tv Bloomberg Surveillance Bloomberg July 20, 2020 4:00am-5:00am EDT
francine: the hardline -- said -- theeady the billing granting of 390 billion euros. julius baer takes off earnings with a record first-half profit. the chief executive tells us continued volatility will boost trading. the pandemic spreads in the u.s., florida's infection rate surges and l.a. is on the verge of a shutdown.
a medical journal is due to publish more information on the vaccine trial. welcome to "bloomberg: surveillance." i'm francine lacqua in london. the markets are more quiet, but a lot of the focus is euro given what we've seen in the markets and what we saw with the eu leaders. the eu strengthening to a four-month high, bond spreads narrowing as regional leaders in europe make progress negotiating a stimulus package for economies devastated by the pandemic. euro-dollar, 1.1455 and gold flat. let's get the first word news with laura wright. may joink. international allies and suspending its extradition pact with hong kong, it could come today when the foreign secretary addresses parliament. tensions have ramped up in recent weeks. london could introduce sanctions
over human rights abuses, a move beijing once would have consequences. donald trump is playing down arising coronavirus cases. he told foxnews many are experiencing nothing more than sniffles and positive tests are only up because of water testing. he's called -- wider testing. anthony fauci a little bit alarmist and says the two men have a great relationship. members of russia's elite have been given access to an experimental covid vaccine. sources told bloomberg that the company races -- country races to be the first to develop an inoculation. they were developed by a state-run facility in moscow. last week, it completed a phase one trial. king has been checked into hospital in riyadh. after being diagnosed with inflammation. officials said he remains in
good physical health, there is speculation he could abdicate in favor of his son. global news 24 hours a day, on-air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. things could be looking up for the leaders in search of a deal on the recovery front. overnight talks failed to produce an agreement on how to structure the 750 billion euro package, but officials tell bloomberg the four countries who have been holding up negotiations are ready to agree on a compromise. we are joined from brussels by maria tadeo. there are many points on which there are disagreements including the frugal four can't have control about the reforms. what do we have is a blueprint now? maria: we know that when you look at the graph, 390 could be a compromise, 390 billion euros.
going into the summit, the frugal four had repeatedly said they wanted this to be more focused on credit, that they believed a typical bailout cash for reforms worked better. angela merkel and macron said they were not willing to go below 400 billion euros in grants. the latest compromise could be 390 and that could seal the deal on the front but there are many issues happening, one with the governance of the package which has become almost as problematic as the amount. the prime minister of the netherlands has been playing the summit very hard and insists the country should have the right to veto the payment from the commission to a country. there are questions about how the money is being used. for the italians, this is problematic. giuseppe conte a cannot go back -- whenthing that looks you look at the rebates that
could be included, the rule of law and what that means for eastern european countries, this is going to be another long day. the fact we have an agreement on potentially the grant does not mean this will be easy today. ultimately, if we get 390 billion euros in collective debt, we are taking a big cut, looking at less than 100 billion of money that was put forward. 500 billion euros. very hardball but they are getting what they wanted, which was less money on the grant, perhaps a bigger rebate and more say in how the money is distributed to southern europe. francine: what exactly are we expecting today? if there is not a breakthrough today, could we see it later in the month and does it make a difference? there are two theories at this point that we could see european leaders go back at four clock p.m., go into the early
hours today and get the deal done by tomorrow. todayea we are going hasn't fully collapsed shows they want to get it done this week. if it is not possible, a theory has pointed to a bigger break and another summit that would take place in august to let the attention we've seen over the weekend cooldown, but the fact everyone is still at the table shows this hasn't collapsed yet and we are going in today four, getaling an aim to something done this week. francine: our reporter maria tadeo in brussels, following the latest on this marathon summit. coming up, julius baer posts its best ever. of theth our interview chief executive. manus cranny will be live later in the program and this is bloomberg. ♪
francine: economics, finance, and politics. this is this is bloomberg. i'm francine lacqua in london. a key part of on the deal. the netherlands, denmark, and sweden agree to 390 billion euros in grants as part of the package. the eu originally wanted 500 billion euros. the rest of the 750 billion plan will consist of loans. we are joined by the global head of rates research at bankamerica global research. markets think it is a thumbs-up for the deal.
