tv Bloomberg Markets Americas Bloomberg October 29, 2020 10:00am-12:00pm EDT
direction of green and digital. that is the reason why at the end of the introductory statement i have just read, we strongly encouraged that agreement is reached between the european authorities in order to efficiency ine is the deployment of the funds. this is what is going to have an this is what is going to have an impact on the real economy, so we hope this very much. is fromext question isabella. >> thank you for the opportunity. i have two questions. one is on tools, and one is on banks. on tltro's, you said in the statement that they are very attractive source of funding for banks. as tou give us any idea whether you discussed how this instrument can be made better?
multiple seeking challenges in the rise of yonperforming loans, so m second question is on banks. the general counsel discuss the onond containment measures european banks? thank you. thank you very much for your question. tltro is a long-term refinancing scheme that is really intended help the financing of the economy because banks are offered very attractive terms in order and provided that the lind to the economy. it is not -- that they lend to the economy.
it is not that it was a very generous package of refinancing without any conditionalities. the banks are going to only be eligible to the very attractive rate of -100 basis points provided that they lend at least as much as they did to the economy. so that is number one. it is an encouragement to finance the economy. and all sectors of the economy, not just large corporate accounts. it is focused on small and medium-sized enterprises. through the enlargement of collateral pools, we make sure it can reached the small osborne orders and very small -- small entrepreneurs and very small enterprises. it has had very successful pickup. if i remember, the june take-up was in excess of 1.3 trillion euros.
tltro's is a, structured, as calibrated, and with the incentive component sick -- thatroven it has has proven extrinsic successful. if you look at the bank lending survey, the banks themselves are acknowledging that tltro's have been critically important for them to continue extending credit to the economy. at theactor, if you look credit terms that they are offered, you really see that interest rates offered to and households are at the lowest end of interest rates. if you look at the volume of credit, there has been significant take-up of credit demanded by firms and
households. that demand has slowed down a little bit lately. that is a survey indicator. banks are anticipating that credit might tighten, particularly to the corporate, so we will see. we are very attentive, and we will continue to monitor that. but bottom line, it is a very attractive, well calibrated instrument that has been very successful, the guarantees that interest rates be maintained out to a very low level and that credit be expended -- be expanded enlargement. the impact of the second wave on banks is going to depend on the bank situation. it is going to be a factor of their market size, their business model. something.tell you the european central bank and the whole european system will be attentive because we need to
make sure that credit continues flowing in the economy. we need to make sure that the financing conditions remain favorable in order to support the recovery, and we need to make sure there is ample liquidity around in order to respond to any kind of shocks, we will of development see in the weeks and months to come. using thecalibrate data we will gather to make sure we can actually do that. thank you. >> the next question is from reuters. >> good afternoon. a couple of questions. first one is very specifically about -- did any policy number offer policy action today? did you discuss any change in your policy instruments today? the second question is about your meeting schedule.
in the spring, you met quite frequently, sometimes every week. do you have plans to increase the number of your meetings in the coming weeks? when is the next meeting going to be held? and what do you think you would need to see for the ecb to meetingt an unscheduled to take action like you did in march? ms. lagarde: thank you very much for your questions. in response to your first question, no, we did not discuss at all any particular or specific change to any of the posse measures that we have in place. we all agreed and recalibrating in order tonts reach the goals that we have. any of theling out tools that we have. i'm not ruling in any of the
tools we have. we have staff already working on this, to arrive at the best so that we can reach the goals that we have assigned to ourselves. the second question you had was about the frequency of our meetings. to tell you, although i personally regret, and i think all governing council numbers regret the times when we could sit down, work late in the evening, and end up with a ,orking dinner on wednesdays remotelyit of working usingt we can easily meet any of those devices. we can be together on very short notice to deal with multiple issues. there have been quite a few occasions, including recently, where we have addressed specific
issues, where we have had seminars, where we have our compartment three discussions where we have -- where we have had parliamentary discussions. we will continue to meet on a regular basis, and i can assure you that despite this remoteness, we are very close to each other, and we have managed so far to maintain the good discussions that eventually lead to as consensual as possible solutions, and this is clearly happening. so if we have to meet on short notice, we will do so. we stand ready for that. question is from "the wall street journal." >> thanks for taking the question, president lagarde. just to clarify, did i understand correctly that the governing council has agreed that there will be action in december, that there will be more stimulus?
the only question is what exactly that will look like? hintedond question, you at the rate of pepp purchases. i think you are suggesting that the rate of purchases under pepp could be accelerated. is that correct? how likely is that, and by how much would you accelerate that? ms. lagarde: thank you very much. those are great questions. some of you might argue that i am reading yet again, but i can't resist because i think this paragraph is actually key. -- i think youp have it, actually, in the press release, but i will read it. it says this. "on the basis of this updated assessment, the governing council will recalibrate its is appropriate to
respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path." so you really have it all in there. this is a key sentence in the introductory statement. it hasn't escaped your attention, of course. but when we say we will recalibrate its instruments, we are referring to all our instruments, so it is not pepp- specific. pepp is very instrumental, let's face it. it is targeted. it is temporary. it is flexible. i will come back to that in a second. but we are saying we will recalibrate our instruments. it means what it means. all of them. that welibrating means are going to identify what is use one or ways to
the other instruments, several of them, and clearly increase, expand, work on duration, on volume, unattractiveness -- volume, on attractiveness. members of staff are already working on that. the second part of your question withlso to do acceleration. i think it touched on something which is critically important in our pandemic emergency purchase program, which is the very specific dimension that it has, and that we want to maintain, and take advantage of if necessary, and that is flex ability. that flexibility applies across three dimensions, which will all be also examined. it is across classes of assets, across time, and across jurisdictions.
