equity features are negative on the s&p 500, erasing some of the after erasing the losses for 2020 on the s&p 500. , every march 23 low single stock on the s&p 500 in positive territory. this morning we are down 25, up 0.8%. coming up on the program, we are catching up with olivier blanchard of the peterson

institute on this economy and your federal reserve decision. from new york, this is bloomberg. ♪ ritika: u.s. attorney general william barr has publicly contradicted president trump. said the secret service instructed president trump go to a bunker during protests at the white house. the president says he merely went to inspect the bunker. as many as 2500 stores could closing the u.s. this year, almost three times as many as last year, when closures set a record get most are expected to occur -- when closures set a record. most are expected to occur in malls, where mall-based retailers are already struggling. democrats have proposed a sweeping police reform bill. party leaders knelt for almost nine minutes to honor

george floyd. his death at the hands of minneapolis police have sparked several protests. leader mitchty mcconnell hasn't ruled out republican support for some sort of police reform. north korea is shutting off communications with south korea. kim jong-un says south korea authorities carried out hostile act. kim werecritical of attached to balloons and flown across the border by anti-north korean activists. u.k. prime minister boris johnson will set out his plan today for easing restrictions. month, johnson said all essential retailers could reopen june 15 in the -- june 15 if the threat continued to recede.

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>> i don't think that the fed is yet ready to move to yield curve control. generally they don't want to be seen as playing in that

political debate. jonathan: adam posen of the peterson institute ahead of the federal reserve decision coming up tomorrow. tvl coverage on bloomberg and radio, led by scarlet fu and tom keene. this is "bloomberg surveillance ," getting you in shape for the price action of the morning in the opening bell. equity futures down 24, off by 0.75% in the s&p 500. yields are lower on the session this morning. your 10 year yield coming in at 0.83%. all quite intuitive this morning. risk appetite taking a little but of a punch. the swissie stronger, japanese yen stronger as well. tom: no question about that. i like how you picked out the adam posen thought on yield curve control. that is in the fixed income market, how far out the yield

curve can the fed actually affect the market. we will speak with olivier blanchard about that in a bit. but right now on price-earnings adamscontrol, gina martin with bloomberg intelligence. of course, running all of our equity strategy as well. i guess if the fed could, they would like to put a control on the equity market. how out-of-control are stocks? gina: that is a great question. i think that stocks are actually trading at levels that are reasonable considering what the fed has done. by that, i mean when we run our model which includes components such as the yield curve, such as corporate credit spreads, anticipated earnings growth over the next 24 months, we find that a reasonable multiple for the equity market is just under 22 times trailing earnings. what the market has done is re-rated, given the extraordinary policy

accommodation we have seen. going forward, we have already seen that re-rating. it is unlikely the fed is going to do a lot more. this yield control is a big topic this week, but how much does that push down rates? will we see the yield curve become more upward sloping in that environment? that is a huge question, especially for the financial sector. but based upon what the fed done, based upon this extraordinary accommodative policy environment, now we are looking at the next steps for stocks probably have to be earnings related. we need to see some signs of recovery. we may have seen that with the employment report, but we are looking for follow-through to really confirm that the recovery is starting. it is likely to sustain. that could the ball running -- that could keep the ball running. jonathan: i will be a strategist at hindsight capital, explaining what we have already seen. bottomly the market can long before the economy does.

before the economy starts to pick up, you see the ce ratio accelerate in a way that this incredible -- that this market is incredibly overvalued. can you help rrb and's understand where earnings expectations are -- can you help our audience understand where earnings expectations are now? gina: it has been really interesting. analyst expectations are now actually too low. if you look at your average earnings recovery coming out of recession in the post-world war ii experience, your average recovery is about 10% of in eps in the first 12 months out of recession. right now, analysts are forecasting 1.5% of starting in the third quarter of this year. in our back of the envelope calculations, now pricing about 2% growth, i think you get about half the pace of average recovery. that only requires a tiny

improvement in revenue growth as you get a ton of library -- attentive operating leverage to produce mid-single digit growth. if the employment report is a precursor to the rate of improvement we are going to see in the economy, all of us will be too low, and all of us are going to be too low because of the devastating declines in the first half of this year, that make next year almost assured to be double-digit growth. it is really a question of what happens, and can we start to cast out. so if we start to see a faster than expected recovery emerge, and that recovery indoors, which is another -- that recovery endures, which is another critical question, then we will start to see expectations rise up. it couldiny tick, but

be the beginnings of something of a more positive trend emerging, which would be the first time since december of last year. jonathan: this is really ash lisa: this is --lisa: this is really important. you are saying equity valuations where they are are not pricing and the extent of the recovery to the upside, and there is a significant leg higher in stocks just based on the fundamentals of earnings that were expected to my surprise you are perhaps seeing. it could be.ying if we see persistence of recovery in the economic data, stocks are only anticipating right now about a 2% recovery in earnings growth over the next two months. we could very easily see 5% to 10% just up improvement in economic growth, especially where we second half,

