Transcripts For BLOOMBERG Bloomberg 20240704

Morning, good morning. This is bloomberg surveillance. Equity futures unchanged on the s p. Alltime highs off the back of a hotter than expected cpi report. Theres a difference between what economists expected and what the market was priced for. Making absolutely no sense whatsoever. Which one was it. Basically youre having people justify the story at a time when there are more than half of the components of the dutch them coming in hotter than expected. Theres a lot of seasonal issues with the fact prices reset. They can explain it away because the fed wants to cut rates. On the flipside it doesnt make any sense for the fed to cut rates if you see a reacceleration in goods pricing. If you see that in the other components of this index. Is it a fed thats going to cut rates matter what or is it stickier inflation people have to grapple with . Bank of america saying this, Service Inflation good surprise. You can take comfort from the discomfort of the latter. We are still on the down trend but the risk around that story with clearly shifted which is if we had been pushing out the first cut. This is what the fed looks at when they have their forecast. Shes now penciling for pce when they get ppi later this week they will properly make those forecasts put pce is coming march 29 after the next fed meeting so what clues will beget after the next fed meeting. Thats when people will have more conviction on where this story is going. Jonathan retail sales, ppi on deck. Annmarie when you look at the lisa when you look at the credit card spending data you it is conflicted. It is 20 narrative time and the narrative people want to choose as stocks go up. Jonathan stocks went up big time in the session. Need to talk about whats happening in washington dc. A vote in the house on potentially banning tiktok or pushing them to sell it. Annmarie it looks like the house this morning will vote yes on that bill, they are bringing it up under suspension of rules and that it goes to the senate. We are already hearing a lot of suspicion from senators theres parts of this bill they do not like. What does it mean for other companies that can be in similar situations . Its very fast right now. That momentum may slow in the senate. The president of the United States as if it passes through both chambers he will sign it. We heard from the Chinese Foreign ministry and they said they are bullying and this will come back to bite them already potentially we could see this becoming a bigger geopolitical story. Jonathan meta cannot get into the country, google tried and failed. Twitter, facebook and youtube are all banned. This captures the u. S. China relationship over so many different dimensions. It exposes the inability to deal with it and it also explains why there will be this tension between these two countries. If xi decides the u. S. Version of tiktok is banned, it is banned. What if someone tries to do that stateside . It takes ages. Lisa you might say thats a feature, not a bug of democracy. Biz a question of how we counter a nation but plays by different rules with different sets as they operate in this country. When you Start Talking about tiktok our minds mightve gone to the same places in terms of what does this stay about our country and young people as former President Trump said will go crazy if they have their tiktok taken away from them. I think thats an exaggeration. I do think the fact and you pointed to this a Pew Research Center said about 43 of tiktok users say they regularly get their news there. About one in three of all adults younger than 30. Annmarie weve seen a lot of these individuals at the behest of tiktok call the representative and say dont vote for this. You brought up a point about the fact its taken so long. Almost to the day one year ago i wrote about what they told tiktok which was sell or prepare for a band. That was one year ago. This has taken years to develop. It kind of went silent for a while and behind closed doors using lawmakers continue to want to get this legislation through and it took them by surprise how quickly this is about to hit the house floor. Jonathan getting your day started this wednesday morning totally unchanged on the s p, in the bond market the tiniest bit of price action up a single basis point on the 10 year. Coming up this hour, the equity rally shrugs off another hot cpi print. Kate wallace with the house set to vote on a bill that could force the sale of tiktok. David rosenberg on the state of the economy with the fed decision. The s p 500 shrugging off another hot cpi print setting another alltime high. She says fed cuts look further away. The key risk, sticky inflation. Unwinding momentum with crowded positioning and some key names. Great to have you with us in new york. How did you explain yesterday. It was wild. To be honest with you. We have continued to see equity markets moving upwards. If you look at momentum signals, momentum positioning it is at levels you saw in the tech bubble which to me is a little frightening. Valuations are high and the evidences, it seems like the equity market does not care. Lisa the fed says that they want to cut. How much is that underpinning the momentum trade that keeps on keeping on. Its a concern they will not renounce cuts because if inflation does come in higher. What does that mean to cut rates. Lets say it went to 4 . In the sense that if you have higher inflation that will push prices higher. And you wont have that policy entity to be even harder to stop that kind of increase in prices. What about the Market Dynamic makes you think markets are waking up to that. And stocks will not. Shorter term bonds have actually started going up in yield a little bit more. And the twoyear german bonds has been following on the short side so it seems like the short end of the curve is waking up but whats always been interesting to me is this been a big disconnect for the equity move. And a fixed income has been reacting to those cuts. Equity keeps soaring higher. So its not concerned yet. Thats why point out the crowding potential and the idea you have increases in certain names so people are starting to get nervous about that concentration. Jonathan how are you positioning about that . You are seeing different asset class returns. You still see positive correlation between stocks and bonds and higher bond volatility. To us what that means is inflation is still driving prices and whats going on is inflation like moves you are not seeing that classic risk off relationship between stocks and bonds so you are seeing disparate positions and youre seeing higher for longer things look great. Looking at the screen thinking about where weve been, gold is up, krudys sideways. What signal can you take away from the commodity market . What we have seen that has been interesting is disinflation in the agricultural market. What makes me nervous is thats the one thing people of been focused on and if you see that start to turn and we see goods prices and Commodity Prices turn more on the upswing the met inflation narrative gets more room to run. It has been tricky. Its very range bound. Some of the commodities have been an outsider which is been up in the month of february. Annmarie does this really matter . You have an asset we initially were shocked because its valentines day it turns out it was much more of a supply chain story. But coco matters because its one of those its 27 , its could be pushed on effect through supply chains. Theres a huge dispersion. Corn is way down and cocoa his way up. So it goes to johns point is you get to pick the narrative you like. Things are going up, if its oil, you we dont know yet. Annmarie is this solely a china story developing in the middle east . Theres been continued volatility in oil prices based on the narrative and geopolitical issues in the middle east. They havent had a huge impact on prices yet. There continues to be starts and stocks when you see prices get a little bit of momentum. In general they havent broken out based on political moves. This is quite common in thats one factor that impacts prices. Lisa taking a step back there is a thesis that seems to be underpinning some of the rally we are seeing in equities. Even if bond yields go up. What youre seeing is strengthening the economy and may be a little but of warmth and the inflation rates really stems from that growth. At which point our yields problematic for stocks that have seem immune to tire rate so far. A lot of people dont want to say this but it doesnt sound fun, it seems like higher yields is less restrictive than people wouldve thought. Obviously everybody wants lower yields because its tougher on middleclass and people trying to finance and deal with other issues in terms of business practice. At the same time it doesnt seem to be that out of the normal for longerterm yields in for a short periods of time it looks like the equity market is Still Producing growth earnings and we are navigating these higher rates despite the fact we dont like them. Jonathan you stand short in the bond market . We are still seeing those signals in the bond market. But it has been interesting seeing long signals in january. They quickly turned around. I do think theres room to move if we see Inflation Numbers coming up. Retail sales. Jonathan katie its good to see you. Your twoyear this morning. On the tenure up by single basis point. Stories elsewhere, heres your bloomberg brief. Former President Donald Trump secured the republican president ial nomination with primary victories