is it a done deal and will it be enough? >> i don't think it is a done deal. there are many important questions that still need answering. i understand the math -- market reaction because 390 billion euros doesn't sound too distant from the 400 billion insisted upon as the size of the grant so the difference seems small, but as maria said and you discussed a minute ago, the devil is in the details and the key question is what budget rebates to the frugal four want in return for agreeing to 390 billion, because the deal could fall apart on that. the key question is on governance in terms of -- and you said this already, if this looks like a troika program, we might get a deal, but no one and inver apply for it this case, the economic impact is severely limited. francine: what is priced in at
andmoment in the markets whatever is priced in, will the markets move on or do you expect to have a longer-term impact on the things you look at? ralf: i don't expect it to have a longer-term impact. one thing that concerns us is the fact that positioning in the periphery as long. spreads are not far off the levels we were at the beginning of the year, only about 20 basis points away from the types we had in 2018-2019. the rally in btp's is becoming long in the tooth, so even if we end up with a deal, the risk at the room, becomes buy sell the market reaction when investors start taking profits on carry trades that are crowded and have done extremely well. we're looking at ways of trying to hedge against investors
starting to reduce positions somewhat. and theer question, longer-term question is will the deal actually make much of a difference from a macro economic perspective and the answer is unfortunately not, but even if we take the original 750 billion with a hefty share of grants, the fiscal impulse that could have generated per year was less gdp not starting before next year. the value of this deal will come down to the political symbolism of europe standing together and crossing some important red large-scale,s of but in the solidarity hope we had a few weeks ago is starting to be called into question by
very hard-line negotiating tactics from the frugal four, maybe that symbolism gets tainted a little over the next few weeks. francine: what does it mean for where you find value, if in any european countries? do italian yields at the moment look attractive because if there is political will we have a deal? ralf: there is value in selective carry trades in europe , but do you want to leave those open or do you start looking at hedges? what we've been telling clients to do is, as a benchmark investor, you can't afford not to be interested in periphery and run some overweights there hoping to end the carry you can. think about how you can put hedge overlays on to protect yourself against adverse market scenarios.
if you look at where bunds trade on assets swaps, there is a concession priced in on the expectation we will get a wave of government bond issuance that isn't going to materialize to that extent so from that we think it is an attractive hedge, btp link a btp fluttersve, look attractive and all these traits have hedge elements that should work in the central scenario of continued grab for yield. francine: when you look at the path to a full agreement amongst eu leaders, and we know they are reconvening at four clock p.m. diane those out, you talk about a symbol for europe of solidarity. how does that actually translate into the economics? into the politics? is this a real game changer, four is it something on the long and winding road to more or less europe integration? ralf: we thought it was a game
changer. we turned positive on the periphery for the first time this year on the back of the original franco-german proposal, taken up and expanded on by the european commission. u-turn we thought the saw from germany in particular on a number of red lines was significant. this was the first time we had an actual real proposal for essentially fiscal transfers, very large-scale joint issuance and further down the road, the potential for the eu to get its own tax raising powers. those are very crucial elements in the completion of the institutional architecture of the eu that we thought were meaningful and we continue to think so. maintains we
those key elements, even if we don't get the overall signs we want, even if maybe there are some potentially problematic veto powers further down the road that aren't entirely it still creates exciting opportunities for the eu to develop further toward closer fiscal union down the line. of --oblem is in terms and that removes a lot of the euro skeptic rhetoric we saw a pickup to an alarming extent in the periphery in particular on the back of the original pandemic. the problem is it doesn't really change the needle when it comes to the rebound we can expect from the economic perspective, and that clearly leaves political risk. francine: ralf preusser from
i'm francine lacqua in london. let's get to the business flash with laura wright. is slashing ad spending on facebook according to the wall street journal. walt disney is the number one advertiser on its platform. it comes as a growing list of companies are halting spending, many criticizing the handling of hate speech and misleading content. no official response from disney. cuts,ing to announced job coming as the coronavirus continues to affect its business. saidy, the chief executive the has been the opportunity to accelerate its turnaround. a spokesperson told sky the companies is not speculate -- comment on speculation. 2020 target as demand for ventilators flooded into the market. the health tech company sees a recovery in spending on other
