tv Bloomberg Surveillance Bloomberg July 27, 2020 5:00am-6:00am EDT
simmer in consulate closures and arrests over spying allegations. ray dalio warns a capital war between beijing and washington could hit the dollar. the second wave emerges. spain scrambles to stay ahead of new virus outbreaks as the u.k. imposes a quarantine on returning travelers. and gold surges to a record. $2000 an ounce is in sight as concerns over the global economy boost demand for havens. well, good morning, everyone, this is "bloomberg surveillance ." i'm francine lacqua in london, tom keene in new york. we are going to have a very interesting week. last week we had 25% of companies around the world reporting earnings. many more this week and gold ever higher. on thee markets are move. quietly last night, washington was turned upside down. it is going to be an extraordinary day in washington. for the global audience, i cannot find words ever for the ess of america in late
july. it is the last week in july and we are running out of unemployment benefits and the rent is due august 1. there is a lot going on. francine: we will spend a lot of time on that. let's get to first word news gupta.itika group unveileditch mcconnell the new relief package, listing unemployment to 70% of pre-pandemic wages. makes to pelosi panned that proposal. health officials around the world are getting a reminder of how tough it is to permanently stamp out coronavirus. they are grappling with second waves of the pandemic. china reported the most cases since mid-march, and spain is scrambling to stay ahead of new outbreaks. posed a new -- imposing new quarantine on travelers from
there. will stay near zero for a longer while. policymakers open the two-day meeting tomorrow. the last day they met was in early june. florida and california have yet to see the surges have that if that that have afflicted them since then. china eagle authorities following the closure, the latest development in the deterioration of relations between the two countries. the u.s. lowered its flag over the consulate, two days after force the closing of its consulate in houston. global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries, i'm ritika gupta. this is bloomberg. tom: thanks so much. equities, bonds, currencies, commodities. dollar weaker, gold stronger. i will let francine talk about that. wonder on the screen is the --
the one number not on the screen is inflation adjustment. through,it has burst -0.92. i never thought we would get there, but that is where we are with the yield structure that is lower. the 10 year yield, .57. yields are lower this morning, francine. francine: yields are lower, tom. i'm also looking at gold piercing through this record, the dollar sinking, european stocks are a little bit under pressure, only down to 0.2%. and i think is really interesting story. sinceiggest increase april. we have not talked about bitcoin. we will have to talk about that in the next few hours. bitcoin climbing back above 10,000. this is in part due to a second wave, or the first wave of
coronavirus that has not gone away. it is also due in part to u.s.-china tensions that simmer. to simila earlier today the u.s. has says it has closed its consulate in chengdu. bloomberg now is our chief asia economics correspondent. ray dalio said that we do not know how far the u.s. will go and that this could be extreme the dangers for the dollar. talk to us about how each side, how much there is appetite to escalate this. >> good morning, francine. i think there is a feeling along everyone watching this that there is no floor in u.s. china relations at the moment. we had the flag come down in the isngdu mission, and that weakening relations between the powers. the fear now is that ray dalio
has spoken for the dollar, and there is probably more technology restrictions. i think ultimately big companies are getting caught up in the mix one way or another. even if they don't want to. it is all adding up to backing up that one from hank paulson a couple of years ago when he warned of tensions between the u.s. and china. a lot of people i spoke to are making the same point. francine: what is the one thing you are watching out for in the next couple of days and weeks? if it does ratchet up, will it be quickly, or will there be some kind of retaliation from the chinese come september? enda: even to those who are skeptical, to begin with, we have some veteran china watchers making the point that with the
amount of rhetoric we heard especially from the secretary of state, it doesn't qualify as a declaration of effectively cold war, so i think people are effectively expecting anything to happen over the months leading up to the u.s. election on the u.s. side as further measures will be coming. to your point as well that china has made it clear that they will retaliate in kind, they have already promised for some sanctions on lockheed martin for planned dealings with taiwan, and they are targeting u.s. auto companies as well. measures coming from the chinese side or the u.s. side, we can inspect retail -- retaliation from china as well. tom: have we seen anybody in hong kong change their behavior? have we seen any american or european financial or industrial companies change their behavior in hong kong? enda: i think there has been a
change of sentiment for sure. we had a survey recently from the american chamber which made it clear that their members are quite concerned about developments here in hong kong, and of course we know that some of the big tank here -- some of the big banks here made their money in hsbc and standard chartered, they were forced to laws inthe new security hong kong. there has been a dampening sentiment on business here, and at the same time, china is doubling down on hong kong as a financial marketplace. we are seeing some big chinese companies listing on the exchange here with stronger flows of money from the mainland. while sentiment has shifted, the position of hong kong as a position of capital has not changed. tom: that is really one -- that is really where i wanted to go. are you seeing and influence chinese into hong kong where rents or vacancies have the the not moved?