in georgia, mississippi and washington. A rematch between trump and President Biden is now set for november. He refrained from his usual Victory Party and instead posted a video statement on social media saying we are not going to take time to celebrate. We will celebrate in eight months when the election is over. Ken griffin says the fed should move slowly lowering rates so they dont have to reverse course later. Speaking at the conference, griffin said causing and then changing direction back towards higher rates quickly would be the most devastating course of action to pursue. The feds next policy decision is due next wednesday. Boeings is growing wider. Asking them to stop building the max 10 jets. Some of the biggest carriers gather the conference tuesday. And discuss similar issues for quality concerns. Boeing stock is down this year. Thats your bloomberg brief. How much Higher Affairs going this summer off the back of this . You talk about the capacity concerns, lets talk about getting to colorado. Jonathan that story coming up later this morning. Up next the house voting on a tiktok band. Want to make it something not a fearful social media platform but one that is very positive and in order to do that we have to see the divesting of it from the chinese government. Good morning. Get help reaching your goals with j. P. Morgan wealth plan, a digital money coach in the chase mobile® app. Use it to set and track your goals, big and small. And see how changes you make today. Could help put them within reach. From your first big move to retiring poolside and the other goals along the way. Wealth plan can help get you there. J. P. Morgan Wealth Management. Really quiet price action to kick off wednesday morning. Going nowhere on the s p. The euro, 1. 0929. Yields are higher by a single basis point. Under surveillance the house voting on a tiktok band. What we here are the threats being posed to americans by the Chinese Communist party through in this Case Companies in this case more specifically tiktok. We are not there to we want to make it something that is not a fearful social media platform, but one that is very positive and in order to do that we have to seek divesting of it from the chinese government. The house set to vote today on a bill that would force tiktoks chinabased Parent Company to sell the app. The bill needs a two 30s two thirds we anticipate strong support in the senate likely to back the legislation is passed easing connection to send President Biden a bill which is promised to sign. I want to start with former president. Blowing up agreement on capitol hill before. Why is he struggling to blow up this one . Bipartisanship has been the key to china u. S. Relations for five or six years now. The National Security concern of the tiktok application and what it means for surveillance back into china is a concern of three or four years now. The administration has worked with the hill and legislation telling congress it needed broader authority. This is that broader authority. Annmarie china has mentioned what they plan on doing. They say its inevitably going to come back and bite the u. S. Itself. China has pointed to a potential tit for tat. Do you expect china to do something in retaliation . The question is what they can do and what they will do. As the u. S. And china work through a transition and their relationship bid ministers and calls it competition. Its competition across the front on many different platforms. Every day. As you saw coming out of the successful meeting when the u. S. And china reignited discussions on all levels. There still every day of sharp competition between the u. S. And china. Not just a worldview, but also how governments treat people. From the happy days of wto to a much more realistic relationship. Annmarie we hear from senators who are wavering a little bit. Talking about concerns and what the unintended consequences. Told congress they should be leading by example. Who do you think is not to back this . The people who wont back it probably fall into two buckets. People who are persuaded by the argument out of market. What a second group would be those working towards the election and dont want to be perceived as a victory for President Biden. Lisa lets talk about the tictactoe we were hearing about. They want this to exist in a different format. How could tiktok sell this to the company with administration the doesnt like tieups of Large Companies or even mediumsized companies. Intervening in a most every single proposed deal. I think thats the core of why this question has lingered from a policy standpoint for three or four years. They are certain about the National Security risk that the tiktok application process poses broadly and at the same time there concerned about unintended consequences. As i said before they are concerned maybe they dont have full Legal Authority to do with the Interagency Task force that spoke through the committee on Foreign Investment in the u. S. Last year would want to do. This is typical of joe biden. He has ideas in the legislature. Lisa are you saying essentially nothing will actually happen for a long time . Remember at the end of the Trump Administration oracle was brought in by the doj the deal would be struck with a constant backdoor to traffic over tiktok and they could monitor without the company knowing braided you go fastforward, the legislation doesnt require bytedance to divest. The operation it cannot be deaf around north korea. Associating strongly with china. We got confirmation of biden trump volume two. With regards to this tiktok story weve got a decent idea about the current president will govern with a second term. A decent idea given how the stories played out. Former President Trump is known to be very transactional, it is the fact some of his friends have positions in tiktok and its caused him to waver. This is not new. We saw this in the second year. Set basically to put this out a at least in the u. S. Hearing from friends in the company braden its two very stark different views and as much as people say americans do not want this rematch. It provides americans who are strongly divided a very stark choice. We are going to see this bill. You mentioned how this is a big win for biden. My question is eight months before the election this has issues for republicans and democrats prayed why are they doing it now . I did not mean to imply. I dont know either party who has this issue very well. Im not sure its a clear win for anyone. Its been very intent on a National Security. It might be perceived as a win. Outside of that politically i dont know how this plays. Great to get your thoughts, appreciate your time this morning. Going through the house a little bit later on this morning. Lisa the house will be coming back in sometimes these tend to be a little bit more time. The former president doesnt want us to go through. Coming up pretty clearly. Does that set us up for a pursuit of metain the years to come. We know the ftc has an ongoing issue in terms of thinking their monopoly especially the fact they bought up instagram and whatsapp. That happened in the final weeks of the Trump Administration. The ftc chair is dealing with it. Its still ongoing. Whether or not its a biden or Trump White House these antitrust issues are not going away . Lisa we keep flirting with what are these platforms doing to children and their minds and their education. As a mother of children its an ongoing concern and i think there is some conflicting messages from the types of policies driven from concern on the lack of evidence. If you have a child interested in being a communist, maybe look away from tiktok. If theyre not being taught about the pitfalls of that thats a problem with the education system. Theres a lot of questions. Snapping a two day losing streak on the s p in a rather bizarre. Equity markets alltime highs apparently. Equity futures just about unchanged. Negative by 0. 1 . Lets turn to the bond market. Twoyear, 4. 60. 10 basis points and change. Up another two basis on the 10 year. And intuitive reaction in the bond market. We just ripped a few minutes after the cpi report. It literally lasted about 60 seconds and then we rallied and did not turn back. Lisa trying to understand the different components of inflation and why people were so sanguine about a reacceleration of inflation when we are seeing a reacceleration in things like goods and services on used car prices. The only answer i can come up with is people dont really believe this is lasting and they believe the fed will cut anyway. Its positive for equities because there is strength in the underlying economy. Jonathan im not sure if equity markets with the cheap ones yesterday, the bits in cpi that wont be in pce, i wonder if that evolves in a favorable manner to the Federal Reserve. Lisa a lot seeing some disinflation that will make it easier. What inflation datadependent Federal Reserve can look at this and feel confident they are on that path after 2 . I am struggling with that. The market seems to think its less of a struggle. Jonathan lets finish on Foreign Exchange, the euro at about 1. 