tv Bloomberg Surveillance Bloomberg July 8, 2020 5:00am-6:00am EDT
plan. the u.k. chancellor is set to unveil his measures to reinvigorate the economy, but will it be enough to drag britain out of its deepest slump in centuries? the u.s. bids the w.h.o. goodbye. the government sends a letter that starts the one-year notice period to depart the health organization. cases in the u.s. approach 3 million. and america may target the hong kong dollar. some of president trump's top advisors want to undermine the currency's dollar peg to punish china for its recent moves. well, good morning, everyone, this is "bloomberg surveillance." i'm francine lacqua and london. tom keene in new york. we will spend a good amount of time at looking out what is going on with the u.k., with some extra help or not from the chancellor. we will also look at what is happening between hong kong and the u.s. we look at latin america, more specifically with brazil, with bolsonaro, the president, contracting the coronavirus. tom: the parliament terry
process is dominance of government -- the parliamentary process is dominant of government, completely opposite of what we see in the united states, but it is really all the same thing, governments coming to the rescue of economies that are simply shattered. francine: yeah, and we don't know if there is a second wave or a specific lockdown coming our way as well. let's get to first word news in new york city with ritika gupta. ritika: good morning, francine, tom. the u.s. is pending -- planning a one a virus testing resurgence. testings are being -- sites are being set up in louisiana and florida. they could provide a clearer picture of how the coronavirus is moving through the population. officials are weighing how far to go in reopening the economy or rolling back steps already taken. in brazil, president bolsonaro is defending his approach to the coronavirus despite the fact it has killed tens of thousands of
brazilians and left him with the disease as well. bolsonaro has called the virus a little flu, and he battled doctors and local government officials who wanted strict quarantine measures. the president of mexico is taking the biggest gamble of his 19 months in office. he is in washington to meet with president trump. despite the advice of some of his top counselors not to go. lopez obrador wants to safeguard relation between the two countries. and the trump administration is considering another way to punish china, imposing the -- for imposing the national security law on hong kong. top advisors to president trump want to undermine hong kong's dollar peg to the u.s. dollar. they think the move would only hurt hong kong banks and the u.s., not china.
global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more i'm ritikauntries, gupta. this is bloomberg. francine? tom? tom: thanks so much. equities, bonds, currencies, commodities, and gold, gold, gold. gold has surged. it is a spike. there is no way to put it out of 1800. right now we are at 1812. that is chicago gold. spot gold is a little under that. that is a surging gold out front of the chancellor's speech. i'm sure our good guess to start the hour will have something linking the gold surged to pound sterling and what the tories are doing. with that said, it is a very quiet market, as francine said. yields come in, really noting the curve flattening over the last two days. francine: i also had gold because it was one of the biggest stories on the market today.
trading at its highest level since 2011. i don't know about serving-gold swaps, but we will look into it. european stocks are tolerating some of the losses, equities futures climbing. investors are weighing prospects for the economy to cover during the pandemic, but there are a couple of stocks we need to keep an eye out for. hsbc slumping after the report that donald trump's advisors may propose a move to destabilize the currency peg to the dollar also do something with the hong kong bank. rishi sunak will set out the governments up a plan to kickstart the economy later today. while he is set to keep his focus on jobs with a 2 billion bound program to be unveiled to pay the wages of young workers, his speech follows prime ministers johnson's pledge last week to build, build, build. chancellor rishi sunak will set out our immediate
plan to support the economy through its first phase of the recovery. on fiscal matters, you are not going to tempt me. you will have to wait for him to speak later on. next week you will hear more from rishi. iou will have to wait for rish for the tax package. francine: we don't have to wait long because it is today that we will find out what rishi sunak will do. joining us right now is rupert harrison. he was also at number 11 in the previous life as chief of staff to george osborne. great to have you on the program as always, especially on a day like today. what do you expect from the chancellor today? this is a highly unusual position. it is almost like a conservative chancellor having to be socialist.