the first i don't need to explain to you. we moved into commercial paper, for instance, across time. we did frontload, back in the early days of pepp. if we have to frontload again, we will do so. and across jurisdictions, clearly we had to deviate from ,'s, more so at the beginning as markets stabilized and as the monetary policy transmission was much better. we tempered the deviation from t's, and they have reduced. but if we need to use that aspect of the flex ability again, we will do so. thank you. again, wexibility will do so. thank you. >> the next question is from bloomberg. >> good afternoon. i have two questions. one is a follow-up to what tom was asking. in this situation, could you explain to us a little bit the
sort of circumstances under which you wouldn't recalibrate or add stimulus in december? that is my first question. the second one is, you talked about headline inflation that is going to be negative into early 2021. i know you explained this doesn't constitute inflation, but with a second recession concernede you not that the eurozone is already in a kind of low-flation trap, or even deflation? thank you. ms. lagarde: circumstances under which we would recalibrate, first of all, i would like to yet again mention that the governing council was in complete agreement on the fact that action will be needed, and that recalibration is the right approach to the extent that it applies to all of our instruments. what the circumstances will be
will clearly be a factor of, number one, the incidence of the pandemic, the pace at which infections continue and contagion develops. the containment measures that are taken almost every day and as we speak, the fiscal responses that will also be laid out in order to respond to the circumstances, and all of that will lead to make staff readjusting their projection and providing scenarios, the baseline, and with the right assumptions behind such scenarios. so it is on the basis of that that we will determine whether the recalibration, how it plays out, and how it is best structured in order to respond to those circumstances, but we have little doubt, given what is of thed as a result risks that we are seeing come that circumstances will warrant the recalibration and the
implementation of this recalibrated package. your second question had to do with inflation. i will say what i have said already. the inflation number that we have for september, for august, ra negative territory. -0.3%.followed by behind those numbers, they are clearly specific one-off factors or very particular reasons. you have the combination of, for instance, the italian garment sale, including not only the summer garments, but moving into the whole winter collection. you have the energy prices that are clearly weighing also on inflation. rates ofthe discounted travel services, and so on and so forth. but that is not going to be forever.
clearly, what we expect is, in of 2021, aof 21 -- recovery that will begin picking up and resulting in demand being stimulated yet again, particularly if we continue to have fiscal and monetary policy supporting this recovery. frome next question comes "the new york times." >> hello. good afternoon, madam lagarde. at the ecb listens event a few said thatphilip lang he was open to the ecb dealing directly with the real economy, which i attribute to mean without using banks as intermediaries. it would be interested on your views on that, what that might mean, and whether this is something the governing council has discussed. the second question, on fiscal stimulus, in light of the new
containment measures and new risks to the economy if the fiscal stimulus that has already been decided enough? or should governments have the space to do more stimulus? i realize the political difficult is for that. thank you. ms. lagarde: thank you. i am glad you could listen to the ecb listens event because that was the first, and it was really encouraging, and good to hear the sounds of nongovernmental organizations, civil society representatives, and i think it was unheard at the european central bank, that cultural associations and ngos could actually express their views and indicate what they expect. we are actually dealing with the real economy. if you look at the way tltro's
have been structured, for instance, with a clear focus and incentive for banks to actually provide credit to the economy, provide credit to the entire sectors, from the professionals to the single entrepreneur to the large corporates, our focus is really to make sure that the economy recovers, that we as a central bank will provide the best possible financing conditions in order to support that effort, and while focusing on price stability in the measurements we have so far to determine whether or not our goal has been attained, that we therefore support the economy. was that intended to shortcut the banks? i don't think so. clearly, the banks are a transmission channel that is
critically important in order to make sure that our monetary policy reaches all sectors of and of our euro area economies. on the stimulus front, we are quite encouraged to have seen for the first time in many years fiscal and monetary work together. i remember the discussions we were having during the great financial crisis, where fiscal was lagging behind and was not in sync with the very necessary monetary policy that was deployed at the time. hand, is working hand in if you will. and when we look at the budgetary submissions, we clearly see that for the moment, the effort that is envisaged by member states is pretty much on par with what was envisaged in
2020. in addition to that, there is the clear game changer of the next generation eu, the -- the recovery and resilience facility that is part of the next generation eu plan that has been agreed by the leaders of the european council, which is clearly going in the direction of jointly addressing the crisis, jointly borrowing, to the fiscalng effort that is necessary in the present situation. so i very much hope that it continues into 2021, given what we are facing. i would not be very surprised if there was more fiscal support undertaken at the national levels, given the situation in the worsening of the conditions
we are seeing at the moment. comes from question "the telegraph" in the netherlands. >> good afternoon. i have two questions, if i may. if we see an economic recovery in the euro zone, some euro zone countries might recover faster than others. what will the ecb do against this fragmentation? it'scond question would be been almost one year since you took over at the helm of the ecb. how do you look back at your first year? ms. lagarde: i think your analysis is correct. as part of this eu and euro area recovery that we are all looking ,orward to and working hard for some countries will emerge in a stronger place because some
countries went into this pandemic and its economic consequences and a stronger place as well, which is why we all think around the table of the governing council that the next generation eu and the rff are actually well-designed to try to address the risk that you've identified. that is on the fiscal friend. as far as monetary policy is tools to, we have the deal with fragmentation. if anything, what we have done from march up until now has been particularly efficient to actually make sure that monetary transmitted,perly that the fragmentation risk is becausee and eliminated it is the euro area. all, i would say
it has gone by unbelievably fast. number two, it has been quite a the, and certainly not one i was expecting. i've enjoyed it, and i am really pleased to try to do the best i can and to deploy all the energy that i have around the table, and with staff which are producing an enormous amount of tok very hard circumstances help with the recovery and to make sure that, as i said, financing conditions are there in order to support the recovery. >> then x question comes from mni -- the next question comes from mni. of thebuzz word afternoon has clearly been recalibrated. i would like to return to that, if i may.
