against thet is fed, seeing how we can be accommodative and higher. >> somebody will have to pay. >> the way that markets are looking at dividends and returns and earnings has been a little bit over the top. >> if you look at what the pandemic has done, it has exacerbated every division that we have. quick this is bloomberg surveillance with tom keene, and lisa abramowicz. good morning, everyone. jonathan ferro, lisa abramowicz, and tom keene. we are thrilled to rid

yesterday's market turmoil. certainly, futures are doing better than the carnage of yesterday. mohamed el-erian will be joining us. we will get to dr. el-erian soon. what did you see in the literature overnight about able or a bear market reversal? bearbowl -- a bull or market reversal? jonathan: the driver the last few weeks has been the sequential movement we have seen. the limits of normalization, the limits of recovery. iéç think several states in america this week, that is what to keep in mind in this market. what i found fascinating was the separation of ig investment grade from real, tangible carnage in high yield.

first of all, oil prices are tumbling the most since april. that was the main driver of what we saw in the high-yield space. all through the market, you saw this grab for cash. a return to what we saw in march. we saw the dollar surge and goal declining. people looking for cash to offset risk positions. ,t raises the question again what does this say about the fed's ability to dampen volatility. they have thrown the kitchen sink at this market and we see some squeezes. interesting dynamics. all of us are so many -- are overwhelmed with so many. the new iterative news.

they have been hugely visible and consistently prolific. smartly about economics, finance, and investment. thrilled dr. l arian -- joining us this morning. has to make ahere decision if they want to play in the markets or in fear that they want to remove them. how do you approach that decision? tom.od morning, thank you for having me. it fundamentally comes down to how you feel about the economy.t between the if you feel like fundamentals will assert themselves, you are

more cautious about this market. you have to start thinking about the pricing. if you believe that technicals call them tina. it will continue to protect every asset and you can participate in this market. howeally comes down to worried are you that fundamentals matter? about thelet's talk fundamentals. you and i have discussed this for several weeks. what matters? sequential improvement, month on month, week on week? or the limits of normalization? there is a real push and pull there. one of those things will be a dominant driver for quite a while. which one is it? >> it depends on the marketplace. in the beginning, it was about

sequential improvement. markets got reinforcement of the sequential improvement on health and the economy. and markets got carried away. so now, the implicit valuation is that not only will the journey be a pleasant one, but you also were certain about the destination. and what we have been getting over the last couple of days are legitimate questions about the journey and the destination. what we haven't been getting is any question about central banks that is consistent and strong. or really about market fundamentals. the conditioning is very deeply embedded in this market. scouring is something i want to talk about with you. the permanent job losses, the bankruptcies, the sectors that won't come back 100%.

american airlines is seeing second-quarter revenue declining by about 90%. capacity is down 75% in the second quarter. have you gotten your hands around the amount of scarring we will have coming out on the other side of this pandemic? >> yes, more on the supply side down on the long side. on the supply side, we see hits ññr, on the capital side, and on the labor side. we will see a process of deglobalization driven by households, government's, and the corporate sector. -- and thelt of that result of that, it will be lower productivity and lower courts. you heard it from the imf, the oecd. what is uncertain as the demand side. we do not know what will happen

for people's marginal propensity to consume. how willing will people be to spend money? how willing will people be to continue behavior that the u.s. consumer has been so good at, driving the economy? will we come out with a more frugal side? that is a question. talk about the decline in productivity and growth you're talking about paired with question marks. people think it will be inflationary. if you bring supply-side home, you will not necessarily capture the efficiencies in cost. does this feel like a stag-flationary environment? >> you have two inflationary pressures. what is the rewiring of supply chains. the other one, we are seeing the significant increase in industrial concentration.