equipment. phillips is targeting a modest gain in sales growth this year and an improvement in profit margins. that is your bloomberg business flash. francine: in the u.s., the white house is said to start talks on the next virus stimulus package. this comes as deaths pass 140,000. florida's outbreak was described as out of control by a democratic representative. the mayor of los angeles has said his city is on the brink of new restrictions. president trump said the u.s. has the best mortality rate but the white house's own data shows the u.s. rate isn't the lowest. still with us, ralf preusser from bank of america global research. i have one million questions for you but we are limited on time. what does the number of infections, the possibility of more lockdowns mean for the rate of growth in the u.s. economy? and: it is a downside risk not really due to the restrictions at such. -- as such. evidence shows is
the consumer's own response is incredibly important here. consumers aren't reacting to --ewed virus pick up numbers start reacting to renewed virus pick up numbers and we've seen that from credit card data published, for example. we do need to worry about the virus case counts going up irrespective of whether or not we think governments will react with renewed lockdown measures the cuts tend to slow all by themselves. francine: what does that mean for rates? what does it mean for what the fed will do next and the path forward? ralf: there's a huge number of important implications from this. you mentioned the political efforts front and center at this point for the u.s. we do need to see the extension of the announcement of foreign benefits which would normally expire by the end of july
because that is such a massive component of what is sustaining demand in the u.s. at the moment. then the u.s., like everyone else, is faced with the question of how to deal with the significant, large, and permanent income shock we can be experiencing. what that will translate to for the fed is considerable forward guidance compared what we have so far and it is early to expect that for this month, but we are looking for forward guidance come the september meeting and to be fair to the fed, they are the central bank that is closest to actually a technology how long-term the implication of this crisis will be for monetary policy. minutes we at the had from the june meeting, the fed is looking to concluded strategy review at the earliest opportunity to be able to give the market the longer-term guidance.
the ecb is only just starting its strategy review. the contrast is clear, so lower for longer makes it increasingly difficult for rates to break out point 50 to 80 basis trading range we've been confined to all your, and there are probably downside risks to real rates in the u.s. risksne: do the downside come off in the form of deflationary pressure or are we just talking about a global downturn? ralf: we do have disinflationary pressures. the shock is first and foremost a large demand shock and you see that clearly in the u.k.'s data points last week with inflation running at its lowest ever, as i'm aware. inflationary shocks will be in the short-term. because the fed is so much more
advanced in recognizing the disinflationary shock, its ability to sustain breakevens is probably higher than elsewhere. from that perspective, the deflationary shock is a long real rate trade, the reflation trade in the u.s. is not a short nominal trade, but a breakeven trade. francine: thank you so much. ralf preusser, global head of rates research at bank of america global research. european earnings kicked off in high gear after promising numbers last week. can the good times controlling? -- keep rolling? this is bloomberg. ♪
touchdown! only mahomes. the big events are back and xfinity is your home for the return of live sports. welcome to camp tonsafun on xfinity! it's summer camp, but in your living room. learn how to draw with a minions expert... how to build an indoor obstacle course! plus... whatever she's doing. and me, jade catta-preta. the host of e's the soup! camp tonsafun. it's like summer camp, but minus the poison ivy. unless you own poison ivy. in which case, why? just say "summer camp" into your xfinity voice remote to join. francine: economics, finance, politics. this is "bloomberg surveillance
." i'm francine lacqua in london. let's get to the bloomberg first word news. here in london is laura wright. hi, laura. laura: according to the deal, australia, new zealand, the netherlands will release $390 billion difference as part of the package. the rest of the 750 billion euros will consist of low interest loans. the u.k. may join its international allies and suspending its extradition pact with hong kong. the move could come today when foreign secretary dominic raab addresses parliament. tensions between the u.k. and china have ramped up in recent weeks. they could see london introduce sanctions over human rights abuses, a move beijing warns would have consequences. >> u.k. government goes that far , goes that far to impose sanctions on any individuals in china, china will certainly make
-- you will see what happens in china and the united states. president donald trump is again playing -- questioning the competence of joe biden, saying that biden would not be able to coordinate with the interview and would cry for money. over has a 15 point lead president trump in an abc news/washington post poll. global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more this is countries, bloomberg. francine? francine: here are some of the stories we are looking out for later this week. secretary of state mike pompeo kicks off a two-day visit to the u.k. with prime minister boris johnson. the u.s. senate banking committee is set to vote on president trump's board nominees.