the numerous tools at the --erning council's disposal are you afraid that the ecb could use all its firepower to support the euro zone through this second phase of the pandemic damage, and leave us left to fuel the upturn? first of all, concerning this word recalibration, i think i've tried to explain it, but i will try again if this does not convince you. ist we mean to say determined instrument by instrument, a mix of instruments together, what is going to be the optimal response under the current circumstances and given
the outlook that we are facing in that we will be facing with the new projections. will that mean an increase? will that mean an extension? will that mean a variation in the terms of such programs? will it mean a revision of the collaterals? all of it will be looked at clearly, and recalibration there will be. that is what we say in the introductory statement. i don't really understand use of are you concerned that you will use all of your firepower because i got pretty similar questions much earlier on when i was told there was no toolbox left anymore, or that we had used all of our powder and there was nothing left we could do. we have clearly demonstrated during the first wave of the
pandemic that of course, we could tailor new tools. of course we could revisit them. of course we could recalibrate some of the tltro's, and we did so. and of course we could explore under the particularly exceptional circumstances what terms and conditions would apply, and that was the case with >> ability applied to -- with flexibility applied to pepp. so we have done it. the ecb was there for the first wave. the ecb will be here for the second wave, and we will deploy the same flex ability, and in the meantime, while we are working on this calibration -- this re-television exercise we have agreed. thank you. >> the next question is from mace news. >> thank you so much. i wanted to speak to you a
little bit about your opening statement, were you mentioned one of the things you are monetaryt is the exchange rates. i can dream them or a time you have mentioned exchange rates so high up in your presentation. the follow-up question, when you're looking at your recalibration, how do your economists, how are you able to recalibrate when a number of things are out of your control, like the exchange rate, and like the passage of fiscal policy? how will that affect your deliberations of what happens in december? thank you. ms. lagarde: i think there was complete agreement around the that theay to conclude most relevant and the driving comes to our revision december, and that applies to
both the projections, as well as to our auditory policy, is 'ctually the covid-19 cases sometimes exponential advancement, the measures taken as a result, and the consequent is it will have, and probably weigh into 2021, given the seriousness and the hardship of what is coming. so while we are very attentive to exchange rate, and we maygnize that exchange rate have a clear impact on inflation , we do not necessarily think at this point that this is the driving factor. factorse exotic and its that you cannot influence.
when i look at the contagion rate, when i look at the containment measures, when i look at the support to vaccination, these are not the things that a central bank can actually operate upon. what we can do is draw consequences that extend to us and take the necessary policy actions in order to provide the best support to economic recovery. ini think we have humility that respect, and we recognize that there are things we simply cannot influence, but from which we can draw consequences in order to support the economy and maintain price stability. ok, the very final question -- [indiscernible] you have been listening to the press conference which is about to wrap up, christine
lagarde answering questions at the virtual press conference in frankfurt following the ecb policy decision. let me recap for you the main points that have come out of this briefing and that decision. the economy is losing lament in faster than expected. risks are to the downside. , wecy will be recalibrated heard that word a lot, at the next meeting. all instruments are on the table for recalibration. there is little doubt that the ecb will act in december. what does the price action look like? alix: interestingly enough, european equities flipping into positive territory. the euro zone not really understanding where it is going to go. are, thewhere we lowest since september. it has been whippy action all throughout the trading day. shocker, the nasdaq is the outperformer, up by over 1%, after yesterday's dramatic fall in equities on both side of the
atlantic. we are getting a very strong bid in the european bond market, particularly in italy and spain. if you want to look at where the biggest risk seems to be in the market, it doesn't seem to be in crude. we are down now by about 4%. worst case scenario, we are down 6%. it is a global demand story, but also a supply story. it is hard to feel good about asset classes when you're looking at crude off of $35. joining us is paul gordon, who covers european banks. what do we know now going forward? ,aul: going into this meetings most economists did not think there would be extra stimulus, but they wanted a signal, and they got it, clearly. the more apparent it was that there will be a stimulus package in december, she said there is
no doubt that we will recalibrate the current stimulus. that doesn't overtly say there will be more of it, but that seems to be the take away most investors we saw that by most investors -- the takeaway by most investors. the committees at the ecb are not working on the details -- are now working on what the details of that package might look like. alix: thank you very much. we want to stay in europe because lockdowns return, with france and germany shutting down bars and restaurants for a month, the hardest restrictions since the spring. joining us for more on the phone is maria tadeo in brussels. breakdown the new restrictions. , europe oncel again grinding to a halt. in germany you have a partial locked. that means hospitality venues, anything that see people , the germansther
have repeated time after time that they want to bring down the infection rate. angela merkel was speaking in the german parliament today and was very open about this, saying this is a dramatic situation. that this is an economic and social crisis happening at the same time. the french have gone for a bigger lockdown. this is more of a lockdown similar to the one we signed march, where people were told you have to go home, you have to stay there. is that schools opened. that could help parents work from home. what i would say is that the highlight here if this is not just about germany and france. i'm looking at the spanish, the italians, the belgian press, and they are saying this is not about whether we go to a lockdown, but finding out when we go into a lockdown. much,hank you very indeed. we have also been monitoring economic data out of the united
states today. we have seen gdp data, a record surge in growth in the third quarter, plus the weekly claims data. bloomberg economic and policy correspondent michael mckee joins us with more. michael: it was a record-setting quarter, but it came after a record-setting quarter. 33 point 1% annualized rate of growth for gdp in the third quarter came after a record-setting decline in the second quarter. basis, gdpnualized rose -- so we are still in the hole. business investment up 23%, driven by equipment. consumer spending was healthy, up 40.7%. that might set the table for a better holiday. the numbers on government spending, down 6.2% after an increase in the second quarter because the ppp money and stimulus money went away.
state and local governments still in the hole. spending inventories still very low. where are we at this point? we had a hole that we haven't filled thomas still 3.5% below where we were at the beginning of the year, but look at the blue line. that is where we would have been if we had had the same kind of growth rate we did in 2019. we are still 7% below where we were. the first priority for the next administration is going to be figuring out how to close that gap. 750 1000, down from 791,000. the 791,000 a revision upwards. we will have to see if this last week's jobless claims numbers get revised up as well. the one thing we can tell you is they are still running very high. alix: thank. all of this contributing to some of the price action that we have seen over the last 24 hours. we want to go right to abigail
doolittle for a look at those markets. abigail: really a wild ride here on the day end of the week. the s&p 500 up sharply after yesterday's selloff, and investors contesting with the macro around the virus and the election, and the micro of earnings. conocophillips is an interesting sharply the two, down for wti, and relative to earnings. on the other hand, with the s&p 500, this has to do with looking ahead to the mega cap earnings after the bell tonight. those stocks are really leading the way. as for europe, it has everything to do with the ecb. as you all were talking about, the euro really under pressure. at one point earlier today, down sharply. at that point, on pace for its worst august after christine lagarde did say they are going to be looking at all instruments in the december meeting, all willing to do whatever it takes.