big firms are getting bigger and we are losing the midsize and the small size. however, to translate that to a position means that you have a view on demand. and as i said earlier, the demand side is really uncertain right now. mohamed, you're going to go to cambridge. the mathematics and foundational theory is frank ramsey that we lost at a shockingly young age. aret now, our foundations being shaken to the ground. we have a pandemic. we have the shocks of this in regional economics and monetary theory. do you understand the foundations right now that we are standing on or is the mathematics broken? are dealing with unusual

uncertainty, to use ben bernanke's term, or radical uncertainty. the structure of the economy is in play. when the structure of the economy is in play, you have a great gain, many elements of game theory to try to understand what is going on. i keep on stressing to people that the most important thing is not who you think but how we think. try to figure out what are the key questions and what we should be monitoring. even the data that you and i look at is completely different. restaurantlook at booking data. but that is what we're looking at right now to try to understand what is going on. so i think it is a different challenge. what is exciting for economists, they have the tools. but they have to make sure that they adapt accordingly. jonathan: let's finish there.

the data point that you're focused on, the high-frequency data. what is it? >> i look, like everybody else, at the high-frequency data, mobility data, health data, infections, hospitalizations. household individual working with travel data? what is the health situation? are households engaging? are companies engaging? and remember, these three things are not just health. averse, theye risk act differently to health indicators. we had to keep all three under close monitoring. and it will give a feel for how we are going through this journey. be subject to a lot of volatility.

can you apologize to the family on our behalf if we have woken up -- woken them up with this interview. with equity futures just after highs, still up 1.5%. after that blowout payrolls report, this time last week, there is always the risk of extrapolating the improvement far too quickly. and the data this week supports that risk. we have to be very careful about doing that. we will have very choppy0z data. is no question about it. the data comes in. i love what the doctor said about the need to be multidisciplinary. i really believe that the way to survive through this is to have an exceptionally holistic reach

out of all these different things. it is difficult. jonathan: i can only imagine all of the things leveragedqf in the cash fund and i am sure that you're overwhelmed with money pouring in. morning,york city this alongside tom keene and jonathan ferro with police -- with lisa abramowicz. we are live on bloomberg tv and bloomberg radio. ♪ with first word news, there has never been a month as bad as april for the british economy. you cases gdp fell more than 20% with the coronavirus lockdown on a three month basis. economic output shrank more than 10%. the british government's easing restrictions on industries trying to survive. and the fund expects it will have lingering scars from the

corona virus experience. said to be worst than the last forecast delivered in april. the imf says asian economies are further along the recovery path. he says a strong economy will be the fix for racial injustice. the president is working on an executive order that hea says it is the most current standards. china demanded the activists in -- zooms has no one it won't allow any request from the chinese government to impact anyone outside mainland chennai. global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries.

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>> think about where cuties bottomed out at and where they exploded. they really got overextended. it has to do with the feds money policy to increase supply by

levels that no one could have dreamed of. jonathan: the co-cio joining this program in the last hour. from new york city, good morning to you all. this is bloomberg surveillance live on bloomberg tv and bloomberg radio. alongside tom keene i'm jonathan ferro. we are with lisa abramowicz. but we 500 is advancing, are starting to fade going into the cash open. we are positive by about 2.1% on the highs. we are now up by 1% and up by about 42 points. just a little fade from the session highs. treasuries are softer and yields up by about three basis points to 0.7%. in the foreign-exchange story is as follows. the aussie on top, positive by about .7%. improving from yesterday. we do give a little bit of that up, just a little bit in the last hour or so. tom: i agree.

in the last hour and a half, it has given up a little bit. but the first thing i did this morning on the bloomberg terminal as i went and looked at standard deviation studies of the market. came, how how far we quickly, and the damage yesterday was not nearly as bad as i thought i would see on the bloomberg screen. jonathan ferro knows that a major at hsbc not only has the low yield call right once or twice or three times. it has been extraordinary about nailing the longer-term bond call. in the equity markets, benjamin wasler was -- layler brilliant in december of 2018. he has been shockingly on in the last number of weeks. i read his morning note and he reemphasizes optimism after what we saw yesterday. we are thrilled he can find time to be with us this morning.