the stock has been on a relentless rally advancing 60% of the past month loan, and on friday we will keep an eye on the release of european pmi data for signs of an economic pickup activity. joining us is julian chillingworth. for we get onto the rest of the agenda, what is your take on what is happening in europe with this new deal that we seem to be closer to agreeing on but which is also watered down to what we were promised a month or two ago. julian: good morning, francine. i have to say on friday morning, nhopeful that anything would be agreed on this weekend, so i think it is a step forward. italy, france, and spain originally wanted -- i think l cross the resumeut negotiations
this afternoon. it is definitely a positive, and i think that we are seeing this coming on italian bonds. i see -- i think we see more of a rally if we get signed off, and i suspect that european investors generally will be a positive and could see the euro improve further against the dollar as well. francine: where do you see the biggest value? what looks attractive right now? francine, i lost the first part of the question. francine: what is attractive in the markets right now? julian: i think at the moment we as a whole are still in a defensive position, so we are saying to our clients that we see rates that have been lower for longer around the world, and in that sort of environment, with lackluster growth, as we have lockdowns occurring in places regionally, it will be
slow to recover as we go through 2021. cash floweliver good and good growth. we say the names that are consumer related, and we are in -- we are avoiding the deep cyclical names where we are concerned that they will not do particularly well in a slow economic recovery as we come out of this pandemic. does it make a difference regionally where some of these countries -- companies are based, or you do -- do you go for global international companies? alian: despite having seen really strong rally in u.s. tech, we still like the states, overall in our regional allocation, we are overweight
the u.s. because ruthie there are opportunities -- because -- because we think there are opportunities in spite of the virus. donee recovery fund can be , but we remain very nervous about -- we still worry that perhaps it is going to be an economic recovery of two halves with the european recovery being slower. we think industrials are falling in the northern part of europe as well. we still like japan. francine: we have a great chart looking at our european earnings kicking off this week. you look at the rally and you wonder whether it is going to be reckoned with, as a lot of strategists are predicting losses. but overall are you expecting
from this earnings season? are you focused on dividends? respectsficult to forecajuliane , the market is expecting hopeful earnings numbers across the board, and i think that obviously what i am going to concentrate on here is yes, dividends are important, but i it is written off 2020 dividends as well. any -- as they are seeing their trading environment now, there is worry over whether there is a strong balance remaining in economic activity. francine: we have some killer charts today, thanks to hilary
clark. we want to show you one looking at bargain prices in european stocks. we have not talked about the u.s. election. how will that change market direction in the u.s. and around the world, depending on who goes into the white house in november? obviously onek should never underestimate donald trump at the last minute. but i think xpm well -- [indiscernible] the -- as long as he doesn't take -- well, not from a european perspective, but from a u.s. perspective, more left wing, and i think --
running into the election as we get closer to november, particularly in the sensitive jack and there is worry about legislation, but the markets are -- such as tech and there is worry about legislation . we will have to wait and see. asncine: coming up, infections in hong kong hit a daily record and a u.s. congresswoman calls florida's outbreak out of control, we look at the coronavirus situation next. this is bloomberg. ♪
francine: this is "bloomberg surveillance." i'm francine lacqua and london. let's get to the blumberg business flash laura wright. -- let's get to the blumberg business flash with laura wright. told bloomberg the agreement with ebay would come in cash and stocks and would give ebay a significant minority stake. it looks to beat out the competition, and no official word from either. one announcement could come soon as today. japanese experts have fallen by within 20% for a third straight month. that is the market starts to