the euro right now is heading towards its worst week in more than a month, so the idea of accommodation pressuring the euro, plus the dollar getting a bid this week on the macro risk off, but you see the bund rallying on the week. that has everything to do with the ecb and the possibility of accommodations, plus a haven bid. take a look at brent crude, earlier today below $37 a barrel for the first time since may. right now, headed for its worst week since april. this as fears around the virus, will the economy slow down, will it gets worse, will there be more lockdowns. what stands in for me -- what stands out for me the most, we have major lockdowns this week, headed for the worst week since march, but the dax is ripping through that 200 day moving average. the s&p thingeek, there would be the worst
in december. joining us with more is nathan sheets, pgim fixed income chief economist. what asset reacting to what? we have the u.s. elections, central bank liquidity, and the virus resurgence. nathan: i think all of it is impacting the market in various ways. my feeling this morning is the strong u.s. gdp number has been particularly influential, and looking at currency markets, i think we are seeing the signature of the increased madamens in europe, and lagarde sounds very determined, but she is constrained. i think that many central banks are now in a new world of
diminishing returns. so the question is, does it really turn the tide for the economy and for inflation, especially under these circumstances? was it sounded like the ecb pre-committing to december. given the delta on so many of these stories, the rate of change is accelerating. do you think the ecb has got that long? do you think policymakers have time to act, or do you think the rate of change on the virus, the second wave seems stronger than anticipated? given where the euro area economy is at present, and given the escalating challenges with the virus, this might have where and ecbr surprise could have been particularly powerful. we think we will get it at the next meeting, but circumstances and conditions are going to be worse than they are now.
i think as you say, it would have been nice to have a little bit more a little bit earlier. i the same token, there is work that staff has to do. she's got to bring the committee along. that takes time. i guess they just weren't ready to move at this meeting. that theydid intimate get to talk on a zoom call and make decisions if things were necessary. i guess it depends on the economic trajectory of these shutdowns. do you feel like the market is pricing in the lockdowns as of april, or is the market interpreting something different with these lockdowns, and why? nathan: i think the markets are pricing in a lot more than we have had in recent months, but i don't think anyone is expecting the impact on the economy to be as severe or draconian as what we saw in april. specifically, i think the view
in the markets is we have learned how to better balance the need and necessity for public health with economic activity, production and consumption. marketsht say that the were pressing in lockdown light, but if that is wrong and it does end up being as severe as what we saw in the spring, i think there is clearly some downside price action to come. wheref you take a look at you're going to get the biggest bang for your buck in fixed income, you just buy btp's off of what lagarde said today? how much more room could we see, for instance, in treasuries to come down? i am curious where, if we are going to see policy action on the back of this second wave being more brutal and the stronger, where my positioned into that?
--han: madame will guard madame lagarde was categorical that they will be flexible across jurisdictions, which is a bond investor, certainly caught my ear. on the margin, it makes those and the italian debt more attractive, and i think that as the ecb expands its begram, it is likely to disproportionately in some of those places. the effects in particular are likely to be disproportionately and some of those places. further in this environment, will there be more safe havens? when you look at the safe havens, there is more return in treasuries than there is in bunds. i think we could see in an environment of more severe responses to the virus further
decline in treasury yields. they are already very low. there is no floor, as we have seen. what struck market participants yesterday is you had this very dramatic selloff, and treasuries really went nowhere. you didn't really get that safe haven bid. i was left wondering if that meant that we actually did have some kind of floor for treasuries. nathan: i think what the markets are waiting for is a little more resolution on the u.s. presidential election. particularly, i think that if we get a clear verdict for that, and if we also see a further escalation of lockdowns and concerns about the virus, i believe there is meaningful downside for u.s. treasury yields in that scenario. however, the big question i think for treasury is do we get resolution, or if the united
in a conflict at limbo where we don't know what is going to happen, and that environment, do we see the traditional safe haven play run down u.s. rates? or it might be a different configuration of market response to that sort of outcome in this instance. guy: at the moment, the polls are pointing to a biden win, so let's deal with that for the moment and what that could mean for the treasury market. there is the potential for greater spending, which in theory should be the reflation trade. but on the other hand, i have also heard them talk about the fact that he is going to spend a lot more time listening to dr. fauci. we are likely to see more draconian measures imposed in the united states in terms of the lockdown, which should in theory be deflationary. how do i balance those risks out of the treasury market?
you just articulated the tensions of a biden victory. i think on one hand, we will see very significant fiscal stimulus during the first quarter, and huge incentive to put spending into the economy. on the other hand, he also has incentive to be vigorous in addressing the virus. if he is more vigorous, even if there is an adverse effect on the economy as a result, he can blame president trump for this. i am only having to do this to clean up the mess i've inherited. but if he doesn't move vigorously on the virus upfront, after three months, four months or so, it is his problem, and the voters will blame him and his dim credit colleagues. so there are these conflicting incentives. hopefully we won't see a big surge in the virus in the united
states. if we do, i think we might be in policyrld where pandemic is taking and fiscal policy is giving. guy: nathan, really appreciate your time today. nathan sheets of pgim fixed income, thank you. alix: coming up, u.s. stocks bouncing back after the biggest rout in four months. we will have more on today's futures in focus. this is bloomberg. ♪
strategies founder. the s&p 500 traded below support on that cloud model yesterday, i 3357. the breakdown looks pretty decisive, but it is pending confirmation today below that level. that would increase the risk of a better corrective phase. the next support, which i am using as a nod to retracement levels to arrive at, is 34 625. i think most people would be focused on 3130, but that doesn't look like a very important level to me. even if we do think it is firm today, which is looking more ikely in the s&p futures come don't think we will see it break down from here. we have a pretty wide, oversold
reading. there were a lot of market extremes yesterday. you are seeing some signs that that exhaustion is here short-term. i think we will have a better opportunity to reduce exposure. alix: which leads us to the vix. are we in overbought territory here? how much further can we go? katie: the s&p remains oversold, whereas the vix is technically overbought. we saw it move above 41 yesterday. obviously, these spikes are not that frequent, and also not that long-lived. that is the good news, that we don't often see the vix elevated for more than a week at a time. it will provide some relief from what we saw yesterday. alic is desperate -- i know alix is desperate to
talk about what is happening in the oil market. katie: it certainly lost short-term momentum. previously appeared its 200 day moving average. now it is back to support any $37 per barrel area. a couple of closes below that level would be a short-term targeting 30 to 15% on the support level. i do think that being treated as a risk asset, the traditional downside for crude is being confirmed here, but it is short-term in nature, not intermediate or long-term. if we look at the market indicators, in two days we have the potential for crude oil futures to get a counter signal that would support a relief rally. so i think the messages that we don't use weakness to reduce exposure, but rather hold tight and wait for a rebound. seconds,have about 30
but can you do for me -- do tech for me? katie: we have four of the six porting after the bell, and we have really come into that -- six reporting after the bell, and they have really come into that with relative strength, which is not always the case coming into earnings. i think that the reaction could forlyze or provide impetus the broader market, given their big footprint of 17%. guy: we will leave it there. always appreciate your time, katie stockton of fairlead. tonext, max kettner is going be joining us. this is bloomberg. ♪ . this is bloomberg. ♪
york, 3:00 p.m. in london. welcome to "bloomberg markets." it's not yesterday. that's the positive news. guy: but some assets feel like they are still in that kind of circle. we are certainly seeing markets going round and round at a fairly rapid rate at the moment. let's take a look at where we are. equities stabilizing, as you indicate. it is not yesterday for the european equity markets. the euro-dollar now with a $1.16 handle. christine lagarde mentioning foreign-exchange in her opening statement. that was rare. we are also seeing a bid at the front end of the core curves. greecespain, portugal, all moving significantly today on the back of what appears to be a pretty committal -- a pre-committal to action from the ecb. the s&p not recouping all of the losses we saw yesterday. we are up by 0.9%.
