>> the stock market is missing this point. this is not a balance sheet recession. >> we like the fact the yield curve has widened and steepened a little bit. >> the market seems to be saying that jerome powell is far more impressive and important than donald trump. >> this is bloomberg surveillance. tom: good morning. bloomberg surveillance on bloomberg television. thrilled you are with us. those of you working at home, thank you for joining us for your morning brief and particularly the many coming

back to the office. jonathan ferro, lisa abramowicz and tom keene. justews flow this morning in this hour is extraordinary. we are going to take time with david coston on the equity markets. just importantly, lagarde at the bottom of the hour. ecbthan: we will hear from president christine lagarde. the struggle continues to get a clean read on the u.s. economy. tom: it is two worlds. it's about finance and morgan stanley and great. what it's really about is we really lose perspective on the tangible hardship that's out there. lisa: we are going to get a sense of that with the churn in the unemployment numbers. we are expecting a decline in

total filings. are we seeing a significant number of increases in areas hit harder by the virus? futures -22. 28 .82 the center tendency. yesterday we spoke with michael holland with decades of experience. is with goldman sachs. just as importantly, what not to own. what do i not want to own right now? you want to avoid are companies that have a shorter duration in their cash flow. that is to say that the average time in which their earnings and their cash are coming in a

relatively short ration. what you want to own our companies with the longest duration assets. those would particularly in the technology and health care sector. the reason for this is the low interest rate environment which is a characteristic we expect to persist for a number of years in the future, that low interest rate environment increases the value of those longer duration assets. isht now the market embracing and valuing companies that have longer duration attributes. if you have shorter term growth, that's also good. and the third issue is balance sheet strength. 50% of then variation of stock prices in the market. ad they are paying for greater premium for that longer duration asset you want to avoid

companies with a shorter duration. tom: you can tell us about maybe a raised price target in goldman sachs on amazon. i would note massive extrapolation right there. -- right now. are we at risk of extrapolating ?his rally >> what has surprised me is the number of portfolio managers asking about 2022 estimates. a few months ago everyone had the view which we embraced it and advocated you should look through the trough in 2020 and really focus on the level of profitability for next year. lot andrally back a clients are asking and focusing on 2022. what kind of earnings do we expect in a couple of years.

rising about 11% to $188 in 2022. so that's the trajectory. it is certainly getting somewhat better. the idea about extrapolating forward, certainly people have been looking writer in the future to rationalize share prices at the current high level on absolute basis. with the you come out tenure outlooks. what's different between this outlook and when you put out in 2012 all those years ago? >> we did focus on this because of the year and a number of pension funds start to focus on their asset allocation. june 30 is their end calendar marking in terms of performance. what i'm looking for and forecasting is 6% annualized

nominal total returns. dividends.ncluding that's the compound annualized return over the next decade. and around 11% per year on the high-end. what was my report card? 2012 years ago in july of the last time we really went out and looked at a 10 year forecast and we anticipated and a percent return and the actual realized return was around 13.6%. you got a slower growth environment. we have a meaningfully higher starting valuation which is predictive of a return to a meaningful amount and we do a lot of stimulation in terms of dividend growth that we are likely to experience and participate. 2030 we should

be anticipating 6% annualized return for the market. lisa: will big tech continue to lead those gains? >> i would expect yes. technology has the benefit of longer duration. earnings,ail of their cash flow and business model. the market is embracing that. we have a low interest rate environment that is supportive of the longer duration assets. likelihood that the equities will be in terms of return perspective. lisa: what about sick with those? do you think they will continue to be left behind and big tex will take on a bigger and bigger concentration of the total index? for cyclicals to