enda: that is a difficult one with the travel restrictions in china. some passes for business people moving back and forth. more broadly, real estate is holding up a hong kong despite everything, despite a deep recession from the year we just had, the year of political unrest, uncertainty, and of course the coronavirus. sideonsumption and retail of the hong kong story is not holding up, and that is very much due to the disappearance of mainland tourism. francine: enda, overall, it seems that president xi is not shy from fighting with countries like the u.k. and the u.s.
what does that mean economically for how willing he is to support the economy in the meantime? asa: it is being described -- like you mentioned, it is not just u.s. and china, it is china's on clashing with other pre-trading partners, like australia and of course the u.k. despite all of that, president tois preaching a message foreign companies and to multinationals that china remains open for business, and it will do more to allow foreign competition. china was standing on the correct side of history -- there is a view that china sort of needs foreign companies, foreign know-how or foreign capital, because the economy of course is something in a fairly stable but fragile recovery from the coronavirus. it has held off massive stimulus this year, but there is still the view that the government has to keep supporting the economy
because it has a long way to go. the jobs market is quite fragile. we have seen another flareup of is a concern that for the authorities, too. china economy story is one of steady rebound but still a long way to go before a full recovery. enda curran, thank you so much. greatly appreciate it. chief asia, our economics correspondent. we have much more coming up. james bevan will be with us. he will be here to talk about the equity markets this morning. we need to talk about them. futures up 12. this is bloomberg. good morning. ♪
tom: "bloomberg surveillance ."ter: dolla dollar weaker. 1.20 99, moving sharply here in the last number of minutes. watching. careful the tenure inflation-adjusted yield in tips statistic is now down through 2012 lows. -.092. here is another bombshell, joseph ellman, tim and kelsey at kelsey advisory group, where they put an outperform on amazon, from 2800 up to 3600. all you need to know it is up, up, up and outperform. we always outperform with james bevan, who is certain he does not own enough amazon.
extrapolationan forward of the successful blue-chip platforms. is that a dangerous game, or is it common sense? james: it is massively dangerous. make businesses can shareholders a lot of money over the longer term. my question whether the share prices are simply running too far ahead. the war of money that has come from the federal reserve and more recently the u.s. government is clearly propelling stop isis to levels that i begin to anticipate becoming very from reality. tom: i want you to understand that james bevan has the best remote audio of anyone we have talked to since the beginning of the pandemic. whatever you are doing at your studio there, it is meant. mint.is when we look at equity markets, are they delinked from gold and the equity markets?