alix: and of course, a huge part of that is what is going to happen with the virus, and the trajectory and europe as well. let's break some of that down. you have a lockdown that christine lagarde did wind up talking about at the ecb press conference. here is what she had to say. resurgence inhe coronavirus infections presents renewed challenges to public health and growth prospects of the euro area and global economies. incoming information signals that the euro area economic recovery is losing momentum more rapidly than expected after a strong, yet partial and uneven rebound in economic activity over the summer months. isx: joining us now bloomberg's on adult. when do we know if this would be successful? heard,r: as you've
merkel yesterday with the german state leaders approved a number of measures. it is a like lockdown starting next no one day -- next monday. of course, it will slow everything down, even though it is not as tough as last spring. prettywill mean it is psychologically devastating for people here, and for businesses. guy: though businesses are being given something of a reprieve relative to what we saw earlier in the year. you talk about it being lockdown light, but is there light at the end of the tunnel? what is the exit plan? , or thee mission is goal is to save christmas. that's what we are hearing now. they say if people follow all of these rules, we might be able to have kind of a normal christmas
time you can sell a bridge with family and friends, even though nobody knows if that will happen . guy: absolutely, and it feels like a long way away. still many months still to come. an update on was happening in germany with arnie delve -- with s.ne delf ,oining us now is ask kutner hsbc -- is max kettner, hsbc multi-asset strategist. what does it mean for euro strategists? bundif you look at the market, a lot of it has been priced already. you look forward six to 12 months, i rate cut is already there in the price. it seems like the floor is in for bunds already.
means in the it rates market is that the sort of btp-bund compression has further to go. whenever we see some bout of volatility like over the past two or three days, that would be much more a buy on the dips of btp-bunds tight nurse. a lot of people have already -- tighten or's -- tighteners. the better handling of the virus, we kind of threw that out of the window, and the other is those two narratives are with european equities, and on the fx side, euro-dollar has
lookingarkably steady, at, for example, what bunds have been pricing, so there's probably a little more downside for the euro here, but probably most of the mood is gone. alix: what we also heard is the recalibrate instruments over and over from christine lagarde. any recalibration could impact some kind of asset class in europe. what do you thing she meant when she said that? >> i think there's a couple of things to take away from that, first of all, it means that more qe is coming. they mentioned all of the tools, but that physically means they are going to increase both the p purchasehe app program, but what she says when she means recalibrating, she means what you have already been talking about, that they are going to do more, and secondly, we are going to do more qe. i think that is what markets are ticking away. that is what all forecasters are ticking away, and that is what
they will do. guy: do you think they will do this in december? do you think we are going to see another emergency meeting? the rate of change seems to be pretty fast. we are likely to see the q4 numbers, which were meant to be flat, now significantly negative. you think the ecb made a mistake today by not acting? claus: i think they will probably just about get away with it. place, sothe pepp in if things start to get rowdy, they have room to actually support markets. ecb forecasts are way too high, so the numbers now could be .eally bad you take away all of the hospitality, and very quickly you end up with some really bad numbers. alix: i guess if we do see
recalibration expanding the pepp buy -- whatt today do they buy? does that create an opportunity? max: probably most of the ramifications in terms of ecb flows are obviously in credit and in the rate space. i think the rate space we've p-bunds or broader conversion. that is still going to continue. if you look at the ecb virtually playing the tire net supply -- the entire net supply, it is typical to go against that flow. whereas if you get more qe purchases, at least around the pepp program, that is going to be broadly supportive for peripherals. on euro credit, probably won't move the needle on awful lot theuse we've gotten used to
purchases over the years. it is not going to be the massive game changer i think for credit, and just like you said, for fx, most of the moon is -- most of the move is probably gone. faire probably around value after that. guy: if that is the case, is the ecb stuck? i also read through the details of the survey this week, and we are seeing tightening lending standards. the ecb credit is getting stuck in the system, and erupt relies on its back channel more than in the united states. the ecb, like, all other central banks, are very effective at pushing up asset prices, but in terms of credit, we have just had the biggest contraction on record. the effect of this will be weaker demand and probably
tighter credit conditions. the ecb can help the demand, but it don't think the ecb can do any thing about that. alix: what can? claus: well, time. hopefully next year we will have better news on the virus, a vaccine. that is what everybody is hoping. when you are looking at an uncertain environment, companies don't invest. consumers don't go out and borrow to buy new cars. to changely difficult those dynamics in the near term. but again, you can put a cushion under it, and that is what they are doing. add,ully to also revocation of the recovery fund would be a big plus as well. that would give them a little bit of room in terms of their own forecasts on a slightly longer term basis. guy: there was an argument that feels like a lifetime ago that
you would buy europe on the back of a biden win. does that still apply? max: i don't think so. if you want to position for that, and if you want to for aon let's say relatively unproblematic election outcome, some positive news around a vaccine, bus potentially more stimulus, i think it is -- plus potentially more stimulus, i thing it is much more in asia, where frankly, the domestic growth picture is pretty solid in asia. it is pretty solid not only in china, where the domestic picture is been brightening up, but look at taiwan, korea. exporters are almost 30% year-over-year. virus onthey have the the heavyweight countries over there. so you want to be there because that is kind of like a safe haven right now, relative to europe and perhaps even to the
u.s.. some of the positive catalysts in the u.s. play out just like you said on the election, i would much rather go down the ,uality stack, the rating stack and u.s. credit and equities rather than buy europe. alix: if we are going to get into a u.s. versus europe bid, i understand the idea of a visit going to be which balance sheet is going faster and bigger than yours, and which stimulus is going to be faster and bigger than yours? if that what we are going to be reduced to in terms of understanding the growth profile? i think that is a fair point, but in the case of global asset flows, europe is massively disadvantaged. you are buying banks. you are buying energy stocks to a much larger extent than you are buying in the u.s. if you are buying the market, and therefore there will be an extent of european underperformance there. i agree with max.