-- the other thing to consider is we would argue you have not had value expansion on anticipation of better earnings at all. as a matter of fact, the vast majority of the valuation expansion we have experienced thus far is because of lower rates and tightening reddit spreads since the march low. but there is -- tightening credit spreads since the march low. but if we get improvement in the second half and that is expected endure, really sparking more durable recovery, you could see valuations expand more than our model would suggest. i think that is a little bit of a longshot at this point for us to anticipate, really getting a lot of visibility into late 2021, late 2022, but it is not beyond the realm of possibility. jonathan: gina martin adams of

bloomberg intelligence on this equity market, outlining one of the more constructive use about earnings estimates and what we could see. thank you very much. i don't think it should be lost 25 --one that it is it: it is 8:25 a.m. time, and hardly anyone has mentioned coronavirus. the question is how market participants will respond to an increase in the infection rate. we are seeing that in several states at the moment. i am wondering whether the market has moved on, whether it responds negatively from here on or not. it just feels like this market has moved on. tom: i really take your point, but i do want to mention it is not several states. "the washington post" summarizes this morning it is 14 states and puerto rico. it is really quite extraordinary. as we talked way earlier this morning, it is about the

hospital beds in those states. there's fewer beds there, to say the least. jonathan: can wexler has written wonderfully -- ken wexler has written wonderfully on that. this is bloomberg. ♪

♪ isathan: from new york, this bloomberg surveillance. we are live on bloomberg tv and radio alongside tom keene, i'm jonathan ferro together with lisa abramowicz. one hour away from the opening bell in new york city with equity futures bouncing off the lows. .75%, just above 3200 on s&p 500 futures. the ten-year .83%. a nice bid on a 30. 1.60 on a 30 year yield in united states. we count you down to the fed decision with yield curve control. very much the topic of the moment in foreign exchange. we see a reflection of that risk aversion. a stronger japanese yen.

that is the theme of the market. risk aversion throughout the asset classes from bonds to fx to equities. tom: and all of this market gyration and the historic moment we are in is wrapped around theory. it is so good for me to be at home in new york because i am near my vast library. i had the intern go deep into the archives. are, myer blanchard 94,o economics, on page here is professor blanchard. may i quote? may.han: of course you tom: " and when you feel confident, put on a bow tie and explain events on tv. many tv that so

economists actually wear bow ties is a mystery." the gospel according to olivia or blanche are. ard.livier blanche tenure atis steamed at national monetary fund the massachusetts institute of technology and out the peterson institute holding court with adam posen. professor blanchard, honored to have you with us today. definitive in saying we must have the courage to reflate. with the years you've studied this topic, do we have the ability to reflate ourselves out of this low interest rate regime? i do not care about what happens to interest rates,

i care what happens to the economy. it may well be we need to low rates for a long time. but onot a catastrophe, your question i think we can reflate, go back not quite to the old normal but do something not far from it. we can go there quickly. spoke ofwrote, and you the american economic association a year and a half ago about our public debt. are we nationalizing our public debt? have we messed up our bond market so much with this fed action that it is a repairable? olivier: on this we surely disagree. i think there are two issues. we were wise to spend what we .eeded to spend it is not catastrophic, because

interest rates are low. the central banks did what they had to do. they are not time to make life nice for the government. they are trying to push the economy out. the result is they have low rates, which is the right thing to do. one of the channels as it makes long rates for the government better than it would otherwise. and monetaryfiscal authorities in most countries are the right thing. confirm you doe not have an intern home and eene is helping you get the books from the bookshelf. tom: we do. we were very lucky, we were going to do an extern, but we were able to de-sanitize the house show we could get an intern in. jonathan: that is very thoughtful. i imagine hr will reach out shortly to find out what is going on at casa keene.