james: as you identify earlier in the program, we are now looking at record low negative real yields from u.s. -- that seems almost oxymoronic, but there we are. they have been driven by extreme rebuying by the federal reserve, and gold has been a beneficiary. i think we anticipate there is some interesting technical factors kind the recent strengths of the gold price. normally as you would be aware, futurespeople trade out intake cash delivery. now i would observe there are surprisingly large numbers of people taking physical old, and there are far more futures contract in circulation than the availability of physical gold. so people who have to deliver on futures contracts have to go into the market. i think that there is therefore -- values perhaps at $40
billion, and that will keep the gold price going for some time. francine: james, will you be buying at these levels? tom: i don't buy gold -- james: i don't buy gold or those currencies. i like the values based on calculating the future value of the cash flows i will receive as an investor. very much as if i was with a private company, with a little block of gold sitting on my desk, i can put a price on it long-term. i would say that the gold price will come down as real confidence in the global economy returns and bond yields begin to rise once again. francine: if the economy is going to be much more sketchy than we thought it would because of a resurgence in cases in covid-19, what do you buy then? james: i certainly think there is still room to buy all that he and secular growth opportunities in equity space. i worry about the s&p 500 index
because 2010 times forward earnings, there is no room for error. however, if one is able to buy companies at reasonable valuations, so the second tier tell -- second-tier tech names, there is room. simply living off the free cash flow yields and therefore by extension the return returned from the companies invested in, i think that is very attractive. tom: to me the big that is what does the private money do? there are trillions of dollars sitting around doing nothing, trying to find a place to go. they start throwing in the towel and rationalizing a higher multiple to acquire? james: i think that we are in a real risk of being in that bubble territory, tom. i think that would sow the seeds of its own destruction. it moves sideways as earnings catch up with the optimism baked into the earnings numbers. there,the numbers out
the streak is looking at her 120 5000 -- in 2021.to $164 and the high 180's for 2022. that is very much a v-shaped recovery in numbers. i think those numbers are woefully optimistic. i have $120 this year, $150 next year, and in a push i can get to $105 for 2022. the markets are expensive and this does not take into account the risk that we get, a serious risk between the u.s. and china as it emerges on the economic platform in the space, and also as the next biden president, i suspect that he would -- can you own the american banks and the european banks, with the shocking values that they are?
james: i think you can make a very good case of buying j.p.morgan, to name but one, because as the world's most successful bank, it is due to profitability for shareholders and i think that can be just justified. i did not think there was a make money for shelters. i think we are seeing genuine sides that the european economy can be turned around. more,e germany spending we have talked about cross-country consolidation, which broadly means that each individual country, instead of them justifying what they're doing, they can look at it as a block. the european banks will be the big beneficiaries, and not only in the euro system. ubs is looking about as cheap as it has ever looked on fundamentals. it has a reasonable outlook. francine: thank you so much, james bevan.
1921 dollars set in 2011 for gold. has passed theld record in 2009. a u.s. ipo of the software unit -- it requires a u.s. company less than two years ago, the company -- a people keep a majority interest in politics. --in four bloomberg learned there investors almost $100 million in its parent of china ant financial during its last round. lamp -- funding one estimate says it could be valued at more than $200 billion. that is the bloomberg flesh. francine: thank you so much. this is what i'm looking at in the markets. time and i spend a good amount of time talking about gold.
gold is significant because we can see -- if you look at stocks, it is pretty much missed, but now it is flatlining and the dollar is sinking. don: let me run through it now. futures up 14 -- tom: let me run through it. futures up 14. the two-your stunning under -- .392.nt you have seen that in the inflation-adjusted 10 year tips in -0.92. that is beneath the 2012 nadir. there is some real movement in lower yields this morning. on dollar index, you go to the through 1.06, the euro was 1.17, giving a little
bit of that back. that means euro-yen is indicating stronger yen, weaker euro. that was flipped about an hour ago. for than anything, folks, euro-swissie is -- has really not done much. one thing surprising to me, we have not seen stronger swiss franc, without question. today, pat foy of the mta in new york. what people are doing, how they are getting out or not getting out, across the great cities of the world. from london, and from patrick york, this is bloomberg. good morning. ♪ you say the customer's make their own rules.
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only with xfinity mobile. now that's simple, easy, awesome. switch to xfinity mobile and save up to four hundred dollars a year on your wireless bill. plus, get two hundred dollars off when you buy an eligible phone. but what if you could stdo better than that?k. like adapt. discover. deliver. in new ways. to new customers. what if you could come back stronger? faster. better. at comcast business, we want to help you not just bounce back. but bounce forward. that's why we're helping you stay ahead and adapt with a network you can count on, 24/7 support and flexible solutions that work wherever you are. call or go online today. francine: this is "bloomberg surveillance." we are having a conversation on gold with james bevan.