think a lot of people have bought europe this year because of the recovery fund, and i actually think that once that is ratified, you could see some upside in those flows as well. behinderwise, europe is when it comes to equity flows, and i don't see how that changes in the near term. guy: just one quick question for me. peripheral spreads have come in aggressively, and they look like they are going to come in even more. is that masking an underlying problem? is italy still a credit rather than a sovereign? do i need to still think about it despite what the ecb is doing through those kind of lenses? do i need to look at all of the peripherals as credit still? we don't have the fund yet. we do have the ecb buying. i don't really understand what price discovery looks like really in those markets. bit, therehe final
is no price disparity because the ecb is such a prominent force. i would say that italy is probably still a credit because i think there is still a little bit of uncertainty in italy about exactly what the political environment there, the politicians they thing about euro amber ship -- euro membership. that simmers under the surface in italian discourse, whereas any country like spain, there is no political controversy about euro membership yet, so i would expect those bonds to react much more like typical sovereign bonds. i thicket is on the political ise where the discrepancy because remember, if you started get these start to talks about leaving the eu, if they come back, immediately the ecb programs are left impotent. of acb can't buy the bonds
buybacks in the next year. hsbcore, max kettner, multi-asset strategist till with us. let's pretend you continue to see loan officers released from some of the big banks. they did not pile as much cash away. do you want to buy them? max: still cautious on financials overall in the equity space. in credit, if you look at primary over the last couple of months, that has been very well absorbed, and you see the plastic high beta financials, lower beta nonfinancial pictures, you see that play out and see the financials outperform. that probably can continue, we think particular for u.s. catalyst, the positive catalyst we were talking about, that can continue in case the panelists play out. in the equity space it will be really tough. in europe we talked for 10 to 15 minutes about the eurozone and the ecb.
frankly, the potential for rising rates, the potential for way out onsteepening the long end of the curve is very limited. frankly, for very short-term trades, why not? if you have a three to six month view which is not particularly long, the banks, the financials trait is probably not that attractive. segmenting europe into those that have external exposure and those that do not? i look at what is happening in the european car sector. basically a play on china. chinese demand remains strong particular for the luxury manufacturers. i am looking at airbus stabilizing its position, stabilizing its cash flow position. asia and china a big driver of the decision to wrap up production on its narrowbody fleet. i hear what you are saying about the banks.
they get exposure into the domestic markets. is that halep was in europe? -- is that how it was in europe? max: probably. that makes sense. if you look at german equities, big exposure to asia, among the major european equities you see is the largest exposure to china , largest revenue exposure to asia more broadly. that is probably what you want to buy. when you look at where the dax is now, lowest since the start of the recovery, that is probably little bit overdone. that is the stuff within europe you can buy. ,he other countries and regions that is where i would be much more cautious. , and i definitely right would more broadly say you probably want to be more in large caps rather than small ons if you are relying
further downside for the euro and further downside in euro-dollar, because particularly the small caps in the euro zone so domestically focused, and that is where you do not want to be. you want to be some of the companies he referred to, some that have more foreign revenue exposure, where we were probably able to benefit from a weakening. alix: to that point, does that mean when we get these lockdowns for four weeks, six weeks, but you still have factory production underway because of things that in place in march and april of this year and you can still export to asia, how does that wind up outweighing or not the lockdown in terms of growth? that is the biggest crystal ball question of the world. alix: let's go. lockdownsnows how the will look like in four weeks. in twoany they said
weeks we will revisit it all. in general, it is quite clear when we look at the high-frequency indicators around bucking, but you see that in europe. also in the u.k.. countdown much quicker, even before the last couple of days. that has already started to retrace much quicker, much earlier compared to in the u.s. where maybe this is just continuing. high-frequency and traditional data in the u.s. are much more solid. my point would simply be i would ask you a question for a gas for a yess., probably -- 4for for the u.s., much better than the eurozone, where the recovery will be looking like a w and we will see much more caution in q4 and we will see the rest just like after the financial crisis, europe and the eurozone will be left behind in the recovery. guy: all right talk about the
ritika: it is time for the bloomberg business flash. a look at some of the biggest business stories in the news right now. lvmh has agreed to by tiffany at a reduced price of almost $16 billion. the french luxury conglomerate will get a 425 million dollar discount on the original price. the agreement ends the year long saga involving a war of words and lawsuits in the u.s. apollo global management co-founder is trying to recover from an embarrassing problem. on a conference call today black apologized for working with jeffrey epstein. he called it a horrible mistake. word of the relationship
prompted two state funds to halt new investments with apollo, and consultants expressed reservations about investing with the firm. that is your latest business flash. alix: thanks so much. onto breaking news concerning exxon. ,he company will cut 1900 jobs mostly in u.s. management offices in houston. there will be voluntary as well as involuntary programs. this is interesting for many reasons. exxon is the last big oil company to do this. others have tried to get leaner and slim down there staff, regardless of oil prices. exxon has stuck firm to its belief they will be a countercyclical investor and long-term oil assets and we will need oil for the long-term future. also exxon has a dividend they refused to cut the majority of their shareholders or retail investors. this is one way to go about saving costs. they cannot cut that dividend -- if they cannot cut the dividend. at $37.nt crude trading
that is a pretty tough number. exxon is the ultimate supertanker. ,t takes a while to turn around but as you say everyone else is switching to the news new business mop -- to the new business model. a very different model than the one we had before. ultimately exxon have to fall in line, but it is a big supertanker. it is certainly turning now. talking of other giant companies, we are going to talk about volkswagen. volkswagen returning to profit. we will look at what drove those results, next. there is a bit of a clue. it is china, and it is a big impact. we will about that next. this is bloomberg. -- we will talk about that next. this is bloomberg. ♪
the third quarter, reported earnings that beat estimates earlier today. i spoke to the ceo about the company's plans to wrap up production of its a320 and where it sees the growth coming from. >> we are quite satisfied with the third quarter. we have delivered what we wanted to achieve, which is no longer burning cash, and that is what we have achieved. we think we are in the corridor of expectations. we said to ourselves. i cannot say the worst is behind us, but i can say the plan we have put in place, which we call the adaptation plan is delivering the results we were expecting so far. guy: let's talk about your biggest program, the a320, the narrowbody that drives the bulk of the world's airlines. at the moment, your production at 40, and you will continue that until the summer of next
year, then you are going to ramp up, and you're going to ramp up to 47. what gives you the confidence to do that, because your friends in chicago yesterday sounded quite downbeat and they were talking about a new reality. why do you have the confidence to ramp up the 320 line? a strong: we have product with the a320 family and a strong demand for the product before the pandemic. as we can see, beyond the pandemic. we have not been facing cancellations, and that is a positive sign from the markets. we are now at 40 aircraft a month in terms of production. our objective was to converge the delivery and production, which is what we have achieved in the third quarter, and we have continued to stay at 40 per month for the first seeable --
for the foreseeable future. pan ae in our supply beginningom 40 to 47 third quarter 2021. it was the beginning of the second quarter, so we have pushed that point in time by one quarter and we continue to monitor. based on the data we have today and the contact we have with our customers, this would require a ramp-up in the second half of 2021. we will keep monitoring. we are in a dynamic market given the evolution of the pandemic and we remain focused, but on the short-term we think the ramp-up is the right one. guy: i want to come back to that dynamic you are taking. which regions are giving you the confidence to be able to do this. is it all china? guillaume: it is not all china. you make a good point.