0 930. One from france, another from austria. Both of them leaning into june. June seems to be the month for the ecb for lift off. Lisa youre talking about francois. The rhetoric at this point is into matching with some of the actual data points. In europe they have a reason. The u. S. Is a little bit different. How much is this can work . Jonathan finishing on Foreign Exchange and dollaryen next dollaryen specifically. A slightly weaker yen off the back of the story. The boj monitoring wage hikes as automakers boost pay and meet Union Demands per toyota will raise salaries and bonuses for a fourth straight year. They join honda, mazda and nissan who of all agreed to wage raises. Saying these talks are an important item to watch heading into next weeks decision. This is a big one. 5 to 6 of wage hikes. We didnt get a number from toyota this morning but this is the direction of travel. Lisa you think friday is the most important day of the week. That will be the data point where they get some sort of deal. Jonathan ferro, avid follower of japanese unions. One union represents about 60 different groups on this price increase. People looking into this as a signal given the fact is the fastest wage growth weve seen going back decades. Its a matter of when and how they message it. Do people move on and say its can i happen . Jonathan Dario Perkins put this beautifully on twitter, he said 5 wage growth in japan virtuous wage price cycle. 5 wage growth in the euro zone which we spent a risk of japanization, isnt it different . In europe its a dangerous wage price spiral, its a very different way of looking at the same thing. Is the japanese economy struggle structurally different than europe, some people might argue no. If thats the case is it wrong to fight inflation, it begs the question to run the economies bit hotter to avoid the japanese like spiral. Which brings in a ball of worms by the fed excited to cut. Wage negotiations, a big union japan. Shaking of dollaryen. President biden securing enough voters in georgia, mississippi helping to finalize and rematch of the 2020 election braden continuing to take control of the gop firing more than 60 staffers in the rnc. President biden was meeting with leaders of the Teamsters Union in a bid to help secure an endorsement. A worry that maybe they looking in trumps direction. Annmarie less so the leadership of unions you have seen trump actually gain some momentum with those individuals. Thats why biden also wants their endorsement. The story is a little bit of a shrug. Its the rematch we knew was coming. Its the rematch no one wants but its got a cost a fortune. The general election is so much longer and these individuals have to be in the public eye longer. Its good to be expensive and difficult for the Trump Campaign than the biden cam same biden campaign. Trump is paying his legal fees with this print with this. Jonathan running mate, when do we find out . Annmarie there are a few people on the short list. Maybe an audition tape. Even the republican party. J. D. Vance, kristi noem, trump loves to also play kingmaker and i think for a little bit he loves this idea. He has a number of surrogates on the news for him. Jonathan kristi noem, did you see the governor on twitter promoting a dentist in texas . It made no sense at all. What was that about . Dental surgery in texas. I thought she had been hacked. Lisa theres sort of the small stories, how do you relate to the people. Annmarie why in texas though . Jonathan lets finish on this story. United airlines telling boeing to stop building 737 max 10 jets as it switches to arrival airbus model. A path to certification becomes uncertain. The united ceo making comments at a jp morgan investor conference. Deliveries slowing to 17 from 25 month over month. Southwest warning its schedules and hiring plans would be frozen due to the weaker output. Joining us around the table. Everyones got ton more tons more. They are heading up and we are thinking sort of mid Single Digits and may be a little bit more markets the people want to go to, europe comes to mind. Asia is growing this summer. Domestic u. S. A lot of capacities out of the u. S. Market so we are seeing this going up. How much is this truly because of boeing issues and how much is this because they want bigger margins. Its a combination of both. Theres a lot of things playing on the industry that are causing airfares to go up. First of all you had huge labor wage increases across the board. Flight attendants are negotiating now just past peak so they may not get the sizable increase those pilots got last year but they will still get big increases so thats one thing to think about and then you have infrastructure issues, the faa has asked for big airline serving in the new york market to cut capacity. They did that last year and they ask it continue at that level through october of this year. For 18 months are seeing growth in this market but you dont have capacity to fill the seats. If you look at what the airlines are doing fewer departures per day which is something weve been talking about since the pandemic because the delivery of delays you still have relatively small aircraft. You have capacity down say 5 from where it was. You have demanded 10 from where it was. And month over year. So they have no choice but to go up. Also from an Economic Perspective because a lot of people up and pointing to the fact spending has been so resilient in the airplane sector youve seen so many people continuing to travel even as this narrative has played out. What do you make of this. Is this a priority area or the sign of a consumer that has plenty of money to spend. I thought last year as we had inflation, higher food costs, fuel costs, most people drive to work so more money for gasoline, all the things you guys have been talking about with respect to inflation and higher Interest Rates, student loan payments, i really thought we saw demand, down. Its been very strong. I think there two things playing on that. I think people are tired of being cooped up for so long and they are hitting bucket list trips and theyre afraid potentially they will have to go to work five days a week instead of four. I think thats one thing. Thats weighing heavily. And this idea that the places, the world is changing and the places they want to go may not be available for them to go to in the future braden think about prepandemic, things like where were a bachelor and Bachelorette Party taking place. We saw them a lot of them in nashville, miami. And then they shifted to montreal and columbia. And then they shifted to europe. Really crazy places. Not all of those places may be available as we think about the future of travel. People are squishing in. Lisa ive not been invited to these. When you look at raising back fees, america, you delta, united, wall street journal as well. What kind of bag fees are we talking about. If theyre going after anything they could potentially make money off of them on top of the fact airfares are going up. This is a dangerous game they are playing. Bag fees have not gone up, so they went up five dollars. A lot of people, you can get away with not paying those if you have the credit card. If you have status so what they are doing is driving loyalty to their programs. If you live in new york. Or dallas and youre an american at southwest. When you get to the midcon. Where there are no hubs. Then you are really not a frequent flyer so thats where you either need to have an Airline Credit card and most americans dont, most of the cash back card. Airline credit cards, they are the ones that are impacted. People with status, corporate, they dont pay the increase. Its the infrequent traveler that gets caught both ways. Just how American Airlines can capitalize on this moment. And consumers might be to the manufacture there on. They buy a lot of boeing. People dont look at the aircraft are flying on until there flying on the plane. And then they see im on a 319 or so smallest may been on. I dont really think they focus on the aircraft type as much as the special. Do i have the Airline Credit card. And then the second big thing, whats the schedule. How reliable is the airline. I think thats a big issue for people if you plan this around your babies naptime or business meetings, you really dont want a 25 hour delay because it screws up your plans. We really like delta, united, those are top three choices with delta our best idea for 2024. Jonathan elaine, thank you. Which is why he is still looking at boeing. Im still concerned. Price lower. Annmarie i took a pit stop in london for points will jonathan flew direct. Jonathan why wouldnt you just fly direct . Lisa i dont even travel because him trying to. Jonathan you really should stop doing that. Heres your bloomberg brief. Fires erupting at a major oil refinery in russia after a drone strike from ukrainian forces. The facility is about southeast of moscow and serves as a key supplier of fuel. The strike marks the second instance just this week of ukrainian drones damaging oil facilities. Present vitamin prudent saying these interfere with the president ial election happening this week. A warning from the president of poland on balance of power, saying Vladimir Putin would attack other states if russia wins its war in ukraine. His warning comes at a critical moment in ukraines war with russia as allies are scrambling to provide more military assistance. Questions about President Bidens Mental Fitness took center stage with robert her on capitol hill. Declining to charge the president over his handling of classified documents in a report that describes him as a wellmeaning elderly man with a poor memory. He defended the decision saying i understood it had to include rigorous details and analysis. I could not simply announce i recommended no criminal charges. I needed to explain why. Hot inflation leaving some investors split. Inflation will come down slowly. But will be faster for the fed to start cutting in june. The problem is the data is not letting them. Jonathan more on that in a moment. Live from new york city this is bloomberg. [sfx wind, rain and rolling thunder] nobodys born with grit. British announcer rose is really struggling. Its something you build over time. American announcer thats 21 missed cuts in a row. [car trunk slammed shut] for 88 years, Morgan Stanley has offered clients determination and forward thinking to create the future. Crowd stop it . Only you can see. American announcer rose, back in the winners circle. [crowd cheers] [music out] starting a business is never easy, but starting it eight months pregnant. Thats a different story. I couldnt slow down. We were starting a business from the ground up. People were showing up left and right. And so did our Business Needs the chase ink card made it easy. When you go for Something Big like this, your kids see that. And they believe they can do the same. Earn unlimited 1. 