james, what is in the bubble right now? james: i would say very largely, all assets are driven by the actions of both central banks and governments. central banks have poured money into markets and driven down bond yields, and that has necessarily driven of the evaluation of every asset that is available. i think that is what one has to think about, that when there is ultimately a correction, what assets will stand the test? i think the assets that return, and a link to the resale price index around the world, we should also link to the progress of the real economy in cyclical turns looking to be the best place. i say links to inflation, because i think we will have more deflation this year and likely next year. by 2022, i anticipate inflation
will be back on the rise again. rampant inflation, or just a bit of inflation? james: i think inflation look at back to central bank targets of two percentage points. of course relative to prior cycles it is modest, but against bond yields it is extraordinarily extravagant. that makes me very concerned about people who are buying bonds at current levels because the real rate of return that they will achieve on a 10-year piece of european paper or a u.s. paper or japanese paper is likely to be very miserable. tom: i look at the constraints that could be out there, whatever the call, let's say weak dollar. one of them to me is euro-dollar. do you have in your head with the understanding of large-cap europe where strong euro becomes a constraint? i can figure it out. james: i think that the strength of the euro is multidimensional, so not just euro-dollar.
european recovery has in the past and very much driven by domesticrough consumption. i would say the euro against the r&b is important cross rate. we know that german motor cars purchased into china. we know that china is becoming more price-sensitive. tom: explained the link between china. we are completely focused on china-u.s.. explain the link of european prosperity with the multidimensional challenges of china. james: let's unpack where some of the real challenges to china occur. i would say china interestingly has been very depended on inflows of foreign capital to keep its party going. i would suspect that quite a lot of people do not really appreciate the largesse of the federal reserve actually ended up supporting the re-expansion of china after the covid-19 crisis.
money from the united states flowed into japan's banks, and china and off singapore and australia, but also interestingly to the french banks, and the french banks lent onto china. foreign capital has been very important. we have heard the stories about the risks, the standoff between china and the u.s. evolved into a capital rather than simply a trade war. if that were to be so, everybody would lose. i would say that china's demand for both import and its capacity to export would be much diminished. interestingly, china's recovery on my data is very much to do with exporting, and exporting of course has been disinflationary or deflationary for the product size of balance sheets. europeans therefore have benefited from benefit -- from importing cheap goods and
services to support the standard of living. where we get a significant shift up in inflation in europe, i think that would be very painful. francine: will this morph into a capital war? james: i think there is every chance that it does so because the u.s. absolutely recognizes that china is overtaking it in a number of key areas. it is technology, it is head-to-head, and we know that america has had only limited success in getting what he describes as fair trade rather than free-trade. against that backdrop and of course the presidential election in november, i think team trump will turn up the heat quite quickly. francine: james -- tom: james bevan, thank you so much. with first word news in new york city, here is retake a group. ritika: today senate majority leader mitch mcconnell is expected to release a trillion dollar coronavirus relief package. that sets the stage for talks
with democrats, their release bill a couple of months ago. the republican proposal would extend supplemental on up limit benefits but at a lower level. it would also provide another round of direct stimulus checks. white house economic advisor larry kudlow insist the u.s. economy is set free third-quarter recovery. insaid on cnn that the virus sun belt states will have a limited impact on the rebound. he predicts a 20% growth rate in the second half of the year. spain and two british airlines are blasting prime minister boris johnson's quarantine over the weekend. quarantineekend, a was announced for travelers from spain. british airways and easyjet called it another blow to british vacationers. and ray dalio's warning of a capital war between the u.s. and china. the founder of bridgewater associates suggests that could hurt the dollar.