rupert: yeah, the challenge that rishi sunak has is the large support that he has with economy. tens of billions of pounds sterling supporting people in work and now subsidizing part-time work. the challenge is that that has been very large, a big support for the economy so far and widely welcomed, what he has to phase it out at some point. it is too expensive to continue and it is freezing the economy, potentially maintaining jobs in place that are going to have to go because they are not sustainable. to end atat is going the moment in october. he we replace that stimulus from somewhere else, and that is a big challenge because he cannot overallo see the stimulus to the economy taper off too quickly. that is why we are hearing about infrastructure spending, vouchers for green investments, inflation. multibillion the
jobs creation scheme for young people. i suspect there will be a vat kupfer the economy that will cost between 5 billion pounds and 10 billion pounds. i think the risk is that you add all this together, and it still small comparedy to the furlough scheme that will be phased out. francine: how tricky is it that boris johnson warned angela -- that britain leave -- what is the worst case? previousnlike the phase of negotiations over the exit where they thought a no deal exit was extremely unlikely, frankly a no trade deal outcome at the end of this year is plausible. the key constraint here is that
actually in terms of short-term disruption at the border, the difference between that kind of skinny bare-bones trade deal and no deal is not that great. you are going to have to see checks and delays and disruption at the border under any outcome, and therefore for the u.k. it is a much more on -- it is a much more realistic threat to say we are not interested in a deal. there has been progress in negotiations over the last couple of months. we are, i think, going to get a bare-bones deal more likely than not before the end of the year, but that definitely hangs over sterling and u.k. assets as a significant risk alongside the macro risk from covid. tom: i assume, rupert harrison, that there is no choice here but to do this, and labor would do this if they were in power, etc. can the united kingdom, 66 million, 67 million people of the united kingdom -- can they afford this? rupert: that is a big question
for all develop economies, particularly developed economies that do not have the luxury of currency like the u.s. at the moment yes, they can afford it. we have seen a very low interest-rate environment globally, we have central banks including the bank of england who have really crossed the rubicon, if not explicitly -- i think we have implicit yield curve control even in the u.k., and the bank of england will continue to do whatever it takes to keep financial conditions supported, and they will not to moveals in the u.k. dramatically. for the time being, they can afford it. feelnk rishi sunak will heavily weighing on his shoulders the burden that at some point the u.k. will need to demonstrate it can stabilize its debt to gdp ratio, but that is not the challenge for now. that is a question for a year or two in the future. depreciationplied of sterling overtime? it is so different calculus than
what we see in washington. do you just assume not to pick it up in six months or one year but over five or 10 years, this kind of fiscal stimulus leads to a depreciation? rupert: i don't think that is inevitable, but i think in the case of the u.k., further currency weakness is probably the long-term destination. i think that that is partly true because of the ongoing drag, structural drag from brexit. in a sense, all developed economies are seeing very loose fiscal policy, very loose monetary policy. so who are you going to depreciate against? i don't think there is an overwhelming downward pressure on currencies. francine: rupert, if you give us a brexit update, does this deal,ment want a brexit or do they want compromises that the e.u. just cannot give them? rupert: i think there is a deal
that can be done. i think we have had significant movement from both sides over the last month around this sort of hardest issue. the protocol was looking like a big barrier in terms of the u.k.'s refusal to implement that . that is actually turning out to be less than of a problem that people expected. double playing field requirements, the european union has shifted in terms of not requiring a role for the european court of justice. in a lot of areas, i think the u.k. is willing to have level playing field requirements as long as it can, in theory deviates, even if that incurs repercussions on the e.u. side . and there is a landing zone that it's acceptable to both sides. you can see the shape of the deal. it is a very skinny, bare-bones deal. it probably can't avoid tariffs at the border, but it is still going to involve significant checks and disruptions. this is very much the kind of --
if we go back a year or two, this is the hard brexit end of expectations, but i think there is a scope for a deal to be done, albeit a bare-bones deal. much,ne: thank you so rupert harrison of blackrock stays with us. stay with bloomberg for our coverage of rishi sunak's economic stimulus speech. that starts 12:30 p.m. in london, 7:30 am in london, and this is bloomberg. ♪
there is a perspective of politics from mr. harrison, but he looks to blackrock for their guesses, their forecast, their treatment of the interest rate market. weides gold moving today, have persistent yields down. how much is lower for longer at blackrock? the dots are there for the federal reserve, and a big shift to 20 22.2021, even is blackrock managing money for lower for longer, out say five years? years. maybe not five clearly we are in a lower for longer environment. have implicit yield you curve that yield curve -- we have implicit yield curve control for central banks. looks a little bit overdone. there is scope for quite a large shift upward in the u.s. economy over the next two or three years. i would probably expect yields to rise.