in the the nuance now long-term equity long call? what is the distinction right now that keeps you enthusiastic? farhe rally we have had so has been about valuations expanding. and i think now we are rotating and looking at earnings that need to come through to validate the moves that we have had. it which, as you say, 44% this week was shocking. in valuations which -- i don't think they will remain as high as people think. but we are dealing with pe north of 20 times which is a pretty big number. but what we are missing here is that the earnings are dropping. markets historically run three months to four months ahead of earnings. we are on track there. and the key is this incremental momentum data, restrictions loosening. , foraccine development

now, it is the earnings. thate pretty comfortable that is going to come through. but that is what we're focused on right now. jonathan: let's focus on that and build on that a little bit. as you point out, it is perfectly natural going in and coming out of a recession to see the multiple expands we have seen over the last month or so. developingvision positively, we look at a more robust pe, something people would not ascribe as extended or overvalued. when do you expect to see that improvement. when are you comfortable saying that i expect earnings revisions to improve and sectors x, y, it is the? -- and z? incredibly bifurcated market. earnings have been cut by 5% or less. the names which i still like, tech and health care, i think they are going to come out of

this crisis a lot stronger. well.re going to do very index,ther half of the they are down 40%. it is incredibly bifurcated. they are super sensitive to the triple momentum that i think we have here. the holy grail of one of these trials, the coming through. we are also being selectively picking up the deeply depressed cyclicals. some of these segments may not be coming back. but a lot of them are and a lot of earnings are very depressed.

we will see them pick up in the next cycle. lisa: how do you strip out the noise from the fundamentals at a time when you have robin hood traders that people are blaming for the likes of hertz shares surging 900% and falling. or j.c. penney, chesapeake, bank companies seeing the shares rise. noise.ink it is are different ways of measuring that. you had one week of equity and in the next trillion dollars went into money market funds. it is not a super bullish market. i think there is a bit of support there. we have talked about the fear of missing out. let's not lose sight of fundamentals. are beginning to look --

we're beginning to look back here and it is almost bulletproof. outlier. everything else looks a lot more reasonable. then, fantastic to catch up with you and your research. the market views are positive and a more optimistic outlook for this equity outlook. lisa, can you imagine a company going through bankruptcy and looking to raise $1 billion in a share sale? noting how peculiar things are at the moment. this is not just hypothetically. this is something that we might actually experience. lisa: this is one of the best stories of 2020, basically. it highlights 2020. people are willing to buy shares, so why not raise money from the equity markets? and betterer

financing. this is unprecedented. people are looking for any historical reference for this and we can't find it. jonathan: i would be very worried about the people finding that particular share sale. i don't want to offer a personal view. i don't know if you want to be sitting at the bottom of a captive structure at a company about to be going through bankruptcy proceedings. informed.not i am pleased to say that. i will say that i agree with you that my radar is up. jonathan: from new york city this morning, good morning to you. 51 points on the s&p 500. we advance 1.7%. from new york city this morning, good morning to you. the opening bell is one hour away. a more constructive outlook on the bond market. we have had a steeper curve over the last several weeks. flatter yields. up next on the program, we will get a view from morgan stanley on this bond market and why this curve right start shifting

higher, steeper once again. that conversation is coming up next from new york this morning. this is bloomberg surveillance. ♪ when you say what you're in the mood for,

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jonathan: from new york city, this is "bloomberg surveillance." we are live on bloomberg tv and bloomberg radio. i amside tom keene, jonathan ferro together with lisa abramowicz. one hour away from the opening bell. equity futures snapback. up 49 points on the s&p 500. that is the story and equities. no place to hide in the equity market yesterday. every sector down and down hard, including the more defensive sectors. outside of equities, risk appetite improves. the aussie and the canadian dollar on top. commodity prices doing ok. and the bond market, the story of the week, the 10 year treasury yields are higher, the purpose steeper, but on the week it has been interesting to see the 10 year yield come down

yabout eight basis points and te curve flattened because the two's are anchored on what the fed is doing, which is nothing. it is all about where the tens go. tom: and the phrase you use is you put a foot on your heel and the other stuff gyrate around. it'll be an interesting june and july for fixed income. all sorts of themes. now frombach joins us morgan stanley on fixed income. i love the idea of your heritage of working off the desk for morgan stanley in tokyo. bring, bond person you it is decidedly international. yieldradar is a two year because it is assumed it will stay dead. will it? matt: thanks for having me on. for now the answer is yes.