5 cash back on every purchase with the chase ink business unlimited card. Make more of whats yours. Jonathan equity futures on the s p 500 just about positive after closing at alltime highs yesterday session. Yields higher bile mosys single basis point. Under surveillance this morning hot inflation leaving some investors split. I think what can happen is yes inflation will come down slowly. I think that will be fast enough for the fed to start cutting in june. Theyre saying we want to cut rates, the data is not letting them. Thats been the driving force behind our call. They probably wont be given in the the opportunity in 2024. Jonathan hotter than expected cpi reinforcing the feds cautious approach. Plus more data on deck with retail sales and ppi due tomorrow. Rosenberg writing there is nothing in the cpi report to get the fed in a position to be cutting rates anytime soon. Im pleased to save david joins us now. Its been too long. The pieces of this that will spill over to pce, ultimately the parts that wont. I think the bottom line is that the fed does not target the cpi or core cpi, it targets the pc deflator and the core pc deflator. I think that one of the more welcoming elements in yesterday cpi data was the fact medical care goods and services were flat as a pancake and that features much larger in the pc inflator. I would not be surprised when you reweight the components of the cpi that the core ends up coming in closer to. 3 or. 2 than the. 4 we saw in the core cpi so my view is yesterdays Consumer Price report is going to be a distant memory within the next three to four weeks. So i am not as fussed about it as a lot of the other commentators you have on the show. Lisa it seems like the markets agree with you. The markets responding appropriately to a report you think is maybe a bit misleading . The stock market is operating on a set of momentum and technical factors and not really i think paying much attention to whats happening in the economy. Youve the stock market up in the past year thereabouts and earnings are up 4 . So its really been a multiple driven market. The bond market sold off moderately as you would expect on a hotter than expected especially core cpi print. But in the overall scheme of things you have people saying inflation is taking its time coming down and inflation usually does that. Its like a race between watching grass grow and paint dry. Inflation is not bitcoin or the crv index or nvidia stock it usually is glacial. The Bigger Picture when we strip out the shelter components of the cpi which we all know are flawed in their treatment and lag, headline inflation shelter is running at 1. 8 percent yearoveryear. Its already below target. This time last was running at 5 . I would suggest lets move away from focusing on the data and look at the Bigger Picture because the broader trends in inflation are moving down and i think moving down in a rather impressive fashion notwithstanding yesterdays data point. Lisa it seems like the balance of risk is perhaps more skewed to higher inflation after this report especially because it doesnt seem like rates where they are now are particularly restrictive when it comes to Capital Markets and risk asset valuations. So why should the fed go ahead with cutting rates at a time where it doesnt seem like they are affecting the economy or markets and it seems like there are still questions around inflation. Theres no doubt financial conditions have eased rather dramatically over the course of the past few months. I dont think its why the economy did as well as it did last year. It was a lot of fiscal juice, you got a rapid decline in the equity cost of capital. High yield spreads are supertight. Wheres the capex boom coming out of that. Last years story, a two thirds of the growth in the economy last year came from the direct and indirect impact of fiscal stimulus which frankly i was not expecting. I wasnt expecting that the deficit would expand 25 last year in the context of a sub 4 unemployment rate. So a lot of the growth was really fiscal. Financial conditions of eased but im not seeing any dramatic in pulse on Economic Activities in the one thing i will point out is the fed is telling us increasingly it is shifting its focus from the monthtomonth gyrations in the data. Of course it will grab the headlines until the next months data comes out. Quite frankly when you look at these swathes of comments coming out of the beige book, the latest out of the fed, it said businesses found it harder to pass through higher costs to their consumers who became increasingly sensitive to price changes thats whats happening in the real world. In the cpi world we have 40 of the items in that index are guesswork by bls statisticians as it relates to services. What did the walmart cfo tell us a couple weeks ago about Pricing Trends at walmart . The Worlds Largest retailer, their pricing momentum is dissipating. So im not getting to fussed by what one monthly cpi number. Theres a phrase i see a lot from research at the moment. I just wonder from your perspective what is the value of benchmarking to such an extreme time in the equity market. Is there any value in that at all . David i dont think its useful to compare it to todays world or any other world anymore than in 2007. Every cycle has its unique characteristics. Every cycle has its similar patterns. Am not saying its like 1999 or the dotcom bubble because most of those companies did not have a Business Model and their earnings. However we do have a situation where the multiple on the s p is 21. And it is in the top 10 , a valuations in history so people like to say its not 1999. Whether youre taking a look at Corporate Credit, looking at the equity market, it is a nosebleed territory in terms of valuations. Its still a very expensive set of circumstances across most Asset Classes. Its not as dire as 99. Jonathan David Rosenberg of rosenberg research. Live from new york the second hour of surveillance up next. With the small business. Whoa. Youve got all kinds of bright ideas, that your customers need to know about. Constant contact makes it easy. With everything from managing your social posts, and events, to email and sms marketing. Constant contact delivers all the tools you need to help your business grow. Get started today at constantcontact. Com constant contact. Helping the small stand tall. Stocks still represent the best place, particularly u. S. Stocks if you want to compound your wealth. Earnings have been as strong as they have. Its really hard to not like owning equities in that environment. Finally coming out of this covert environment. This is bloomberg surveillance. With jonathan ferro, Lisa Abramowicz and annmarie hordern. Jonathan the second hour of bloomberg surveillance begins right now. Good morning. For audience worldwide this is bloomberg surveillance. Equity marked just about positive after closing yesterday at another alltime high in the s p 500. David rosenberg talking about the difference between cpi world and what he caused because the real world. People pushing back on some of the price increases feeling more constricted and companies being more cautious with respect to Business Investment grade so many people taking only the good and rejecting the bad from the cpi report. You stocks screaming by. Jonathan did you see ken griffins quote. Pausing and changing direction. That would be the most devastating course of action to pursue. He went on to say i think they will be slower than people are expecting. What if the fed were to cut and then realize they did not handle inflation properly and then have to go back at the end of this year or next year and start hiking again. Then they say we made a mistake. To davids point, fed does not target cpe though the consumer looks at cpe and thats how they make their gases about inflation and where the economy is going. We have to wait to decide whats going on until march 29. Jonathan if youre not familiar with his call its 50 basis points of rate cuts this year and they dont come in june, not later this summer, not until after november. Thats a very different call to what we are hearing elsewhere. Lisa he said to us i am getting a lot of hate, a lot of pushback. I wonder if he feels more confident after that. People are taking what they want from this number. You can justify why the fed should not cut it all this year or why there some fleeting indicators. The bigger question to me is what is the harm in holding rates higher for longer versus cutting sooner. Jonathan president kashkari asked the same question. If you really think about it lets talk about the start day its a bit