we would certainly be a little underweight on the long end of the curve, thinking that we could get some steepening over the next couple of years, and also with yields so low, the case for our owning of government bonds is a little bit weakened. so we are downgrading government bonds overall in monthly asset portfolios. -- in multi-asset portfolios. you mentioned gold. way tos metals is a good substitute some of that government bond exposure. we still think yields are trouble isbut the probably up. reallyu are in a interesting position. you're dealing with a major firm assisting governments in this original bond market that we are in right now. i don't you to give away the knitting that blackrock is doing in terms of assisting governments and taking in fixed income instruments, but just as
a general's pavement, -- as a general statement, is this wellss, this new-new going ? is it going well as an experiment? rupert: it is an experiment that has been going on for a decade now, so i think we understand what it does. i think it has not produced runaway inflation, which was the critique from a decade ago. i think it has been a necessary partner -- it is a necessary response to prevent this recession becoming a depression. i think it has allowed most importantly fiscal action, by fiscal authorities, to go direct deposit into the economy and provide income for the economy. that fiscal monetary coordination is now an important and new part of the landscape that you will have to live with. francine: when you look at the scarring of the economy, the crisis, what does it mean for
markets overall? in most asset classes correction because of the quicksand shifts in the economy? is a very significant shift in the economy, but i don't think we see currency equities -- we still want to be leaning into equities, particularly those business models that have long-term growth attentional in an environment of persistently low yields. those are still attractive companies that you want to own. i think that this is more about accelerating long-term trends, whether it is technology, whether it is business transformation, whether it is sustainability. i think we are seeing an acceleration of those long-term fees, but that is not at the moment giving us concerns in overall valuations. francine: where do you see the biggest deal? i don't know whether they are valuations that are cheap or industries that will be changed because of the way we work. will we ever go back to the way
we work and lived in december 19? rupert: we will never go back to that. i am not optimistic that we will get it -- i am optimistic that we will get a vaccine at some point and then life will go back to something akin to normal. with remotet change working, purchasing trends, technology trends -- these things have now had a kind of important proof of purpose, and that will only go one way. as i say, in terms of opportunities, the growth-generating free cash flow, generating business models in lieu of low business rates are very attractive. -- of low interest rates are very attractive. the most beaten-down cyclical stocks and value stocks, including banks, airlines, the stuff that is really not recovering very much from the bottom, whether you want to own more of that stuff -- i think of lot -- i think a lot of
investors are closing underweight of cyclicality. there is the potential that if we do get on top of the virus, there is a potential of some of that beaten-down value in technical stocks to rally on a tactical basis. i think of the probably still not the stocks you want to own on a longer-term basis, but on a six-month basis you could see significant recovery in some of those stocks. francine: rupert harrison, thank you so much. he stays with us. barclay, today, steve u.k. chief secretary to the treasury. this is bloomberg. ♪
ritika: this is "bloomberg surveillance." i'm ritika gupta. boosting his property and liability operations. the insurer has agreed to go buy national general holdings for $4 billion in cash, coming out to a 69% premium over national general's closed is today. the parent company of mortgage giant quicken loans has filed for an ipo. the company says it has made a profit the last three years. it describes itself as the largest retail mortgage lender in the u.s., and was founded by
milliner danna gilbert. it aberg has learned that rito group will close at least 1200 of his locations. it owns brands such as ann taylor and lane bryant. that is the bloomberg business flash. tom? francine? francine: thank you so much. european stocks are erasing some of the losses that we saw earlier today. if you look at what investors are trying to do, they are weighing prospects for the economy to recovery during the pandemic -- to recover during the pandemic. hsbc slumping after we had this report, with some of the advisors in the white house trying to destabilize hong kong's currency. gold trading at its highest level since 2011. no question, francine, there is a surge in gold from 4:00 a.m. new york time, maybe 3:30 this morning.