, we need to have not just better economic data and a rising rate environment. need toa cocktail we see those companies do better. has the experience of improving short-term economic activity, the valuation of the near term growth becomes more of a focus for portfolio managers. that inflection upwards, the investment is on the longer term growth companies. there's other components inside of the market. those are the stocks that we really focus a lot of attention on. the technology sector is more closely trading on fair value that may be many people anticipate. a lot of people think tech is

highly valued. on the other extreme, you look at household consumer product companies, some of those trading much more rich valuations that are model would suggest. tom: toothpaste companies at the 25 pe. i want you to take the 60,000 foot view. we've got money up to our eyeballs. the money costs nothing. are we preparing for a great american rollup where the only way to advance revenue is to go out and buy everything in sight strategically? certainly an attractive financing environment for companies to make acquisitions. i think it's a little difficult to conduct rigorous due diligence in a covid world. from a financial perspective,

this is a good opportunity. companies with the strongest balance sheets are trading at material premiums. the market is in fact saying aboutot that confident the sustainability and rapid recovery. the equity market is saying it's willing to pay a big premium for solvency and liquidity and company strong balance sheets. the idea of whether companies to makeo use that acquisitions, this is certainly a good opportunity from a financing perspective where rates are likely to be low for a while. jonathan: thank you very much for your time this morning. sacks --ton of goldman goldman sachs. the strong get stronger, the we could get a whole lot weaker. shout out to

catherine man of citigroup. psonistic tendency. i really wonder what we are going to see next year in the year following in terms of i need revenue growth, where do i get it? this in: we have seen the credit market, haven't we? lisa: i'm struggling with the cyber risk. you have big tech companies facing big tech risks with the likes of twitter. amazon still in a good position. you have to wonder about the other risks. jonathan: you hack into the accounts of prominent people like that and you make it about bitcoin and you do it outside of market hours? i'm not suggesting there was a better use. the amount of chaos they could have caused but didn't. that's the worrying thing about this whole episode.

they could have done so much more damage with that hack overnight than they actually did. tom: it was small money that they acquired. what are the governments waiting for on bitcoin? the singular issue is they use bitcoin. to allow you going to be the one that receives the bitcoin hate mail and i'm going to steer clear. unchanged.solutely going nowhere on the session. newsnutes away from a conference. stay awake for it. president lagarde just around the corner. up, julia coronado. from new york, this is bloomberg. is shaking uprump his struggling reelection campaign. the president replaced his campaign last night.

pascal has been under fire for some time. it comes less than a month after the presidents sparsely attended rally in tulsa. the twitter accounts of some of the most prominent american political and business leaders have been hacked. barack obama, joe biden, elon musk, jeff bezos and warren buffett. another was michael bloomberg. it was an apparent attempt to promote a bitcoin scam. they sent out tweets promising to doubling the money within 30 minutes. twitter says it's investigating. the spike in the coronavirus outbreak has gotten worse in texas. the state reported its biggest daily number of cases. california had its second-worst day with more than 11,000 infections. public school students will not return to classrooms when the new term begins. global news 24 hours a day on

air and on bloomberg quicktake powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> it isn't going to come in a one-shot assistance package from the european authorities. it's going to require a

commitment to long-standing things we've all understood which is increasing productivity. jonathan: imf's first managing equity director. the euro very much and focus. we will hear from ecb president christine lagarde. european leaders in brussels. i'm jonathan ferro. and 12 minutes away from the opening bell with equity futures down .6% on the s&p. just below that 3200 line in the sand. in singleets come basis points. we will get initial jobless claims. euro-dollarrket, unchanged on the day. how much pressure will adam lagarde put on european leaders

into the weekend. tom: the questioning is of a ecb pressity at the conference. 's with macroo policy perspectives. her claim out of ut austin was economy. she absolutely nailed the slowness of gdp that was to come. let's go back to that moment where you nailed to the gdp growth that didn't happen. are we falling into that trap again? >> we are certainly in danger of it. the fed has done a good job disconnecting markets from the economic distress we are experiencing which prevents the sort of debt deleveraging we were starting to see in march. it was that balance sheets drag that really was the constraint on the recovery last time

around. we don't have overleveraged consumers. we also don't have banks that are in distress or having solvency questions and that's also huge benefit. but we do have a deeper fundamental hole in the economy and just a tremendous amount of uncertainty. so there is still lots of need for support to get the economy theugh this and to minimize structural damage and the friction that can result if this just drags on and we don't get some clarity on the virus. about the dynamics value of something like jobless claims right now. that statistic, is it of value to you? >> tremendous value. the fact that jobless claims are still so historically elevated tells that that there is incredible churn in the labor

market. we have not settled down or gotten back to normal. about peopley reconnecting to their employers as some reopening is happening. we see now that those three openings were too early. it's very fragile and the outlook for the economy could take a turn for the worse again given that we are seeing increased restrictions in the states where the virus has really taken off. lisa: yesterday american air said they were likely going to lay off 25,000 employees when the fiscal support runs out. this raises a question. was the fiscal support worth it? did it just prolong the never bold to keeping people on the payroll in theory but not in actuality? >> i think the design was good.