ray dalio set on fox news it is possible -- he said the u.s. could withhold bond payments it owed to beijing. 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. tom? francine? francine: up next, stephanie kelly. we will talk about u.s. and china. we will also talk about brexit. this is bloomberg. ♪
francine in london, i'm tom keene in new york. right now on the politics of the world centered on the stimulus in america, stephanie kelly joins us with aberdeen standard. there senior political economist. we could go to europe, china, but to me the lose nest night -- last night -- to me the news last night, the republicans struggling particularly against the calendar. i find the calendar here extraordinary. however urgent is it for the republicans to coalesce today? think it is pretty important. when we look at the end of this week at what is going to take place, particularly with unemployment benefits, we know that it is the republicans fight against the republicans. these are deep republican issues, although we know white house relations are sometimes
strained with the gop, but it is a republican party that leaves in the benefit of work. how do they find that balance between encouraging people to work but also providing support at an unusual time? it looks like they coalesced around something, but there is an expectation they will lose some gop senators along the way. that is the risk, and that is why negotiations with the democratic going -- with the democrats are going to be crucial. tom: you are hugely qualified to this question. ofre is an understanding grants to individuals to get through this tough time, this natural disaster. the u.s. is still struggling with that, isn't it? stephanie: absolutely. you know the phrase pull you up by your bootstraps? particularly on the republican side, there is that push-pull
between in an unusual environment like a pandemic where you cannot punish businesses for the fact that they cannot open, and the role that the government is playing in localized lockdowns or in the wider lockdowns, all of that problematically goes to libertarian imports loose -- libertarian impulses. with the idea that the government should be small, not big. the question is, how much do you pay people not to go to work? that gets into these nitty-gritty issues in an ideological way. francine: how does this play into the relationship that the u.s. has with china? is there a linkage? stephanie: i think to an extent it is more around -- it is thend really the run-up to november election, and clearly when you look at the defining factors for that election for the president, it is going to be ofund -- we are seeing a lot
action politically on that side. but also as we managed to get a deal done, so that we move forward and avoid this cliff edge and avoid the potentially very negative economic damage that could happen for millions of people who are reliant on these types of unemployment benefits, but also liabilities those kindses and of issues. francine: in an election year for president trump, does it help if he is seen as fighting china and ratcheting it up? stephanie: i think there is a tendency particularly for investors that we look at the u.s.-china trade war and kind of wider problematic relationship and seeing it really challenging. the reality is politicians behave based on what they think their base wants to hear and wants to see. we know that trump himself is concerned about trade balances, , of the deep distrust role of china in the world is an issue that not only republicans
have to grapple with but also democrats. theor trump, having aversion to china, particularly in a year when there is a pandemic, and the president pointed to china as a source of that, i think that combination that is why he is running this kind of approach to his campaign. it is also why he's taking a strong approach to law & order when it comes to wider issues. space.hin that election china is a crucial part of that. francine: stephanie -- economichanie, an question that rolls over into politics. we see lower rates granting in. than aothing more prediction in a shortfall of gdp, a shortfall in aggregate demand? stephanie: i think it is a really complex time to be trying to factor in the various elements that will drive this. i mean, we know that
particularly when you look at the united states, one of the biggest challenges we have as economists is trying to understand how you quantify the impact of localized lockdowns in different states of different sizes with different contributions for gdp. it has been extremely complex and challenging times. we have this element that comes through -- rising virus cases, increasing uncertainty, uncertainty over federal government interests, state governments. it is an unusual time for forecasting the u.s. economy and associated for the markets themselves. tom: what do you do? if it is an unusual time to forecast, how do you structure a financial theory or belief to be in the markets? dophanie: so the way that we -- and i think the way you should always think about it, it is a very political approach and i think the crisis has proven that you can use this approach
for much wider economic forecasting. two scenarios -- understanding not just what your central case is, what you think will happen, but for a range of possible different outcomes, and what you want to input there is not just economy but also what happened with the virus, what happened with politicians, what is the individual behavior response? --be there is no lockdowns, maybe there are more lockdowns where people cannot leave their homes. what you have is a range of economic growth and you can overlay on top of that. now we understand what we think the ranges from market returns. at least by doing that you understand not just your central case but where the risks are, the losses are, and you can move from that. tom: stephanie kelly, thank you so much. aberdeen stand and best, the senior political economist. later today, kevin cirilli. 10:00 a.m.n the
ritika: this is "bloomberg surveillance." ryanair says it will keep losing money through the summer. europe's biggest discount carrier posted a loss of $217 million in the second quarter when it's jets were grounded. again --s are flying ryanair is concerned about a possible second wave of coronavirus. soared by aipmaker 10% daily limit today. the company and it's there -- added $35 billion to its market cap, making it the world's 12 most valuable stock. is said to -- fans of the largest cryptocurrency, bitcoin, have
called it digital gold. last week greg later said that that is your -- bloomberg business flash. tom? francine? health officials across the gro global are grappg with second waves of the coronavirus. u.s. fell in many hard hit states. ofning us now is university manchester medical virologist, pamela vallely. when you look at the number of cases increasing around europe and other parts of the world and how quickly they are increasing, where we too complacent in opening the economy? there was a belief that this would hit in the fall, but it has come much quicker. pamela: i don't think what we are seeing at the moment is a second wave, it is a continuation of the first wave. even where infection levels had fallen, because of the measures
theywere taken, and then were dropped, the virus has not gone away. that is what you're seeing in parts of europe. what needs to happen is that those individual outbreaks need to be pushed down again to stop -- the second wave that people are talking about potentially will come in europe, in october up until the winter. francine: what is the one thing that you think will change in people's minds as we learn more about the virus? does it also hit a lot of young people who feel they are fairly immune to it? is going toink it change everybody separate response to life going forward because this is something that has not happened to us for over a century. at the moment, there is growing evidence that young people are not as hard hit.