gold straight to the moon, 1800, out to 1811, 1812 and ounce. i would point out that yields come in across the board with curve flattening, and some of that gaining up, the delay in economic recovery from q3 out to q4 as well. ising up later today, this an important conversation. david rubenstein on his wonderful program on leadership, with mr. fraser of the merck company. this is bloomberg. good morning. ♪
america,ook at latin look at the coronavirus rampaging through out the moment, how difficult is it to forecast because we are still really in the middle of it? >> a very volatile situation. even in latin america, we see the virus flattening out. even in hard to countries like brazil we see activity continue to recover. clear short-term, with attempts and china to ramp up the stock market, you could get a tailwind for em assets, particularly under own. if we get a value recovery, em will participate in that. longer-term, i think it is difficult to make a case for em. em, credit are looking tight relative to fundamentals. em countries are
more exposed to her down -- prolonged slowdown. there is the short-term case for this em recovery to continue, but i find it difficult to take a big structural view in that asset class. francine: what does it mean for this change the? does it impact politics, the health care system, the transition of these economies? rupert: i think em economies, you are seeing they cannot largely deal with the virus in the same way most em countries can. you are largely seeing, by default, in many places, the strategy is just to allow the virus to gradually work its way through the population. that has a significant role in health terms, but it may be the best strategy in terms of the health response given capacities, but i think we will see the same transition and a
lot of em countries, still seeing the steam -- same world.ral issues in the trade i think we'll take a longer time to come back. they will suffer on a prolonged basis as a result. tom: this is a bit off of your remit, rupert harrison. but i think it's a fair question to ask. the united states deployed two aircraft carriers to the pacific rim and south china sea. i will get it out, south china sea area what i want to know, how is the united kingdom in 2021 showing the flag? if united kingdom cannot deploy aircraft carriers, how do they show the flight to the chinese and people of hong kong?
-- fly to the chinese and people of hong kong? rupert: we actually have two aircraft carriers that will be fully operational fairly soon. u.k. is one of the few countries able to act operationally alongside the u.s., or says around the world, and when it comes -- eject or says around the world, and when it comes to hong kong, you have seen bold action in terms of offering citizenship for up to 3 million hong kong citizen. u.k. is the important player in the debates. the tricky dynamic for the u.k. and indeed a lot of european countries is they are caught in the middle of what is a long-term escalating tension between the u.s. and china. particularly if we see this turn into full-scale economic warfare, which i think is likely. that is going to put a lot of european countries in a
difficult situation to project extraterritorial financial controls on capital flows. the u.k. is already having to come into line as huawei as a result of u.s. policy that will make it difficult for existing huawei policy and the u.k. to continue. tom: it's inappropriate to speak for mr. finnegan for blackrock executives, deciding what to do about their exposure to hong kong, but rupert, you are all if i'd to speak about what reddish banking should do. what is the harrison prescription for british banks as they try to your this conundrum out? rupert: i think it's a very difficult problem, particularly for banks with heavy exposures in hong kong and china. they are going to have to look over to a world in which there are significant risks to financial stability, risks to free flow of capital in that area.