the idea was this was a temporary stop we needed to put on the economy as we put the structure in place to manage the virus. we have squandered that opportunity as a nation. some states have done better than others. design and the intention was i think well thought out. that weality is reopened way too soon. we are not going back to normal. we haven't gotten the virus under control. companies are now starting to hunker down for a longer more protracted recovery. so they have to right size their businesses. it wasn't their fault of the stimulus, it was the public health response and the impatience amongst a lot of very large states that has led to this situation where we are now

seeing more permanent lasting separation. lisa: as we wait for the claims data, what are you looking for to indicate the scope and depth of that second wave? claimsook at the initial both the regular and the pandemic program for gig economy workers. at continuingok claims which gives us a better sense of how many people are leaving the roles and returning to work and that gives us a sense of what might be happening on the hiring side of the ledger. little bit of a the disconnect between claims and payroll. bit morehows a reconnection then claims show. there's a lot of noise in the data both for payrolls and

claims. the whole picture we still do have a very elevated level of unemployment and that return that we were starting to see a very nice dynamic is at risk. claims is timely. get it every week. jonathan: brilliant to see you. ahead of some important data in america. keene, retail sales is for june. june feels like a lifetime ago. coronado, it's out there. she is considered on a list of economic responsibilities or fed responsibilities if we get a president biden. i just need to mention that. jonathan: you want to throw that out after she's left.

tom: i don't want to embarrass her. she has just talked about with her great abilities someone that would serve in the biden administration. maybe somewhat like what jared bernstein has done. jonathan: how about next time you get her on i will -- he will ask the question. tom: i'm not as rude as you. jonathan: i will give you some lessons in a commercial break. most economists will tell you looking at the high frequency, things are stalled out. lisa: there's a question how much value does this data have at this time. i think it's important to see how much momentum there was heading into this latest bout of virus uptick and get a sense of what the potential is to get back up and running if we get medical care. jonathan: do you think i'm rude and interviews? it lisa:. no.

terribly i think i'm diplomatic, polite and subtle. egue.oh, nice said jonathan: we will hear from ecb president christine lagarde. ♪

jonathan: from new york city, this is "bloomberg surveillance." and lisa tom keene abramowicz, i'm jonathan ferro. your economic data just around the corner. we can get you your retail sales first. we can do that with michael mckee. michael: let's go through it all quickly with christine lagarde coming up. 7.5% from theise number in may, which was 17.7%. it is close but it is better than forecast. are waiting for the control group number to come out, which is what we look at and what goes into gdp. the other big number of the ,orning, initial jobless claims

1300, a little bit more than forecast by economists surveyed by bloomberg. let's see. to 1310.sed last month continuing claims, another decline of about 100,000 from the prior month. we are seeing a continuing decline in continuing claims, but we are not seeing a decline in jobless claims. we saw a lot of companies start to close again. number, the philadelphia fed business outlook comes in at 24.1, that is a drop from the prior number of 27.5. tom: i will call this a sturdy report as michael mckee waits for the control group statistic. michael mckee, you spoke with mr. harker yesterday at the money question, the stability in the economy, does it change the

stimulus debate in congress and does it change the debate for chairman powell? michael: if people understand economics it should not change the debate in congress because the jobless claims numbers show things getting worse. it has been singed -- it has been since july 1 when we started closing down again. the philadelphia fed number, we had patrick harker same things have gotten a little worse in pennsylvania, delaware, new jersey, at that number bears it out a little bit. we are not through this. a lot of the data is stale. retail sales are telling us what happened in june and jonathan you are telling us that feels like a lifetime ago. it does give a picture of when things might come back. with this data dump in terms of which is the highest frequency indicator? i am struck by the basic headline number coming in worse