it will remain tagged. chairman powell made it clear in his comments earlier this week that the fed had no intention of raising rates for the foreseeable future. it is quite a long future ahead of us. the fed will keep rates on hold for the next couple of years. that would align nicely with the low level and low volatility we are seeking the two year yield today. debaten: what we have to is what happens at the longer end of the curve. either the longer end sells off her it gets firm and yields come lower. -- other people will say risk appetite will improve, yields will go higher off the back of increased treasury supply. which one is it for morgan stanley? matt: for us, it is neither.

supply everybody is well aware of is not turned to have a dramatic impact on the level of yields. i think to the extent we get some surprises in treasury issuance down the road, whereby perhaps the treasury issues more in the back end of the curve than people are expecting, that could weigh on prices of long maturity bonds. you could have a steepening in the yield curve on the back of surprises in where the treasury issue is. in terms of the size of issuance , that is understood and will not have an impact on yields. to me what the most important thing is is how data performs relative to peoples somber expectations for data. our perspective coming out of our economics group, chet nayak, our local economist believes we will have better data than most

are expecting. will see upward pressure on yields in the back end of the curve. you will see breakeven inflation rates expand alongside the upside surprise in data, and we will have a steeper curve at the end of the year. we need to get better data, and that will be the focal point for us. lisa: let's sit on this. this is important. the idea that 10 year or 30 year treasury yields could rise materially on better data. what we are pricing in is something pretty bleak. how high could those deals go before we start talking about yield curve control and the fed needed to monetize more of the debt to keep borrowing costs low for the united states. matt: i think you would have to see the 10 year yield north of n1% for it to start showing up n the fed radar.

having said that, it is not clear to me you will get the five-year sector of the curve or the three-year sector of the curve participating dramatically and that type of a selloff. i think you get a decent steepening in the fives, tens, or 310 yield curve. if we get that type of a in rates. it is not clear to me the fed will have to go down the road of yield curve caps. i think they would rather avoid it given the risks that come along with yield curve caps and the fact they can achieve a similar outcome as capping yields by putting in place clear forward guidance. i think that is ultimately what they end up going with and ,voiding the issue of caps which are unnecessary in my view. lisa: let's talk about morgan stanley's view, which has been constructive and has been right

for a lot of the year. i'm wondering if you look at credit, corporate credit in particular at a time leveraged ratios are picking up and the fundamental backdrop for them is looking worse at a balance sheet level. are you still seeing opportunities lower down the risk spectrum right now, given the valuations we have priced in? matt: we had an up and quality to our credit valuation for some time. forward, the issue we are wrestling with is to what extent are markets going to lead the economy out of recession? what we have seen in the equity spaces is that happened. we have had a dramatic outperformance of equities, save the past couple of days. that has led economic data surprises for a couple of months.

i think the other thing you need to rememberdñ is all forms of government, central banks around the world, governing bodies around the world, are making it their mission to add stimulus where and when it is needed, and they have done it at an unprecedented pace. .hat is worth something in a fiat currency system, which is the one in which we are operating, we are no longer in a gold backed currency system, you need to think about how central governments impact liquidity and asset prices. they are inflating them. that is part of what is influencing markets today. you and mike wilson manage the inflated asset balloon on its way to a bubble? how do you manage that for institutional and retail money? matt: the first thing we tell

people is this is not a bubble. i suppose a bubble is in the eye of the beholder. people have been calling the government bond market a bubble for the 20 years i've been at morgan stanley. this is clearly not a bubble. this is how the system works. we start by telling investors it is not a bubble. we also tell investors there are limited opportunities to harvick risk premiums given -- to harvest risk premiums given the approach to central banks and governments around the world. we saw ample risk premium in march and are chief u.s. equity strategist, mike wilson, recommended people take advantage and harvest that risk premium. as we have seen so far, that was the right advice. jonathan: we can debate whether this is a bubble, but i'm sure we can agree this is a highly distorted market across several