in a sense, the story out of the white house about hong kong is a longer-term signal to the system. i think it would have a significant blowback to the financial system in u.s. economy. anyway, it is sending a signal to the global financial system that the u.s. is serious about ramping up pressure on china and banks need to build in resilience and think about how to reduce their exposures. i think that is a real challenge for the whole financial sector. francine: rupert, thank you for coming on today. rupert harrison blackrock multi-asset strategies folio manager and head of research. let's get to bloomberg first word news. americans land to spend less than before the coronavirus pandemic it. more than a 40% of adults say they will cut back on discretionary spending that struggling retailers need according to a new survey from
credit cards.com. the plan to cut back may compound the already massive economic impact of the virus. it's the book the trump family try to stop in published. bloomberg obtained a copy of a book written by president trump's estranged niece, mary trump. the president is a trump who led and she alsos claims the president paid someone to take a college entrance exam for her. john roberts was hospitalized overnight for a head injury last night. he fell while walking during exercise according to a spokesman. roberts has had at least two seizures in the past. global news, 24 hours a day, on air and on quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. francine and tom? tom: thank you so much. greatly appreciate that this
equity market. bid,q 100 with a little with tech stocks. gold is the story today. we are looking for the chancellor to give a speech in the u.k., and it is a different government structure. imagine if secretary mnuchin went before congress and basically told him what to do. that's not how it works in america. leslie vinjamuri knew this one. she was in fourth grade and joins us now with catamount to look at the different approach to stimulus we see in the united states. leslie, what a difference the parliament terry system versus the mess in the united states. what urgency does congress need to do to be more like the chancellor? dr. vinjamuri: you are absolutely right. these couldn't be more different systems. we are in a different context
right now because we have a congress, at least on the democratic side, pushing back hard. and a republican party that i think is not sure where to take this. in the context of accelerating infection rates, growing to, and an economy not controlled. i think the real question is, what's going to happen when or if the fiscal stimulus runs out, and look at the context -- and you also have to look at the context of americans out on the street, focused about racial unrest. some of that subsidized i fiscal stimulus package, what happens when that dries up? do you at chatham house, with all of your study and study of thing banks and the zeitgeist of washington, do you see a shift in washington of any party or person towards a system, as we see in europe, of direct to
labor unemployed? has there been any i do philosophical shift? -- any kind of philosophical shift? dr. vinjamuri: there is a clear understanding that government needs to play a specific role in this context where we have ,nemployment at at least 11.1% and no end in sight when it comes to controlling the virus, and controlling the economic impact. i think people understand this, and if you put this in the context of the demand for is what, the question happens in november? taking that question seriously, whether it is congress or the president, those two branches of government, executive and legislative, have to come together and that will not happen. certainly not in the run-up to november in a serious way. i think there's a lot of
rethinking and the question of health care and health provisions is one that is top of peoples' minds in the united states. francine: if you look at the polls, president trump is not doing as well as he would hope to be doing at this link. -- at this point. he's being judged on his handling of run a virus. there is letter from the u.s. saying we no longer want to be o. and that w.h. takes a year to happen. if he puts the blame of the pandemic on china, does that play ok with voters or will he be judged on number of infections and that's still -- deaths still? dr. vinjamuri: at the end of the day, people are looking at their life. can they go to work, can they pay the bills, are they worried about being sick, can their children go back to school safely? china, yes, where people understand about the virus. this is not what is driving
voters at the polls. trump's numbers are down in states that you wouldn't expect them to be down. texas, andwn in unsurprisingly i'm a this is linked what we see in texas, the virus out of control, the governor there is now telling people to wear masks after really denying the consequence and gravity of the virus for so long. that mixed message, the lack of messaging and leadership showing up in the polls. i don't think the blame game on china is going to turn that around. what would turn it around is if there is a vaccine. that is a lot to ask for by someber, but if we see sort of health response, whether it is there vix or the hope of a virus and rebound of the economy, perhaps that changes things. we haven't seen a president this
>> this is "bloomberg surveillance." let's get bloomberg business flash. bloomberg learned president trump's advisers discussed a move to punish banks in hong kong by destabilizing the currency there to the dollar. thirds more of its two pretax income from hong kong. the new security law beijing imposed on the city. president trump is considering a ban on the short video app tictoc in the u.s.. retaliatesible way to against china for its handling