controversial waiting until after the election. We could have a meeting on the sep s p coming down to just two rate cuts. Hes not that far away from the Federal Reserve. Lisa he does not see a move and only one or two cuts might be necessary. But dots have not been taken as gospel by this market. The fed has been saying the same message. Will people trust them more as a guide even though nobody can get this right. Its really jonathan all of that stuff. Thats a great description. Lots of data tomorrow. No data this morning whatsoever, tomorrow you will have jobless claims, retail sales, looking for that at 218 from 217. A little bit later this morning you get a vote with the house of representatives in washington dc. Potentially banning tiktok. We will be talking about that in just a moment. Equity future shaping up as follows. We are just about positive in the bond market yields are higher by a single basis point. Foreignexchange is quiet for the euro. Coming up on this program Catherine Keating with the s p 500 posting a 17th record high of the year. Bill dudley of Bloomberg Opinion on the feds next goal and what he sees calling for the yield curve to disinvert by year end. Stocks shrugging off a hotter than expected cpi print post the biggest day of gains and was three weeks. Catherine telling investors to stay in equity markets and calling bonds a once in a decade opportunity saying cache was the move two years ago. Now is the time to move into bonds. Catherine, great to see you. Youve got one of my favorite quotes whenever i hear this i always read it twice. The best 20 days in the equity market over the past 30 years cuts returns and half missing the 40 best days result in negative returns. That always shocks me whenever i read it and hear it. It is half of your job therapy to keep people in the market . Its reminding them that the biggest advantage in investor has is time. Time in the market is more important than timing the market. Because over time, market score go up. It doesnt mean you make judgments about which Asset Classes classes you think are stronger but being in the market is the most important advantage in investor has prayed jonathan last decade and investor has. Jonathan it took since 1989 to get back there. It makes the United States in the u. S. Capital markets unique in that regard . We are a large and highly liquid market. If i think about the u. S. Market today and where we are, we have a very good ecosystem to invest in. A growing u. S. Economy. Number two, Large Companies in particular are relatively insulated right now from higher Interest Rates. When rates dove they took advantage of that and they refinanced debt and they extended maturities. Right now Large Companies are relatively well insulated from higher rates. That will change as the years go on and change by the time you get to 2030. Companies are doing well, earnings are positive. We are out of the earnings recession. We think its a good place to be. I was excited to speak with you about the psyche of the Retail Investor prayed given the fact you are seeing alltime highs and how that feeds into their willingness to spend. I know youve worked with them on both sides of this. Do people increase their spending when they see bigger gains from their investments . Catherine if we step back and think about the consumer and the individual investor, that individual is actually a pretty strong shape right now just as Large Companies took advantage of low Interest Rates and were relatively insulated from the higher rates we have now, so are individuals. What did people do in Mortgage Rates went down dramatically. They refinanced, they locked in lower rates. Mortgages of the largest category of consumer debt. At the same time consumers and individual investors have been very responsible in how they handle in how they handle and their Balance Sheets. Debt service is less than 10 of disposable income. Very strong for the consumer. Jonathan lisa im trying to understand the resilience of the consumer. I wonder how much of a role markets are playing that essentially theres been an easing in financial conditions. People are earning pretty hefty returns. How much does that bolster their ability to spend keeping this sort of cycle going. This is a very good question and you are absolutely right. Theres a very important wealth effect that impacts the investor and the consumer. If you think about Consumer Wealth broadly it is up 30 since before the covid crisis. Markets are up. You see a Consumer Wealth number of 150 trillion just over the last four years. The wealth effect is very profound. How reluctant our clients investors to get back into bonds . Catherine the last two years we were better off in cash. The Federal Reserve has anchored these rates at 5 . The question is where will you be off where will you be better off in the next five years. We are confident they will be better off in bonds over the next 1, 3 and five years. We have a lot of experience and we know when you reach peak fed funds rates, than they do start to go down and we can debate the path and how quickly but they start to go down. You can you tend to see reserves that are two or three times the term returns on cash. In particular, we like Municipal Bonds for three reasons. Our clients pay on taxes. The meanness of a bond market is a very strong active management market. There are 500 stocks, there are 80,000 Municipal Bond issuers. Theres a lot of opportunity for that. Number three is the point i made a few add duration now. The risk goes up. If youre interested in where we are trading, the 10year up about a single basis point. Just off the highs of where we were. The question would be a have we seen the high for the two year yield so far this year . Its all sacrilegious to say the fed is not at their peak. Heres the question, what are we going back to . Is this a natural progression back to percent or not and ultimately that is the ultimate question splitting wall street is some of their prognostications. Jonathan do you remember post gf see, those charts that showed where rates were going and it was just sort of lift off, we always thought rates were going up and they ultimately never did. Is postpandemic to get to be the inverse of that chart. Where we are just sort of waiting. If you knew that answer i think its a great question and ultimately everyone disagrees on the answer depending on who you are and whether you got a more inflationary regime, or disinflationary, this is the key question. Jonathan have you got an answer to that . Could we have the inverse of that in the years to come . Catherine the fed has a dual mandate. Full employment check. Even as its creeping up. They are highly focused on price stability so back to the cpi, the longterm trend over the last couple of years is quite clear, over 9 down to 3. 2. The path really depends on three things, the components of cpi, goods, services, shelter. Goods we historically had no inflation, its a highly competitive market. Back to a most no inflation now on goods. We would be at about 2 if you added those together. The real issue is shelter. You sign up a lease for a year, mortgages are longterm. So its really all about the shelter component. And one of the reasons the market did well was they saw that, down from january. Shelter and how sticky is it and when does it come down . Jonathan catherine is going to stick with us. Equities just about positive. Lets get an update on stories elsewhere. A warning from the president of poland. Saying Vladimir Putin will attack other states if russia wins its war in ukraine. His warning comes at a critical moment in ukraines war with russia as allies are scrambling to provide more military assistance. Boeings is growing wider. United airlines telling the plane maker to stop building its 737 max 10 jets. Some of the biggest carriers gathered at a conference on tuesday and discussed similar issues stemming from the quality concerns. Boeings stock is down this year. A setback for a japanese startup hoping to enter the crowded commercial space race. Space ones first launch exploded seconds after taking off. The ceo said the selfdestruct order was sent to the vessel about five seconds after launch with a panel to investigate what happened. Space one was trying to send a government satellite into space. Up next on the program biden and trump once again. I extended open invitation and i ask you to join us on the noble of saving our country. Its our freedoms are literally on the ballot this november. Something like eight months. This is bloomberg. Stocks on the s p 500 closing at record highs. Alltime highs coming into today. 0. 