there was an interesting paper that came out over the weekend that suggests that this reactivity between existing coronavirus and the coronaviruses that circulated causedy years that mild colds, we don't not know if an -- is an that is effective response. not clearly seeming to be quite as severe in young children. the reason is that there is a cross protection for existing coronaviruses in younger people. this is an evolving pandemic, and we will need to all make sure that we continue to take the measures that we are taking. greatou are one of our clinical virologists, also one of our great educators.
distance learning and manchester and such. distance learning us right now about your take on back to school. of the many, many young people clashing up against teachers, themselves, etc., when you see all the debate over this, how do you synthesize that, given your work on sica, given your work on general virology? how do you take in the back-to-school debate? pamela: it is a balance, isn't it? inng back to school probably september, will because an increase in the circulation of the virus? probably. you only have to look at playgrounds right now. all the kids are out and they don't know how to socially distance. they just cannot do it. certainly the schools that my children go to, i know that the measures they are putting in place, they are going to do the very best that they possibly can, but it will cause an
increase in circulation. as i have just been talking about, i don't think for the children themselves that is going to be very significant, but potentially what the children will do is take the virus home to their families, and some of them may be quite vulnerable. on the other hand, we cannot have a situation where we don't have children in school for another year, because there are so many economic, social, until health issues with not having children in school. it is a balance. it is a risk. all we can do is to take the best precautions we can, and what would be really good is testing. having a simple point test where a child could take a test before they went to school every morning, that would be great. tom: do you have in your head all these weeks on a ratio of death to cases -- deaths to
cases, where is that still a mystery? got to bethink it has a bit of a mystery. peripherally, sort of a talent rate the sort of fatality varies from area to area. it relies on testing. testing is not as good, the for peopleof people who have tested positive is higher. we probably will not know that until we do more studies over the next year or so. tom: it has been wonderful. professor, thank you so much. pamela vallely, with the university of manchester. just love talking with these pros about what we are talking about day after day with this pandemic. in the next hour, christopher merengue will join us. -- christopher marangi will join us. also, an important week of earnings.
banks get all the press and the play, and we roll out three days in a row of bank earnings. you know what? this week is sort of the same, except technology later in the day. we will hear from amazon -- i should say later in the week. we will hear from amazon. priceldman raising his sharply on amazon today. we will ask chris marangi about this. dow futures up 1.21. yields, a stability there in yields. 1966 pereakable, ounce, up $40. this is bloomberg. good morning. ♪
futures, equity futures are higher. companies, thep tech boys report this week. mcconnell metals in minutia. eddles in minutia. the republicans do not have a plan. wait, last night -- yes, they do. senator is thinking the end of the next few weeks. america is thinking the rent is due in five days. and the accountable ways of this pandemic. back-to-school is here. this is "bloomberg surveillance ," from our world headquarters in new york and london. francine lacqua at queen victoria street. give me an update on the united kingdom. piercing a -- we are seeing hong kong -- india is h