assets. when you introduce a price incentive into any asset class, that will distort markets. when you introduce a price incentive at the scale the federal reserve is doing, and you see the same thing happening in europe, you thing happening in japan. we can all sit here and say this is a highly distorted market. there is nothing normal about this. the only thing we can say is normal as we have experienced it for a long time. -- matt: that's right that's right. the globe is dealing with a variety of issues and these issues are important for every person on the planet. we are all striving for a better life together. what we see in terms of the demographic trends is they have not been helpful for generating and in economic growth,

that environment we need our elected officials to support that type of growth. that is what they are doing. we have to sit back and recognize what is going on. for investors we need to deal with the game we are playing, not the game we want to be playing or we think we should be playing. we have to deal with the game we are actually playing. that is our approach, to figure out the rules of the game, play by those rules, give investors the best advice we can, and that is our main goal at morgan stanley research. jonathan: matt hornbach of morgan stanley, always appreciate your honesty and transparency. fantastic to catch up with you. the president of the united states, always difficult to interpret these things. this is a presidential retweet. the content of that tweet calls microsoft to be banned from federal contracts.

we saw controversy with amazon and a contract with the pentagon , and now the president reach weeding a tweet which is talking about microsoft being banned from federal contract. it is not a presidential tweet. it is a retweet. that is the world we live in. trying to comb through the nuances of presidential statements. michael: -- tom: it is certainly a fact that retweets are much harder to interpret than things actually written. that insuggest washington, the land of kevin cirilli, they are looking for tweets from the president on the chairman of the joint jesus staff. that is widely -- on the joint chiefs of staff. that is widely anticipated this friday. jonathan: what did they say? not all retweets are endorsements, necessarily. i think someone will have to ask the administration whether that is an endorsement.

50 minutes away from the opening bow. i will get my plot right. we advance on the s -- from the opening bell. i will get my clock right. after aetite improving choppy session yesterday. from new york, this is bloomberg. ♪ the city of houston warns the coronavirus has it on the precipice of disaster. officials are getting close to re-imposing stay-at-home orders. highest one-day total of new cases since the pandemic emerged. party is moving key parts of its august nominating convention to jacksonville, florida. the event thomas gets old for charlotte north carolina, but the state government has refused

a request by president trump. the president wanted the governor to lift all coronavirus social distancing measures. european leaders want to avoid getting boxed in by president trump over china. the president post the group of seven summit and is entitled to invite ever he wants. he has been musing about inviting the leaders of russia, india, australia, and not china. european diplomats say that as a sign the summit could be turned into part of the president's anti-china campaign, and they do not want to play along. oil is headed for its first weekly loss since april. the second wave of infections in the u.s. could derail the fragile recovery. the market appears to be discounting a pledge by the opec-plus coalition to extend record cuts. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. is bloomberg. ♪

>> all of us as investors would've expected a second wave, but would have expected it in the fall. the second wave starting so early in the summer is a bit

counterintuitive and a sign that reopening is a very delicate situation. jonathan: alessio de longis of invesco weighing in on the increased infections we are seeing in several states. from new york city, good morning. i'mgside tom keene, jonathan ferro together with lisa abramowicz. with equity futures elevated going into the opening bell, and the next hour i will be catching up with bob michele of jp morgan and on the bond market we will cop -- we will talk to kathy jones. those interviews coming up very shortly. jonathan: it will be important -- tom: it will be important to drive the conversation forward. it will be interesting to see how it close the weekend, and particularly what mr. michele sees. what we thought we would do after a wonderful cross-section is notersations today

take a lighter approach, but look at the agony in new york city of a collapsed restaurant and entertainment business. andrew ricci has been doing this -- andrew rigie has been doing this for years, new york hospitality. not so much a promoter of the industry as the go to guy in the five boroughs to keep the spirit alive. he has been doing that for many years. i know you will tell me it is bad, it is grim. let me take an optimistic tack. how quickly can the restaurants recover and openk6 again? andrew: thanks for having me on. that is a tough question. we are looking at all of the health metrics. if everything continues to go in a positive direction, which is in new york city, june 22 in new york city we could potentially open for outdoor dining and then