china is recovering very well and is very strong at the moment. they are back to 100 percent of what it was in 2019 the domestic flights. that is very positive. research is a combination of what we see globally around the world, and we look at one region or the other one is changing. sometimes with good news, sometimes with bad news. we have to remain prudent locally. what counts for us is the overall market, and the overall market tells us the rate seems to be the right position for the production of the airbus a320 family. guy: you mentioned the dynamic approach you are taking to matching production and deliveries. that is critical to the cash flow story you have been discussing this morning. how challenging is that to make that happen? guillaume: it was very challenging at the outset of the
crisis. at the beginning we were producing more planes than we could deliver and we have inventories that have piled up 145 planeswe were at finished but not delivered by the end of q1. of the thirdd quarter we are down to 135, and that is an important indicator of the situation. now what we deliver is slightly more than we produce. that is why we have reasonable confidence for q4, that is why we shoot guidance for free cash flow before m&a and custom financing in the fourth quarter. faury, the ceo of airbus. let's go to cars. volkswagen is surging. houchois philippe
joins us. we were talking about this on break. how much if you are positive on the auto stock is it because they have a large market share in china? philippe: i think china helps and has been helping in q2 so it is a bit of a continuation. i would say overall the positive surprise is good news in q3 is more about growing back to normal production in europe and high inventory as well as in north america. q3 wasitive outcome in more the u.s. and europe. guy: the outlook for europe and the united states, particularly europe, is looking more difficult. we are seeing lockdowns in france and germany. will these carmakers be able to continue to produce during this phase. will there be demand? if you look at what is happening in europe, what does next quarter look like?
philippe: absolutely. my comments on china and the u.s. definitely factor in, as we look at the rest of q4, the potential shutdowns we see in germany and france and other countries, not so much in the u.s.. france seems like dealerships hopefullyosed, customers will take deliveries of cars but you will slow down production. see saleswe may not stopping to zero like we saw on the second quarter, but it will definitely impact factory term andn for the near for the industry as a whole. what cars are most in demand? where does the supply chain get the most disrupted? philippe: right now there is uneven load factors. ,ome plants are working well some are working more slowly. we will continue have to have
consumers evolving toward more suvs in the u.s.. in europe we have seen suvs gain share. we have seen a remarkable demand for electric vehicles throughout cars have because been may be overly generous, but those are the main rules areas, the shift towards ev and suvs. guy: as you've read through all of the numbers and the commentary from the different companies, what is your take on who is executing well and who is not executing well? philippe: at this stage we have seen things get better at ford. two quarters of good news at ford. ,e have seen at fiat chrysler the big step towards repairing the balance sheet damage they incurred in the first half. volkswagen, we knew
they were going to have good numbers, but the working capital reversal we saw in the third quarter again signaling the balance sheet. compared to what i saw two or , we might haveo a similar balance sheet in 2020 as 2019. i think we are looking at more and more carmakers preparing the balance sheet and they expect to have the same net cash position this year at the end of 2019. overall the balance sheet repair has been faster and more positive than we thought a couple of months ago. where does that leave carmakers in the rush to make ev's? after the pandemic, where are we in terms of the big guys? philippe: everybody is in the same boat. i think it is mandated in china, mandated in europe, less so in the u.s., at least for now.
boat.ody is in the same tesla, that is all they do, so it is easier for them. automakers,onal volkswagen more committed to electric vehicles faster than anybody else. g.m. is following quickly. it is a question of degree or speed, and that is a question of how quickly the industry or demand will move away from hybrid vehicles, which had been quite successful. that has helped carmakers comply on regulations, but discussions about the future of those vehicles, and shifting quickly facing productive constraints, supply constraints, and also consumer resistance. what we saw in france where [indiscernible] being cut next year compared to this year, i think we will see a
developing situation other markets. the transition to ev is not going to be a smooth as those. final question from me. over the last few days we have seen european equities being battered. the third worst performing sector is the car sector, down 7%, a little off that. is this an opportunity? you spoke earlier on in this conversation about how surprised you have been about how well these companies have done and how they weather the storm much better than anticipated. if we do see a drop-down, is that an opportunity to get back in or would you bite your time and look to see how the lockdowns work? philippe: we have risk around assumingowns, but even there is a temporary lockdown, overall the damage from covid on balance sheets and the ability of carmakers to invest is much less severe than we thought entering the second quarter of this year.
that is good news. that means all of the carmakers continue to invest. the problem for the industry before seeing it as an opportunity, i think we need to think about what this industry will go through for the next 10 or 20 years, which is a transition from one kind of vehicle to another. if you make a gradual transition , then it will be a zero-sum game where it will be difficult for equity investors to get excited about an industry which is basically substituting one type of car for another without regrowing earnings. that is the challenge carmakers are facing. they have to develop electric vehicles, but then they need to find ways of addressing legacy issues and potentially shrink their exposure to traditional vehicles to re-create positive net growth, and that is a long process. it is a difficult one and an expensive one.