reopen since the virus shot down. overall shipment overseas were down 26%, worse than forecast. dividends paid by u.k. companies could take six years to recover. that is according to reports from financial data firm link group. payouts this year could shrink i nearly half to 56.7 billion pounds. in far more drastic reductions during the financial cry -- then during the financial crisis. that is your bloomberg business flash. francine: the u.k. says it secured early access to 19 million doses of promising coronavirus vaccine candidates alliance.fizer that is as the number of confirmed cases continues to grow globally. ovid-19 in asian resulted inve
tightening restrictions again. the mayor of los angeles as his city is -- says his city is on the verge of shutting down again. thank you for joining us. where are we on the vaccine? there are a number of promising trials. are they really promising, or is it speculative at the moment? >> so far, so good on the vaccine front. the data we have seen is decent, small trials, only testing one aspect of a vaccine in healthy, young folks with no comorbidities. which is not a surprise because of early trials. we need to see patients who are older or have comorbidities or who have issues with their immune systems. once we see that, then i will get more excited. francine: how quickly will we
see that, or not see that, sam? how early can we have an idea of when we will get a vaccine by? sam: i think a couple more months. i'm pretty sure we will have doses of something that can induce an immuneearly next yearf the year, but is that a safe, fully effective, protective vaccine for numbers of years? we will only know well into 2021 and i'm pretty sure. that is how long it will take. francine: how are you seeing the virus develop? do we have any idea of whether it is mutating? also, given that we have seen pockets of infections in certain the u.s.the world, and is better off in certain states, is this a new normal? we will have to deal with this and have more targeted lockdowns, or are we getting better at it basically? sam: we are certainly getting better at treating it because i'm pretty sure that as these
areas treatments continue to we hadeir effectiveness, one announced today from sin urgent, a u.k. biotech company that no one had -- from syn ergen, a u.k. biotech buddy no one had looked at for a number of years. until then, you will see outbreaks. it is like flu. we vaccinate people, but we still get flu at the end of the day. but we're making progress. the experts are doing pretty well at this. catch it,so if people do we have any idea of how immunity works? if you have antibodies, does it protect you for a couple of weeks, a couple of months, or almost not at all? sam: i think if you have antibodies, it you would be -- it would be amazingly surprising if it doesn't give you protection. there is a lot of the talk about antibodies waning over time. that is not abnormal. what you want is to make sure
that you have an immune memory behind so that if you see the virus again, your immune reaction is much quicker and clears the virus from infecting you. that is what we hope is the case, and i haven't seen data that proves otherwise yet. so i'm hopeful for the vaccines. francine: i'm looking at a story on bloomberg saying that the florida virus is out of control and los angeles is on the brink. is the only way to stop it through lockdown and people wearing masks? sam: if they had worn masks, i'm pretty sure -- we have been open in france, not the u.k., france, spain, italy for several weeks now. we don't see a massive resurgence in the number of cases, despite the fact that they are testing more. at the end of the day, i don't think there is any rocket science. you should cover your face for a virus that is transmitted by air.lets in the you're less likely to breathe it
in. if you keep your distance, you're less likely to breathe it in. this is very simple. i don't understand why it is such an issue in the u.s. francine: sam, thank you very much. coming up, julius baer posted its best ever first half profit. more with my interview with the swiss bank's chief executive next. this is bloomberg. ♪
francine: economics, finance, politics. this is "bloomberg surveillance ." i'm francine lacqua here in london. we are seeing a reversal when it comes to the markets. we were talking about the euro, euro up on the back of the belief with the fact that the e.u. frugal four or the countries that have been holding out are ready to accept this $450 billion in grants for the recovery fund. julius baer takes off european bank earnings a record first half profit. anchor manusbreak
cranny spoke with him -- with the ceo. take a listen. >> in march and april we have seen continuous activity through the entire half of the year with a bit of on and off, but coming out of the first into the second half of the year, there is a dynamic of what are the markets doing, how are those recovery patterns happening in different countries. it will be interesting moving forward. the fx,ou said look at is,derivatives, my question is that hedging or is that active client engagement? how would you define that kind of number in the report? obviously our boundaries are cooler. the treasury book has been a revalue with the huge change in dollar interest rates throughout the first half of the year, foot on the other side come on the trading side, we have been benefiting from high client