6 . Higher on the s p. Yields are up a single basis point on the u. S. 10 year. Under surveillance this morning, it is biden trump once again. If youre a disillusioned democrat of which there are many today i extended open invitation and i ask you to join us on the noble of saving our country. I say to you in the state of the Union Address i talked about how far weve come. I also talked but how much is at stake. Our freedoms are literally on the ballot this november. Jonathan how much red bull gets consumed between now and november. Former President Trump clinching the nomination crossing the threshold for the number of delegates needed in yesterdays primary. Trump is set for a rematch with President Biden in november. Michael shepard joins us for more. Who is the running mate going to be for the former President Trump and how long will we have to wait . We all want to know who the running mate is going to be. Weve seen names around. We can be sure it wont be nikki haley at this point given the distance between trump and his former u. S. Ambassador to the u. N. A Bitter Campaign but there are a lot of interesting names out there. If you are donald trump you will want to make every bit of this moment in the search for a running mate and i would expect him to try and build the momentum and the suspense and get as many of these perspectives contenders down to meet with him maybe even in public settings of maralago in the coming weeks. She got more than 77,000 votes in georgia yesterday. And she wasnt even in the race. Given the fact trump lost georgia by over 12,000 under 12,000 votes how difficult will this be for him to bring those votes over to try and win back a state like georgia . It signals the big challenge he faces and underlying weakness that haley was trying to point out during the campaign and a trump candidacy. What she was arguing before she left the race is there were a lot of Republican Voters who do not want trump on the ballot. These are the people who were backing her and some of them have indicated even with conversations during her trip to iowa New Hampshire that they would rather vote for President Biden if it came down to it than for donald trump. Biden himself has made an appeal to those voters. We are trump trying to make an appeal to democrats dissatisfied but likewise biden is trying to reach that group are republicans that has had enough with trump and would rather see a changing of the guard putting their bets on and hopes in nikki haley only to be disappointed. The speaker of the house is a republican and weve seen a most peak dysfunction with Congressman Ken Buck saying we know he is retiring saying this is so dysfunctional im leaving at the end of next week how would republicans do down ballot for the house of representatives and the senate in november . It poses another challenge for the party with trump at the top of the ticket. During the midterm elections trump was widely blamed for contribute into the parties underperformance even though he wasnt on the ballot it was just the fact so many trump loyalists were and they did not perform nearly as well as he had said they would and is the party they party had hoped they would. Ken buck voted to certify the election in defiance of the president s wishes back in early 2021 and he had further disagreements with the former president over the past year and a half. So this signals two things. The house is very dysfunctional face place. He did not give mike johnson a head up he would make this retirement announcement. It also signals another thing the trumps hold on the party is tightening. We could see more trump faithful candidate emerge to take his place. How does that reconcile with what we are about to see on capitol hill regarding tiktok . The house is about to vote in a couple of hours on a measure that would seek to force the sale of tiktok, a force its chinese owners to sell the app or face a ban if they dont do so within six months. This has gained steam in the chamber, its surface from out of nowhere just last week it passed this committee on a 500 margin and we expected to get through the house by a two thirds majority. Were just trump come in . Earlier this week he signaled his opposition to the measure saying if it passed it would help facebook. His concern is facebook would become too powerful and he would prefer to see tiktok in some sort of a more competitive relationship and really coming up against facebook. Facebook band trump shortly after the january 6 attack on the capital. Thats one thing to note. There were also some other misgivings among republicans especially the more libertarian ones who were aligned with trump anyway. Jonathan its good to catch up. Looking forward to that later this morning. Im reminded of a line that came from markdown years ago about the 2016 election where he said the biggest challenge for investors was to divorce politics from your market views. Jp morgans david kelly wrote this in an interview. I worry people worry too much about politics. There are a lot of republicans who missed out on good stock market returns under obama and biden and a lot of democrats who missed out on great stock market returns under donald trump. David kelly over the weekend, read that interview. Does that echo how you feel about politics . Do you have to divorce politics from your market views and how easy is that to do . To a certain extent you do. Markets have done well regardless of which party is in control. When you think about it, elections are about policy, but you dont know what the policies will be until you know who wins the presidency, the senate and the house and most of the time thats not a single party. This is a consistent tactical trend is ever since world war ii when the incumbent president is running for reelection its tends to be a very positive year in the markets so if we think about this year we have incumbent president running for reelection and what do we see . We see a lot of positives for the market, the inflation reduction act, the chips act coming into the economy right now being bent. Congress is talking about a fiscal bill right now so what you see in every election since world war ii when the incumbent is running for president whether they win or tends to be a good year in the equity market and twice as good as the average year. We are sort of on track for that right now. Does annmarie it matter more who would be the next fed chair . Catherine controlling Interest Rates, controlling inflation. Trump has floated some interesting names in the past. Its a very Important Pillar of the economy. Absolutely. Is the president likely to choose a fed chair that somehow goes against objectives for the u. S. Economy. The inflation dynamic though is the one to watch. This is what i keep thinking about, how long does the u. S. Have, how long can there these the dysfunction and sort of gridlock that pushes over the finish line more money into the markets. I dont know the answer to that but so far it seems like for a long time. 30 year bonds later. There we go. You have the numbers memorized. Coming up, the former new york fed president on the feds next move. From new york, this is bloomberg. E all new godaddy airo helps you get your Business Online in minutes with the power of ai. With a perfect name, a great logo, and a beautiful website. Just start with a domain, a few clicks, and youre in business. Make now the future at godaddy. Com airo when i was your age, we never had anything like this. And yowhat . Wifi . Iness. Wifi that works all over the house, even the basement. The basement. So i can finally throw that party. And invite shannon barnes. Dream do come true. Xfinity gives you reliable wifi with walltowall coverage on all your devices, even when everyone is online. Maybe well even get married one day. I wonder what i will be doing . Probably still living here with mom and dad. Fast reliable speeds right where you need them. Thats walltowall wifi on the xfinity 10g network. Jonathan lets run for the price action for you, equity futures waking up this morning positive by 0. 1 , the nasdaq going absolutely nowhere. Not what you would have cast based on how cpi came in yesterday, hotter than expected. I think we both said at the time may be taking some comfort with shelter, not running away as we did in january. Lisa but how many reports did you read that this is the biggest risk event . Expect risk assets to selloff. Again, it sort of raises this question, what is the real story here and what is the narrative in markets . Jonathan the underlying story keeps changing. All of a sudden, core goods are starting to price to the upside and you got to make your mind up you have confidence in one more than the other and do you really believe that goods this inflation has ended . Lisa out give you an anecdote especially because people draw comfort from the fact that home prices didnt accelerate in the same action. This morning the Mortgage Rates actually dropped a couple basis points, 18 basis points. All of a sudden, Mortgage Applications surged upward. So this is a market that at the financial conditions these, you start to feel that pressure and it raises this question going back to the cookies, the cooling cookies, is the oven still on . If you put the pan on the oven, do they cool off . Jonathan ken griffin reference to this, but he. Addressed it. Yields of a little bit by a couple of basis points. A few mondays ago in the 400 70s, we came all the way back down on friday so we can all over the place in the last two weeks. Lets finish on Foreign Exchange. Wont talk too much about the euro. The dollaryen, 1. 48. Just to see the auto manufacturers are having Wage Negotiations and that is part of the story, the equation for brady want to be in Foreign Exchange based on where the boj is going to be in the next few months. And we heard from mazda, honda, and toyota as well. Lisa this is the key moment on friday. Are you even going to go to sleep . Or are you going to just want to just watch the Wage Negotiations . This is where we are. Is this the deciding factor for a central bank that has taken the better part of decades to make any move at all . Is this going to be the moment . Jonathan live coverage at my house, daybreak asia with the team. Taking friday off. Lisa you are taking friday off . Jonathan im working overnight. Lisa we are going to be getting the key important data point. Jonathan 147. 99. Always dreamt of doing that, actually sitting at home, and that i hated. The house voted today on a bill that would force tiktoks chinese. 