than expected, indicating there is the ongoing wave of layoffs in the wake of the virus cases. does that stand out to you for the number of the morning? michael: it is the one that tells us what happened most recently in the economy. if you look at the release from the department of labor, the total number of people getting 31,491,000, that is up from 30,000,500 74,000 the week prior. more people getting benefits. the total of jobless claims and continuing claims does not always include the pandemic emergency assistance, gig workers, and the self-employed. put it altogether and you saw a lot of people collecting benefits and no significant improvement. jonathan: great work on the data in america as always. michael mckee in new york city. let's owed over to frankfurt, germany with the socially withnce news conference

ecb president christine lagarde. here is madame lagarde. president lagarde: we will reinvest the principal payments from maturing securities purchased under the pepp until at least the end of 2022. in any case, the future rolloff of the pepp portfolio will be managed to avoid interference with the appropriate monetary policy stance. under our asset purchase program will continue at the monthly base of $20 billion, together with the purchases under the additional 120 billion euros temporary envelope until the end of the year. we continue to expect monthly

net asset purchases under the asset purchase program to run for as long as necessary to reinforce the accommodative impact of our policy rates and to end shortly, before we start raising the key ecb interest rates. we intend to continue reinvesting in full the principal payments from much urging -- from maturing securities for an extended period of time, past the date when we start raising the key ecb interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. we will also continue to provide ample liquidity through our refinancing operations. in particular, the latest operation in the third series of

targeted long-term refinancing operations known as tltro three has registered a high take-up of funds reporting bank lending to firms and households. the monetary policy measures we are taken since early march providing crucial support to underpin the recovery of the euro area and to safeguard medium-term price stability. supportcular, they liquidity and funding conditions tothe economy, a help sustain the flow of credit to households and firms, and contribute to maintaining favorable financing conditions for all sectors and jurisdictions. at the same time, in the current environment of elevated uncertainty and significant economic slack, the governing

council remains fully committed to doing everything necessary within its mandate to support all citizens of the euro area through these extremely challenging times. foremosties first and to our role in ensuring our monetary policy is transmitted to all parts of the economy and to all jurisdictions in the pursuit of our price stability mandate. the governing council, therefore, continues to stand ready to adjust all of its instruments as appropriate to ensure that inflation moves towards its aim in a sustained manner in line with its commitment to symmetry. let me now explain our assessment in greater detail, starting with the economic analysis. data and survey results

suggest that economic activity improved significantly in may and june from its trough in april alongside the ongoing containment of the virus and the associated easing of the lockdown measures. at the same time, economic indicators remain well below the levels recorded before the pandemic and the recovery is in remains unevens across sectors and jurisdictions. 3.6% quartering by over quarter and the first realer of 2020, euro area gdp is expected to have contracted even further overall in the second quarter, broadly in line with the june 2020 euro system staff macro economic projections.

signs of a recovery in consumption have emerged while there has also been a significant rebound in industrial output. at the same time, subdued labor market conditions and fading'snary household are weighing on consumer spending. weak business prospects and high uncertainty are dampening investment, while the weakness in the global economy is hampering foreign demand for euro area goods and services. euro area activity is expected to rebound in the third quarter as the containment measures are eased further, supported by favorable financing conditions and expansive physical stance, and a resumption in global activity. although uncertainty about the

overall speed and scale of the rebound remains high. in general, the extent of the contraction and the recovery will depend on the duration and effectiveness of the containment measures, the success of policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity and domestic demand are permanently affected. overall, the governing council assesses the balance of risk to the euro area growth outlook to remain on the downside. to estimates, euro area annual hip see inflation fromased to .3% in june .1% in may. mainly reflecting less negative energy price inflation.

current and of future prices for oil and taking into account the temporary ratetion in the german cat , headline inflation is likely to decline again in the coming months before picking up in early 2021. over the medium-term, we could demand willakened put downward pressure on inflation, which will be only partially offset by upward pressure related to supply constraints. market-based indicators of longer-term inflation expectations have continued to increase from the historical lows reached in mid-march, but overall remain at subdued levels. survey based indicators of inflation expectations have declined since the start of the

pandemic, longer-term expectations have been less affected than short and medium-term expectations. analysiso the monetary growth money, m3 increased to 8.9% in may from 8.2% in april. growth reflects bank credit creation, which continues to be extent, bya large the acute liquidity needs in the economy. moreover, high economic uncertainty is triggering a holdings for precautionary reasons. in this environment, the narrow monetary aggregate encompassing the most liquid forms of money continues to be the main contributor to broad money growth.