activities throughout that period, which is reflective of the numbers. need: are you going to exception of volatility again to deliver these kinds of numbers and margins? philipp: i think volatility helps. we are a business model that can capitalize and volatility come as we have proven. i think we are going to have it, we are going to have it from a market perspective, there is going to be political uncertainty, there are going to be few ingredients in the second half of the year that can drive it. election the u.s. biggest risk for it? philipp: it is one of the risks, but not the only one. dennis: we look for an amazing recovery -- manus: we look for an amazing recovery and credit. philipp: i think in reality come in the real economy, the impact of the crisis is going to play out over a longer period of time. in the first half --
manus: are we underestimating the length of time? maybe, but what is hard to predict is the recovery pattern. those countries that have taken measures early and in a thorough and deep way, they will see faster recoveries, whereas other countries will be in for a much longer game. manus: the biggest risk of the second half of the year, what do you think it comes from? negative rates, politics? seeipp: i think we will uncertainty, and i think the uncertainty lies in the speed and the depth of the recovery patterns. where does it happen and when? i think that uncertainty is a big risk. and an overlay from what is happening politically. i do think we are continuing a volatile situation and it is good for those players to capitalize. francine: that was julius baer, chief executive. joining us from europe is manus cranny. what has been the biggest challenge for this chief
executive? manus: well, he went into reorganization mode. on.narrative has moved i think as we start the week on the road in switzerland, it is volatility,ree b's, -- if you looks at the momentum from the client here, the fx derivative, i think that speaks volumes of where we are. you might see a dissipation in terms of a zero rate in terms of the united states, negative rates the rest of the world, but clients are chomping at the bit to engage. debateargue -- we can where -- whether i missed the rally, should i do anything more? what if there really is a moderna breakthrough? what if there really is an astrazeneca breakthrough?
there is no doubt about it, the clients at julius baer have shown a propensity to trade with the best first half numbers on record that they have delivered. they are bringing in more money from hong kong and japan. holding -- i asked him, was he boxed in, he said no. he was very recalcitrant in terms of committing to on shoring in china. riskf this is a razor to appetizer, a cut and raise it to management, then you get the sense that the rich, the ultra high net worth and the wealthy individuals -- if this is what they are doing a julius baer, what does that mean for tomorrow and the rest of the week? i would say overall the momentum from the clients has continued not just in march and april, but the clients are continuing to be dynamic.
a new ceo, a new set of ambitions, yes, there are cost cuts, but that is a man who is comfortably in that state with that set of numbers. fran, good morning. francine: good morning, manus. nice to see you. and's whistlehere and. --opean bond spreads leaders are negotiating the stimulus package with european shares erasing losses. "bloomberg surveillance." in the next hour, tom keene joins me out of new york. and tonight on leadership life, david rubenstein speaks with alibaba president mike evans. don't miss that. this is bloomberg. ♪
europe's so-called "frugal four" are set to be ready to accept doling out 390 billion euros in grants as recovery funds talks stretch into a fourth day. julius baer kicks off european bank earnings with a record first-half profit. the bank's chief executive tells manus cranny continued volatility will boost trading. and the pandemic continues to spread in the u.s. florida's infection rate surges, and l.a. is on the verge of another shutdown. a medical journal is due to publish more information on oxford's vaccine trial. well, good morning, everyone, and welcome to "bloomberg surveillance." i'm francine lacqua, here in london. tom keene in new york. we have a number of things we need to talk about. could morning to you. i've missed you tom, last week. nice to have you back in the studio. tom: you missed me last week. francine: i know we have always had merkel on the e.u. summit. closely howing
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