fantastic to have you with us on the program. we have the debt on the official sector balance sheet and the debt increasing on private sector balance sheet. i want to pose the following question to you. a lot of companies have taken on a significant amount of debt over the last several months. how does that shape your thoughts about how the economy recovers? olivier: it is one of the issues we have to watch out for. it is more of an issue for the small and medium-sized firms, and some of them should be given a break. there should be a way of helping them out. this could be done by forgiving some of the debt to the extent -- or it could be they may need to restructure, and then the debt has to be decreased in value or forgiven. i think one of the issues we

will have to deal with -- there will be many small firms in because of thet debt they had before but because of the debt they had accumulated since then. one of the issues i wanted to discuss, and one of the things we have pushed with colleagues is the notion that the normal way of restructuring debt, which is the heavy way may well be overwhelmed by the amount of potential restructuring which are going to be done. is of the things we propose a simpler restructuring process in which a part of the debt due to the state would be adjusted rather than as a result of bargaining between the state and the banks. ,n short, this is a big issue mostly for the small and medium-sized firms. lisa: let's build on what you are saying on the proposal,

whether as a mathematical haircut all debt owners have to there is are mathematical haircut all debt owners have to take. where would that lead given the holders of the debt are pensions, foundations, state and local governments. this is not a zero-sum. you cannot just cut one side of the balance sheet and everything is fine. olivier: when you decrease the value of the debt you make the debt are better off but you make the creditor worse off. it is hard to know how many firms will be restructured. when we talk of a very large firm, that becomes a big issue for the firms that hold the debt. we are talking about a large number, very small firms. in many cases, these firms are viable. once the pandemic is gone, restaurants should be able to do more or less what they were doing.

what we need to forgive is a relatively small amount of debt. it is hard to do computations. my sense is if we were to restructure the debt of the small and medium-sized firms which need restructuring, which is clearly not all of them, this is something for whoever holds the debt on the others. for the smaller medium-sized firms, it is the banks. before the virus game, they were in fairly good shape. they were in -- they can absorb debtost from absorbing the of the small firms. has bloomberg surveillance talked about the changes in europe. we have seen emmanuel macron and angela merkel speak about a new unified physical effort in europe europe -- a new unified fiscal in europe. do you buy it?

will we see some form of mutualization in europe? olivier: yes. we will see some form of mutual mutualization in transfers. whether what it will be in time to help with the covid recovery, i am skeptical. it is still at arm's first step. it is actually two steps. -- it is still an enormous first step. it is actually two steps. what i was happening for -- what i was hoping for is mutualization. i thought they would do this and they would have each country get it share of the debt and the proceeds and go from there. the plan has mutual is asian in

transit that has mutual -- has transfers.on in this is very ambitious. the final product will not be exactly what we are doing. i think symbolically, once a program like this is in place, once the eu budget can issue debt on its own and use the money in various ways, it is hard to go back. it will be bumpy. this is genuine progress. olivier blanchard of the peterson institute. thank you for your input. we look forward to getting you back on the show soon. it is an important point. if we can create the mechanism for a fiscal transfer on the comment comment is a huge step forward. olivier acknowledges the timing.

if we are squabbling in washington on the next steps of the fiscal side of things, think about what is playing out in europe. even if they agree to a mechanism on some type of fiscal transfer, this capital will not be deployed until the new year. we were talking about every other geography, and you told me they were going to wait several months before they move forward with that big effort, you would say that was too little, too late. i understand that relative to expectations it is lobar and europe has made some improvements. we are still not there and we still risk permanent damage on the comment. tom: no question about it. what is so important is from the earlyic in late february, march, may 15 to june 1 were a mystery. from here, getting up to august and september, i would argue it is an even greater mystery and that linkage of investment in

finance over the economics. where will we be labor day? that is a holiday after september 1. i do not know. jonathan: i have been here four or five years. i do know the national holidays. i have been familiar with them. tom: it has been that long? jonathan: time flies. i love being with you. alongside tom keene, i'm jonathan ferro alongside lisa abramowicz. this is bloomberg. some republicans in congress are questioning the need for more pandemic stimulus because of the surprise rebound by u.s. job markets. lawmakers will have to respond -- decide whether to approve the extra benefits for unemployed americans. the payments expire july 31. the senate finance committee takes up the latter today.

joe biden has slammed president trump's handling of the economy. he says the president inherited the longest economic expansion in history but squandered it. joe biden accused donald trump of turning his back on the middle class with an agenda that helps corporations at the wealthy. bail was set as high as $1.25 million for the former minneapolis police officer charged with second-degree murder in the death of george floyd. derek chauvin did not post bail. he is expected to enter a plea at his next court appearance on june 29. taiwan semiconductor has secured government subsidies for a proposed chip plant in arizona. ts md is the main chipmaker for apple and huawei. billing a factory in the u.s. may allay national security concerns. white house officials have warned of the danger of having much of the world's electronics made outside of the u.s.