development in loans to the private sector continued to be shaped by the impact of the coronavirus on economic activity. the annual growth rate of loans to nonfinancial corporations in mayrther, to 7.3% 2020 from 6.6% in april. reflecting firms needs to finance their ongoing expenditures and working capital in the context of still anemic revenues. at the same time, the annual growth rates of loans to households remained unchanged at declining forr two consecutive months amid ongoing constraints on consumption. the results of the euro area bank lending survey for the

second quarter of 2020 provides further insight into these developments. they showds to firms, a continued strong upward impact of the pandemic on demand for loans, largely driven by emergency liquidity needs, while financing needs for fixed investment declined. loans standards on remained broadly unchanged. the tightening impact of the deterioration in the economic outlook and the associated decline in the credit worthiness of firms was broadly offset by the easing effect of policy measures, particularly the ecb liquidity support measures and government guarantees on loans. however, looking ahead, banks

expect a net tightening of credit standards on loans to firms, in part related to the expected end of the state guaranteed schemes. with regard to loans to households, credit standards tightened, reflecting the deterioration in household income and employment prospects in the context of the pandemic. measures,ur policy together with the measures adopted by national government and european institutions, will continue to support access to financing, including for those most affected by the ramifications of the pandemic. a crosscheck of the outcome of the economic analysis with the signals coming from the monetary analysis confirms that

an ample degree of monetary accommodation is necessary for the robust convergence of inflation to levels below but close to 2% over the medium-term. policies, andal coordinated physical stance remains critical -- coordinated fiscal stance remains critical in view of the sharp contraction in the euro area economy. measures taken in response to the pandemic emergency should be targeted and temporary in nature. the three safety nets endorsed by the european council for workers, for businesses, and for sovereigns, amounting to a package worth 540 billion euros provide important funding support in this context. at the same time, the governing council urges further timely

efforts to prepare and support the recovery. we therefore strongly welcome the european commission's next-generation eu proposal, which is dedicated to supporting the regions and sectors hardest hit by the pandemic, to strengthening the single markets , and to building a lasting and prosperous recovery. it is important for the european leaders to quickly agree on an ambitious package. in order to reach its full potential, the eu recovery and resilience facility will need to be firmly rooted in sound structural policies conceived and implemented at the national level. well-designed structural policies could contribute to a faster, stronger, and more uniform recovery from the crisis , thereby supporting the

effectiveness of monetary policy in the euro area. targeted structural policies are particularly important to rejuvenate our economies, with the focus on accelerating investment in priority areas such as the green and digital transitions. we are now ready to take your questions. i would note that as you will have observed, we are now, both of us, the vice president and myself sitting at that same table. the split screen mechanism has been abolished for the moment, and while we walk around with masks on our face, we are happy to sit at the same table. first question comes from cnbc. >> good afternoon. my first question would be on what your response is to those suggesting that the full envelope of the pepp might not

be needed and you could spare some of the money. there is a lot about the potential for recovery in the euro zone with countries like germany doing better than countries more affected by the pandemic. that?n we prevent much lagarde: thank you so for those questions. pepp, ast question on to whether it will be used in full or not, let me remind you pepp has a dual function and has had that function since inception. it was in the birth certificate of pepp on day one. the first function is to address the risk of market fragmentation and impairment to monetary policy transmission.

the second function is to ease the monetary policy stance in light of the contraction that resulted from covid-19. in addition to the dual function, pepp is also marked by flexibility, which is one of its key elements. we have made full use of it. purchased over 360 billions in the first couple of months, and that was at the end will make use of that flexibility, as some of you have noted. we have slowed down a little bit the pace of purchases because financial markets have not been more stable, because the fragmentation risk has significantly been reduced, but having said that, the overall

of pepp and the horizon were calibrated in order to meet both functions. therefore unless, and we do not see it for the moment, but unless there were significant upside surprises, our baseline remained that we will use the entire envelope of pepp. if there were very significant upsides, then we shall see. this is not what is in the cards at the moment. clearly the second function of pepp, which is the monetary stance, in order to respond to the shock of coronavirus, it is still around, and we still need to address that. we will continue to use the envelope of pepp and make sure it helps us get back to the trajectory of inflation based creek covid-19.