many investors will not necessarily jump at a correction , given the structural challenges facing the industry. alix: it is almost like you are describing the oil industry as well. both trying to transition. philippe houchois of jeffries. thank you very much. more on the resurgence of virus cases in europe. a new strainacking of the virus that originated with spanish farmworkers. we will speak with the lead researcher in that study. this is bloomberg. ♪
blowout when amazon reports third-quarter results after the closing bout. the pandemic continues to deal with demand for computing and its -- demand expected to persist through the holiday season. the new ceo of we work wants to revisit plans for an ipo. on office sharing startup is track to turn portable in 2021. thereafter the company will consider going public. last week's ipo disaster prompted the ouster of the cofounder and all of that led to japan's softbank group taking control. what is standing in the way of everyone returning to the office? bloomberg's erik schatzker spoke about the outlook of returning to the office. we have at think legitimate corporation or legitimate ceo that does not
want their people back in the office. there is does to reasons they do not have them back. number one, they do not have enough space to accommodate them andhe premises they occupy operate out of today. if they have a vaccine, they do not need more space. if they do not need a vaccine, they will have to build out more space, which means you need more space to accommodate people. ritika: that is the latest business flash. guy? guy: thank you let's stay with the virus. scientists are warning of a new coronavirus spreading across europe, which now apparently accounts for the majority of new covid cases in several european countries. joining us is the lead author of the research, entomologist at the university of basil. can you explain what is different, and is this why the second wave feels as strong as the first? >> one thing important to note
is even though the dynamics of this variant are notable, this is not the majority variant in any country in europe that is seeing a spike. it is not the the spike we have had in the last two weeks. the reason the variant caught our eye is because it seems to have originated in spain and quickly traveled to different countries around the eu. it is in at least 12 countries right now. when it arrived, it seems to spread quite effectively, and did more than one country it is now the dominant variant. that affect people differently than the first variant? emma: we do not have any evidence that is the case and there is not a reason for people to be worried. what is behind the spread is the holiday season. we know in spain cases started to rise in july. of course thomas payne is a great holiday destination. a lot -- of course, spain is a
great holiday destination. a lot of people went there. if the variance were imported, countries had a hard time containing cases so this variant might have had a perfect storm through which it was able to spread so efficiently. is this going to affect the way we think about vaccines? is the vaccine developed going to work on this as well? emma: we think the vaccine will still work, and we think if you already had covid the immunity will work against this variate as well. we think this could be important as far as helping us figure out better ways to make sure when we start traveling again in europe and the future, they do not lose the hard-fought reduction in cases we are all trying to get to when we open our borders and accept travelers from other countries. alix: that is something that has been puzzling. for how prepared and how well europe did the first time, it
feels surprising how bad they did it this time. i wonder is it a reopening thing, is that the tracking apps weren't ready? how do you understand that. ac. pompeo: a lot of -- emma: lot of clients had a feeling autumn and winter would make this harder. when you turn on heating and cooling this is an environment for the virus to transmit more easily. you build up stair ale in the not prepare for this over the summer. as well as that, i think a lot of countries hesitated even though the measures worked in the spring, they were not popular and they were economically damaging. a lot of countries waited as long as possible before they started taking action and we know early action is most effective. historical, is it a historical norm that the second wave can be stronger than the first wave?
emma: we have definitely seen this in the past but i want to underscore i do not think this is inevitable. this is all due to our behavior and restrictions we put in place. we know a lot about how the virus works and a lot about how to contain it. we have seen countries in asia do this very effectively. we can get the virus under control but it will be an imbalance in what we invest in and the kind of economic and transmission policies we would advise to put in place. alix: what does that look like? dr. fauci is saying if you had everybody wearing masks, you could shut this down. what you think? ina: i think masks are incredibly simple yet incredibly effective way to reduce transmission. they stop the small droplets that come out when we speak or cough from traveling through the air. investment in test intake -- test and tray system is one of the most important things. these only work when cases are low. countries have to decide if they
will be willing to take the steps with things like mask wearing, reduce -- restricting closing times, a lot of cases, to keep those cases low enough so their test and trace teams can work effectively. guy: are we at the point where lockdowns will be required and is that ultimately what you think we are seeing? emma: i am disappointed we are in a position where countries are starting locked down tight measures or are considering them. i do not think this is inevitable. we had a good summer to prepare for this and we do know how to contain the virus. when you have cases so high it looks like they might overwhelm your hospitals or, indeed, in belgium, where they're worried about running out of medical staff to work in the hospitals, than the fastest way to get case numbers down is through lockdown measures. i do not think it is inevitable but i think that might be the situation we are in in many countries in europe. alix: will have to see if the
guy: let's take a look at where european assets are sitting. we find ourselves reacting to the virus and what we got from christine lagarde. european equities are flat as we come into the close. the dollar is on the front foot, the pound is down, the euro is down. we are seeing a bid in the periphery. spain, ally, outperforming germany. the s&p up .7%. the earnings keep rolling in as well. the biggest story is we are counting down to the
all-important election. alix: also earnings coming out from the likes of apple and amazon. if you missed what will happen to the stock, but after yesterday's deep selloff they are in a better position to capitalize on earnings growth. that wraps it up for guy and myself. coming up, nancy pelosi joins "balance of power" with david westin. foxbusiness said on it does not look like they will get a stimulus deal until after the election. another nail in the coffin for any sort of short-term deal. granted that is a couple days away. the question is can a lame-duck session get anything done or are we looking at january and february? this is bloomberg. ♪ are you frustrated with your weight and health?
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welcome to "balance of power," where the world of politics meets the world of business. we want to check with the markets right now with abigail doolittle. i see the stocks slightly up, although the dow is flirting with flat. very different from the results yesterday. what is different in the outside world? abigail: great question. the answer is not much. we have investors looking past what we knew yesterday, increased lockdowns, fears around the virus. yesterday the s&p 500 closing down 3.5%, the worst day since june. today we have had wild trading action. the s&p 500 opened higher, it was down, up, now it is up about .7%. it seems anything is possible for stocks on the day. you have technology strength. investors choosing to be optimistic about apple, facebook, alphabet. those stocks, which were the weak