two weeks after that we could open for indoor dining. this will be reduced occupancy. we do not know what the consumer purchasing behavior will look like. we have one million people out when are the tourists going to come back? even when we start reopening, it is not going to be business as usual. a lot of restaurants have said they cannot operate with requirements at hand given the fact they cannot turn a profit or breakeven. what proportion of restaurants do expect to be online in the next month or two months given the profitability challenge? than 25,000e more eating and drinking establishments throughout the five bureaus of new york city. some have stayed open, offering take-out and delivery. once you're able to open outdoors, which we are hoping

will be soon under new plant open up our streets and sidewalks to reimagine public space, to hopefully get some of that occupancy indoors generating sales outdoors. it will be a long time. as you said, the restaurants are devastated and they do not know, once they are permitted to reopen, how long they will be able to sustain themselves. even pre-pandemic at 100% íñoccupancy, it was incredibly difficult to survive and thrive as a restaurant tour. lisa: one reason why it is so great to have her perspective is you speak to 70 people -- to have your perspective is you speak to so many people in the hospitality industry. i am wondering about the ongoing pain from tourism. will itd of -- how long take until the city gets back up to speed in respect of the hospitality industry andrew: andrew:? it will be -- hospitality

industry? andrew: it will depend how reliant you are on tourism. if you are in midtown, over the past couple of years, we have so much food tourism where people are traveling through the five boroughs, different neighborhoods to check out authentic and international cuisine we have in the city. without those 70 million tourists coming back, without broadway reopening and all the hotels, it will be incredibly tough and a long road. tom: i want to go granular. good morning to everyone in the greater new york city area listening. we could go to the sugar bund bakeshop in queens and talk about people from the seat of their pants who built a bakery and moved it forward. that is what restaurants have to do each and every day. how does the guy struggling

going out of business, what did they do? do they reform like the sugar bund bakeshop and move it forward question how do you do it after being crushed like this? they shot.ar bun hadamilies and grandparents -- sugar bun bake shop. they will do everything they can possibly do. the challenge is this is an unprecedented situation where the government is telling us we need to shut down by mandate. when we are permitted to reopen, it will be under reduced occupancy. it is unlike anything we have seen before. that is why we need federal, state, and city support to sustain us until we get back to some sense of normal operation. people are looking at delivery, off-site catering, are there other types of t-shirts and hats and gift cards we can engage in

these types of business practices to find new streams of revenue? at the end of the date we are about hospitality and serving people. even if you have additional revenue streams, they will not offset the loss of your in-house dining. tom: absolutely. have to get back to the in-house dining. andrew rigie, thank you so much. this is a visceral conversation for lisa and i because on every street in these five bureaus, a complete and total collapse of restaurants. i am seeing fits and starts. boy, is it clumsy. lisa: it is difficult not to crack given the fact we are not getting tourists and it is unclear how much confidence people have to spend. i found this article interesting about california car dealerships. they are seeing a resurgence in foot traffic and people actually going to the dealerships when a lot of people thought all of the

activity would go online. people still want to physically go somewhere and shop. physically go somewhere and eat, physically go somewhere and so far is that is not quite the case. tom: the timeline will be interesting to see. getting back into the restaurants may be the most challenging thing. we were challenged by markets yesterday. they recover this morning. points -- back to 37 37.43. futures up 57, dow futures up 545. they were up over 600 points earlier. the bond market has been mixed to say the least. right now there is a nice risk on feel with the 10 year and 30 year.

this is must listen for global wall street, must listen for american wall street. that is betsy grasik of morgan stanley, the future of the too big to fail banks. stay with us. this is bloomberg. ♪

♪ jonathan: from new york city for

our audience worldwide, good morning, good morning. "the countdown to the open" starts now with 30 minutes until the opening bell. we begin with the big issue. from an uncomfortable calm to an easy exuberance. the optimism of the last week colliding with the new wall of worry. are athink the markets little bit divorce from the fundamental economy. >> there are a few things that come together. >> there is a high level of uncertainty, especially as we reopen the economy. >> the probability of a second wave in the united states is rising. reactionre whether the by governments to the second wave would be comparable to the first wave. >> the trade environment remains tricky. volatility over the next many months. >> we are looking at the recovery on the demand side. >>