27 or face u. S. Ban. Lobbying lawmakers on the hill yesterday, democratic senator John Fetterman telik tiktok it wasting its time, i love this. I spent hundreds of dollars on drug elephant at sephora because of my between. Thats annoying but i think theres a security issue as well. And if they have nothing to hide, tiktok should be the first one to say lets remove any kinds of possible connection there and i support that. At least hes honest. Lisa when i saw this quote i literally thought of lisa immediately because shes been talking about the fact that these tweets are on tiktok and then buying all of their skin care needs. I think a lot of parents resonate with this. But before he talked about it, he said that tiktok actually called him and they were trying to get into back office and he said i was honest, i was clear. I think it is a National Security risk. Jonathan bytedance spent 8. 7 Million Dollars lobbying federal government last year. These are big numbers. Tom these are huge numbers. Then you have to think for club for growth. They now have Kellyanne Conway lobbying on behalf of them because theres individuals within that organization that do not want to see this go through. But one thing that is kinda fascinating about the story is that yes, they spent a tremendous amount of money. The story has been happening for years but they seem to be caught on the back foot when it comes to this particular bill that has been almost going on negotiations and secrecy and that is why you saw shou chew run for congress yesterday to try to make sure hes having these meetings with lawmakers. Jonathan the president of poland warning russia will attack other states if it wins the war in you reign. Making the comments in an interview on bloombergs balance of power yesterday after a visit to the white house and a meeting with speaker mike johnson. Poland is pushing the u. S. , the Biden Administration endocyte a 300 million aid package. Weve talked about whether former president has been successful and where he has struggled. He certainly struggled to blow up the tiktok effort. Foreign aid, he has been pretty successful. Tom the only issue he was not successful in was his comment about nato. Research Shows Americans continue to support nato and want to see that support even go higher when it comes to nato countries. When it comes to foreign aid, that bill was bipartisan in the senate and that absolutely blown up and it to the house of representatives. Jonathan the fed must move slowly in lower Interest Rates to avoid having to reverse course down the line. Saying pausing and then changing direction back toward higher rates quickly would the most devastating course of action to pursue. Can griffin. Lisa the idea that the fed is missing some of the heat and the cpi that people are dismissing assembly one offs. If that is the case, what is the risk of keeping rates higher for longer . This is one of the key question to hear fed officials asking as well. If there is no risk, why cut . Jonathan it is the question. Cutting too soon, holding too long . I would imagine they change that risk just a little bit. Im not sure it has changed the base case, but it has change the probability around the story. Which is why i think it will be very interesting to see whether they change any of the ballots, but whether they hear a slightly different tone from fed chair powell. Jonathan that meeting a week away today, pushing up the first rate cut. Warning the next goal is reducing qt, writing the final plan should be in place by the middle of the year. Whatever happens, the destination matters a lot more than the speed. Pleased to say that bill dudley joined us now for more. What kind of considerations go into making a decision like this one . They want to not risk causing turbulence in the financial markets. You are not really sure what the desired level is, so you want to not know exactly where that runway is. It doesnt really matter if you get to the desired level, it is just the fact that you get there. They are going to discuss it at the march meeting, that was made clear. Then they will talk about this proposal and i think they will see a final plan by midyear. Jonathan you said the central bank needs to shrink the Balance Sheet enough to rebuild the stimulus arsenal. Ive said this to you before, i feel like this is some kind of Jedi Mind Trick. They want you to believe that stimulus and cute tea does nothing, but what does qt actually do . Economists find big effects when there are announcements, very little and there is the and the reason is obvious. You dont really know when a qe program is going to be implemented. Interest rates have to be at zero or about. Qe is usually surprised. Qt, when youve done qe, you know qt is going to fall at some point. When qt happens, it is really a question of timing it. So it has much more milder effects. Lisa theres also a Jedi Mind Trick going on when it comes to financial conditions and general, the fact that weve seen dramatic using and financial conditions and that doesnt seem to be weighing on that in terms of how that affects their ability to get the 2 . But when you saw a fell off, that was concerning. Does that concern you that the easing of financial conditions doesnt seem to be anywhere on the radar of fed officials . I think its on the radar in the sense that the reason why financial conditions have eased is that people expect the fed to cut rates this year. But the fed actually has to cut those rates to keep financial conditions where they are today. We know that march is off the table, may is probably off the table. The fed cutting rates probably sometime this summer. The focus of the meeting is going to be a lot of questions about the qt table but the other thing getting a lot of attention is projections and how many rate cuts officials pencil in the forecast. There is some possibility that may be the medias going to shrink to two. Theres still plenty of time. Lisa this goes back to the question weve been asking all morning, has the balance of risks shifted just a bit after the cpi print fact that may be it makes sense for them to hold rates higher for a bit longer . It doesnt seem like it is dampening some of the Economic Activity or harming the u. S. Economy. I think it hasnt, but that has been the strategy all along. Pricing and 67 rate cuts and the fed was saying no, less than that for the very reason that you said, to be successful in getting inflation all the way down to 2 . The world is sort of going the way the fed is expecting rather than the way markets were expecting. I think this plenty of time to see have a balance between growth and inflation plays out. The fed is focused on both sides, not just inflation, what is happening in the economy. There are signs that it is slowing. The fed is trying to balance between these risks. Jonathan this is the total opposite of the conversation we had post usc. Coming out of the great financial crisis, 2007, 2008, 2009, we always had these charts that came out and it was basically wall street looking for lift off and then you had fed funds just doing nothing for years. And every single year it was liftoff, liftoff coming. Are we looking at a situation that could be the total reverse of that, where we have again and again just a false door because the suspension looks so much better than people thought it would be . That really depends on how tight Monetary Policy is and that is one thing we dont really know. Every time the economy turns out strongerthanexpected, people talk about maybe Monetary Policy is not as frisky as we thought. The other thing that is interesting is whether fed officials raise the risk with a neutral Monetary Policy looks like. You look at the current projections, they think the federal funds rate could be neutral, 2. 5 . Its very possible given the strength of the economy that they start to push up. Lisa thats exactly where i wanted to go. Katie kaminski was saying there is a real signal in the face of rates that have remained so high. Do you take that signal, do you think that the fed should be lifting rates, the neutral rate expectations . Yes, i do. Fiscal policy has been very expansive. A number of new investment programs, chips act, all those things are increasing investment in the to of to a diminished savings pool. I also think that financial conditions are the right way to think about Monetary Policy insert to your point, there less easing for the fed to do. Jonathan youve alluded to this but to speak a little more clearly on the topic, how uncomfortable will they be with yesterdays cpi print . I dont think the fed takes a lot of signal from one or two prints after a series of very good lesion prints. It is now on the radar screen. Jonathan appreciate it, thank you sir. Theyve been looking to gain confidence, have they lost some . Lisa you have to think that on the balance, they have a little bit, and i would agree with that. Jonathan here is your bloomberg brief. Fires erupting at a major oil refinery in russia after a drone strike from the reinforces. The facility about 120 miles away from moscow serves as a key supplier of fuel for the eastern part of the country. The strike march the second instance this week of ukrainian drones damaging Russian Energy plants. President putin saying the attacks aimed to interfere with russias president ial election this week. Back in the u. S. , questions about President Bidens Mental Fitness took center stage on capitol hill three special counsel robert hurts testimony. If the