-- inflation based pre-covid-19. your second question has to do with the two speed recovery. us,re covid-19 hit all of there was already a divergence and degree of divergence among the euro area member states. facing the covid-19, there is a risk that divergence persists. it should, by all means, be ,voided, which is why we together with all members of the governing council, strongly welcome the recovery and resilience facilities, which is intended to address those countries that help those countries that have been most covid-19. ,ot only that, but also

intended to invest in those sectors of the economy and those developments that will actually be transformational and hopefully will be so on a pan-european basis, thereby reducing the degree of divergence we had observed in the first place. thank you. question from reuters. >> good. thanks for taking my question. you discussent, did any change in your policy stance, particularly in the tearing multiplier giving that your own measures have significantly increased excess liquidity. why did you not increase the tiering multiplier? the second questions is how does the surge of infections in the united states impact your impression of the economy? it appears the pandemic will be

more attracted in the world's biggest economy, which clearly has impacts for everyone else. are you still comfortable with your baseline scenario or do you see growing risks of that? thank you. pres. lagarde: thank you very much. during this meeting of the governing council, we really spent a good deal of time looking at the economic circumstances, looking at the macro economic numbers, looking at the developer and's as we saw them in order to evaluate our monetary policy tools and how effective and adequate they were. in thethe developments economy, we felt that we were in a good place at the moment. i remind you that since last june, we have significantly expanded pepp. we have extended it.

we have better defined the reinvestment policy and we have had major take-up of the tltro. clearly those two components of theo the rest monetary policies that we have in place tell us that it is effective, and it is working. you mentioned the tiering system. our experience with the two tier system has been very positive. it is working as intended. alleviate the direct side effect for banks. it has also encouraged additional borrowing and lending activity in the interbank money market, including cross-border, which is a sign of defragmentation, and clearly both the multiplier and the

renumeration rate on exempt allowances can be changed all the time. for doingsee a moment so. we have not discussed that because we do not see, in the monitoring we do very carefully, a need to review as it -- i need to revisit. -- a need to revisit. on the growth outlook and the developments we are seeing, whether they are concern, of course it is a concern. it is a concern for the livelihood of people and the life of people and it is a concern for policies that should all be geared at helping people. impact on oure own forecast and our own scenario, clearly we have taken into account the environment in

which the euro area operates. taken into account the risk of a second wave and the measures taken as a result of that. in that context, you can rest assured the scenarios we have and the baseline we have retained in june do take those elements into account. we very much hope there will be more improvement than a worsening of what we had anticipated. thank you. president lagarde, i have two questions. pepp.rst is related to you said financial markets are more stable. how stable are they? what is your assessment of stability rest and spreads at

riskoment -- stability -- my second question is related to the banking system. 3. mentioned the tltro with everything that has been done by the banks and temporary measures -- your softer collateral rules, banks see annette tightening. e a net tightening. will the ecb be prepared for tightening? you mentioned the uncertainty is still high and risks are tilted to the downside. thank you. pres. lagarde: thank you very much for your question. on your first question, ever since we have begun implementing pepp in march, and even more so since june, the euro area

financial market sentiment has improved. financial conditions remain lighter than before the outbreak of covid-19. since the announcement itself, the sovereign and corporate bond yield spreads have narrowed, corporate bond issuance has picked up, and equity prices have increased. overall you have a significant improvement. compared with the time of the , euronnouncements investment grade spreads declined more than 80 basis points while high yield spreads declined more than 250 basis points. significant improvement, but having said that, we are not exactly back to where we were before the pandemic started. for example, government bond

yields are still higher in most restrictions than before the outbreak of the pandemic and this is highly relevant from a monetary policy standpoint, because government yields are the basis of the pricing of the financial products and loans to businesses and households. we are very attentive to those numbers as well. question has to do with tltro your first of all, i would like to observe that tltro has been a great success. an intake of north , which isllion euros way above market expectations, and we ask ourselves why is it so successful? clearly it has to do with the attractive terms under which tltro was