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>> people are going to come away from this experience deciding we do not need a fancy office in downtown manhattan.

we can work from home. we have our computer, we have our ability to get on the internet, to have zoom broadcasts with our colleagues. $100 --ld we pay avitch, jonathan: dick r the former lieutenant governor of the state of new york on reopening the economy and whether some of the companies might change their mind about a footprint in a city like new york city. good morning to you all. alongside tom keene, i am jonathan ferro with lisa abramowicz. i will step away. michaelcatching up with pyle of blackrock. to try to understand whether what we have seen on the screens is durable rotation or something more speculative and the more risky parts of the market. tom: very good.

our great market coverage will continue into the open and through the day at bloomberg. i want to mention daniel yergin on oil coming up later this morning. there is a reopening across so much of the bloomberg radio coverage of washington, of boston, of new york. the baker cities. far more is reopening -- the bigger cities. far more is reopening across the nation. from coast-to-coast, we take a real look at the market. jonathan miller joins us. he is with miller samuel. he is encyclopedic on the national real estate market, particularly the residential market. is there a permanence to people leaving the cities because of the pandemic? i do not buy it. is it true? jonathan m.: we are seeing a surge in inquiries as people are

looking and we are seeing an uptick in contract activities surrounding the outer reaches of new york city. not of the mind that this is some sort of permanent structure. we have seen this before in other crises where there is outbound migration for a public years. what we want to see is what happens, assuming there is a vaccine, that is when the real permanence of this takes hold. right now people are cooped up. lisa mentioned to me the price declines on billionaires row. we have this fascination on the ultrarich. what are prices doing beneath billionaires row? weathan m.: at this point have seen very little price

discovery because the brokerage committee in new york state, specifically new york city is not allowed to physically show property. periodin a fascinating of very little transactional data. what we are seeing on the closing side, where people are trying to close deals or get out of deals that were signed pre-covid, we are not seeing patterns. we are seeing half of the transactions that i've run into, there is no discounting. half have a narrow discount range. until early july, i believe, when the state decides to go to phase two, which allows brokers to physically show, i think we will see instant price discovery. we do not have it yet. that is what makes it so challenging. lisa: i love speaking with you

at a time there is so much transformation. you talk about how new york city has always bounced back and the outmigration's are temporary. is this time different because the work from home dynamic and the fact that many people are looking for more space and a more comfortable setting for their families at a time when they are more capable of working , not in a major city center. do you think that changes the landscape? jonathan m.: i absolutely think this time -- we always say this time it is different. that is the component that is different. it is not so much about the virus and the density, it is about the ability to work remotely. as a result, we may see things change in the sense of second home properties end up becoming cope primary, where you have a primary residence, and instead you seasonal summer place,

have something equal to your primary residence so you can go back and forth. the urban to suburban, i'm not confident that is a long-term pattern. i am more confident of the second home market, instead of being pummeled by downward economic activity, ends up being new market. this idea that the consumer thinks of a second home in its relation to the primary as an equal instead of something that is less. we are already seen that in outlying areas like the hudson valley, like upstate connecticut, like the hamptons and the traditional second-home markets are seeing a flood of inquiries coming out of the city . it remains to be seen how long

that will be. tom: one minute. quickly, we want to go down to the low end of the market. riley from st. louis is thinking of moving to new york city and wants to know if studios will be cheaper by the time school starts in september. what do you think? jonathan m.: i think the answer is a very definitive no. though thatd, even is where the concentrated job loss is impacted most, low interest rates and the absolute limitation on supply keep that market pretty tight. maybe not as tight as it was three or four months ago, but still very tight. ago youwas only weeks and i were living in studios. jonathan miller with 6000 square feet north of new york city. he has with miller samuel as

well. lisa, i am glad we digressed. it really is about markets. i am absolutely stunned at the continued fixation on billionaire articles, like the whole wall street journal mansion session. our fascination on this stuff i find crazy. lisa: there is so much there. on one hand, there is just the pure fascination and drool factor of some of these homes. this has also been an area where you see an incredible amount of building and foreign investment at a time when those issues are being particularly hard-hit. you go lower down, the question, as our st. louis says is can i get a discount. the answer is it is unclear whether you are below the billionaire row. tom: we hope everyone finds their abode in the coming months.

certainly in new york city, better news in the coming months. lots to speak of. jonathan ferro looking at the markets on bloomberg television. paul sweeney and i will drive forward the conversation on bloomberg radio. daniel yergin in a bit. this is bloomberg. ♪

♪ from new york city for

our audience worldwide, good morning, good morning. the countdown to the open starts right now. 30 minutes away from the opening bell after erasing all of the losses on the s&p 500 for 2020. this tuesday morning we take a bite out of them. equity futures down 30 points. we are -1% going into the cash open. in the bond market, treasury yields are lower. the curve is flatter. on the 10 year .81%. in foreign exchange, the swissie is stronger, the japanese yen is as well. here is the big issue. we begin the program with a single question. have we seen signs of a durable over the last several weeks or real signs of unsustainable speculation? >> we are seeing continued momentum in the equity seen. equities were right to rally on the fiscal stimulus.