prosecutor who declined to charge the president over his handling of classified documents and in his report he described President Biden as being a wellmeaning elderly man with a poor memory. He defended his decision saying i understood that my explanation about the case had to include rigorous details and thorough analysis and i cannot simply announce that they recommended no criminal charges and leave it at that. I needed to explain why. Shares of dollar tree are lower in the premarket after the companys firstquarter Earnings Guidance lists estimates. Fourthquarter sales and earnings also coming in lower than expected, plus the company said it plans to shut emily dollar at 600 stores. The dollar tree ceo expecting to face headwinds in the first half of this year but hoping favorable freight rates sees the pressure later in 2024. That is your bloomberg brief. Jonathan thank you. Up next, rounding out a big week of bond auctions. We definitely think inflation is the second half of this year story and when that happens, you see less people willing to buy bonds and the supply come back into the picture as well. Jonathan another big auction coming up a little bit later. That story up next. J. P. Morgan Wealth Management knows its easy to get lost in investment research. Get help with j. P morgan personal advisors. Hey, david ready to get started . Work with advisors who create a plan with you, and help you find the right investments. So great getting to know you, lets take a look at your new investment plan. Ok, great this should have you moving in the right direction. Thanks jen. Get ongoing advice; and manage your investments in the chase mobile app. Jonathan stocks doing ok, better than ok. Weve just been spoiled by record high after record high. Equity futures right now positive by 0. 1 . Yields of a single basis point. Light on Economic Data this morning, heavy tomorrow. Retail sales, jobless claims just around the corner. Under surveillance, rounding out a big week of bond auctions. People will buy treasuries as long as the economy is resilient. I think inflation coming back on the radar the second half of the year. We definitely think inflation is the second half of this year story and when that happens, then you see less people being willing to buy bonds and the supply come back into the picture as well. Jonathan this makes treasury auctions concluding with 22 billion of 30 year bonds. This after the tenure auction drew some lackluster demand. Sticking with her call of three. 75 of the 10 year yield, and expecting the yield curve to steepen into positive territory by year end. If you pieces of that puzzle. Peace one, you believe there was a may start rate cut and 100 basis point of cuts this year. Why doesnt the data point to start the year change that story . Good morning, thanks for having me. I think that the cpi print have definitely been something weve been paying attention to, but they are not the only pieces of Economic Data we are looking at. We did have a consistent with potential cuts payrolls report last friday, we seen some other places that prices have come down, so when we put the broader picture together, we do feel comfortable that the Economic Data while not full sale cooperative is inching toward the likelihood of a cut in may and further cuts after that. Although i have to say there seems to be the twosided story. On one hand, resilience and strength in corporations which is the reason why spreads are coming in and on the flipside, you are seeing signs of weakness that people. 2 for the reason why lesion will keep going down. Which is it . It is a really tricky one. As inflation moves down, that is positive for corporations from the price perspective. A lot of the challenges that we saw in corporate earnings into 2022 were very much related to input cost, 10 energy costs being higher, to shipping costs being higher. And at the same time we started to see that deceleration in the ability to pass things through to the end consumer. So it is always that balance the corporations need to strike to really hit that sweet spot in terms of maintaining margins and not needing to do widespread layoffs. And i think that we are kind of approaching that better equilibrium in the corporate earnings cycle. I guess im struggling to understand how you can say on one hand rates are restricted and on the other you are seeing in some cases record paces of debt issuance both from the government and on the side and you can see that demand for it is just insatiable. What message do you take from that given the fact that it seems that companies are managing just fine through the cycle . It is a really interesting dynamic, especially the demand component, as we have seen a significant return to demand really across a broad base of investor types into fixed income, especially in the u. S. Markets, also in the european markets. I think what that signals as most people are not anticipating a rehiking cycle or a reacceleration of inflation that would drive more rates volatility and higher yields overall. Instead, people feel pretty confident to say ok, rates are probably at or near the peak, we are ok putting cash to work in fixed income, even if they will steady around these levels. Lisa although i have to wonder at what point Going Forward you start to push back a little bit. Weve seen cccs really start to rally as people search deeper into risk at a time where people are saying survive till 25 and in 2025 you are going to have this real maturity wall. As people gotten ahead of themselves . I think people are being very circumspect in trying to figure out the appropriate triple cs to be buying and what are the more leveraged Balance Sheets that are just not going to work in a higher for longer or sustainably elevated rates environment. Where we are a little bit more concerned about people getting ahead of themselves as perhaps on the leverage loan market, where elevated policy rates for longer than expected are probably going to play an even more detrimental role in fundamentals. Jonathan i just want to finish on japan. We are about to see something we havent seen since 2007. Why do you think Global Fixed Income is so comfortable now, something weve been waiting for for a long time . I remember all the bare arguments about what would happen when they had to get away from qe in pain and start hiking Interest Rates. Yields were going to search worldwide. Why isnt this going to shakeup Corporate Credit in america . We now have the benefit of two very aggressive policy cycles in the u. S. And in europe giving investors a little bit more confidence that the Global Economy can actually withstand elevated rates, especially when liquidity in the Global Financial system is really quite robust and we continue to see at the fringe fiscal policy support as well. So now we just had a little bit more evidence that higher yield is not necessarily going to cause that cataclysmic rollover in the financial system. Jonathan thank you. It is quite a change, and it started in europe for me. I certainly think they could do that. I know they had pickup along the way and had to come up with certain pogroms we did the big issue that many people expected. I hear you, im on the same page, i think a lot of people are. All of a sudden here we are, things just moving along swimmingly. It raises this question about the fiscal transfers. We pray that from every guest who has come on, but that has been the big surprise that has fueled about the strength that we seen. How long can i go with governments basically transferring the Balance Sheet to private Balance Sheets . I dont really know the answer, but that is what i keep thinking about. Jonathan back to conversation with howard marks of oaktree, where is the leverage . Where is the leverage . Corporate Balance Sheets are stronger, they are stronger because the leverage went to the sovereign Balance Sheet, and yet here we are even with all these rate hikes, even with the end of qe. Rates havent spiraled away in the way that i think the biggest heirs would have thought they would have done. Lisa thats the reason i watch auctions. People arent pushing back in a material way because they are still counting on the fact that rates are going to reflect an inflation rate that is coming down. Not necessarily this premium that is baked into transferring the wealth of the country into the Balance Sheets of companies or corporations. Jonathan granted, the boj is still targeting zero, i believe. Lisa i think it is actually above zero. Jonathan theres been some increased tolerance. They changes for the doj. We might actually get a rate hike which is something. Jonathan fcc commissioner brendan carr, santa and their and ed ludlow. More to come. Good morning to you all. Equity futures on the s p 500 slightly positive, no drama, up by 0. 05 . Yields higher by a few basis points of to the frontend end of the curve. On a tenyear, positive two basis points to 470. This is bloomberg. The third hour of bloomberg surveillance up next. The future is not just going to happen. You have to make it. And if you want a successful business, all it takes is an idea, and now becomes the future. A future where you grew a dream into a reality. Its waiting for you. Mere minutes away. The future is nothing but power and its all yours. The all new godaddy airo. Get your Business Online in minutes with the power of ai. I think inflation is a story of the past. You may have some hiccups here in the shortterm that can create some nearterm volatility. Our highest conviction view this year was volatility