of the coronavirus. bloomberg learned a british bank reached out to a potential candidate for ceo in recent months. say --with knowledge that is the bloomberg business flash. francine: thank you so much. the u.k. chancellor is set to unveil a 2 million pound program , a centerpiece of the governments plan to protect, support, and create jobs. joining us now is carolyn fairbairn. as always, thank you or giving us a little bit of your time area what does the u.k. business industry need right now? carolyn: good morning, francine area -- francine. curve.. is facing a new we have the curve of the virus
which has been flattening, and now we have a new curve. today is about how the chancellor helps to flatten that curve, because we are seeing significant job cuts already in the u.k., newspapers, hospitality, in aviation. the business community are helpful [inaudible] around, a big scheme getting people into jobs. job creation is called a kickstarter scheme, 2 billion pounds. we are rating to see details, but we know how scarring unemployment is for young people. there is something else we are looking for, a really fierce sectors facingy real difficulty. they may be opening but consumer demand is only operating at 60% custody --capacity. [inaudible]
finally, we do want to see even more progress on sustainability to create jobs. we are building jobs in the sectors of the future. francine: how do you rate the government's response to the pandemic so far in terms of support to the economy and business? carolyn: on economic support, i have to say the government was fast out of the block on the job retention scheme, a major job support scheme which cbi and the union help to put in place, and that has been a spec -- that affective.been we've had a loan scheme that was pretty effective, small loans called bounceback loans. that has all been strong. what we have now is the moment
of maximum jeopardy. as the economy opens, many businesses tell me they are burning through cash as they open. consumer demand is not there. a good response so far, but we need a new wave of support this difficult period of reopening. tom: good morning from new york. phenomenal -- carolyn: good morning. tom: you have great experience companies, particularly salvaging itb. cannot urgency be translated to government? the urgency you have experienced in your business career, can you bring it over to government in crisis? carolyn: i do know from my experience what it feels like to have your back against the wall and wonder how you will get the lights on. that is why i talked about
fierce urgency. there is a danger in government. you have plans that kick into place in six months time. fantastic to have infrastructure spending support programs for unemployed, we need them, but there is an urgency around cash. that is what we are trying to communicate today to government. anybody that has been in business for any time can see that. tom: we have headlines coming out from the chancellor. we will have that on live go for you and be covering it through the 7:00 hour. about goingor talks through the first phase of the crisis. that is the fun part. then there is the "now what." what will be that for the
british government? carolyn: i think there is a phase we are in now which is all about the conscious reopening, and it is all about unfit inns. -- all about confidence. by the time we get six months down the track, i would hope we are really looking at how we rebuild and accommodate, addressing some of the fundamentals of the economy. our productivity flatlining, the fact that we have to build toward zero, and we use those opportunities to build new jobs, and then we grow our way out of the crisis. this time next year, we will have to start taking about how the debt gets repaid, but that is not a problem for now. that will be a problem next year. facing thee are also brexit deadline, unclear whether the eu and u.k. will have an agreement by then.
overall, do you worry we are spending so much money on covid-19 on taking care of the economy that there will be a problem down the road with debt and investors? carolyn: yes. the brexit issue is very much alive and kicking. tot we are urging both sides recognize the idea of superimposing a bad brexit the on top of the pandemic nothing short of madness -- pandemic would be nothing short of mad. to be about how we rebuild. the estimates on the death overhang in the u.k. economy range between 90 billion and 100 billion, and it will need to be a significant program
to get us out of this debt area i think that will be on their agenda. tom: thank you so much for perspective this morning. and thank you to rupert harrison in this hour for perspective as well. in the next hour, we will drive forward the stimulus in london conversation, stimulus in london as well. the chancellor's speech will be in the 7:00 hour and we will look at that. wellam lee will join us as from the wilkin institute. this is bloomberg. ♪ you doing okay?
yeah. this moving thing never gets any easier. well, xfinity makes moving super easy. i can transfer my internet and tv service in about a minute. wow, that is easy. almost as easy as having those guys help you move. we are those guys. that's you? the truck adds 10 pounds. in the arms. -okay... transfer your service online in a few easy steps.
off the ounce, 20% lows. quiet markets, except bonds. economic slowdown and disinflation. we will see with the chancellor says in london. this is the summer of stimulus, and chancellor has a plan for job. a congress considers a plan to spend nearly $1.5 trillion. it is a "calm before the storm." additional debts will follow the surge in virus cases. president trump says america will lead the world health organization. the president says go back to school. brazil, brazil has a is it a little cold."