Way to the indian border. Theres tangible issues. No question they are flexing their muscle right now. What i would notice in this market on a quiet wednesday, i know you will do the data check here. Publishing moments ago this bullish consumer view, and that was a game changer yesterday with the retail sales report. Jonathan we will catch up on the geopolitics a little later in the hour. Equity futures up 19 on the s p 500, focusing a move higher over the last several weeks, up by 0. 6 . Just surprise after positive surprise. The economic surprise index in the United States is absolutely flying. And it is at a record high searching higher after yesterdays retail sales beat. It was just an absolute trout. Today absolute trounce. Today i am going to be watching the u. S. May building and housing permits starts to get a taste of what we may expect. U. S. Loan purchase applications hit an 11 year high last week, so that should be some sort of indicator. 12 00 p. M. , fed chair jay powellcome a to jay on the hill, day two. And Robert Lighthizer appears before the Senate Finance committee. I am very interested to see whether we see a ratcheting up in tensions between the u. S. And china, a potential risk at a time when the fed seems to be stepping out any concerns about the lingering effects, even though they are very real amid betterthanexpected data. Good point. Is a it has fallen off the radar a bit. It was there about a month ago, ramping up tensions with china, but fading as we come into june. Tom theres some serious issues out there, and that makes this bull market rally even more extraordinary. I know you bought at the bottom in march. You were listening to michael leveraged the triple ferro fund in the middle of march. You are up 350 . That is not bad. Jonathan i wish we had listened to mike wilson of morgan stanley. I am pleased to say we start this Mornings Program with the chief equity strategist here in new york city. Fantastic to catch up with you, sir. It has set you apart for me in the last couple of months is your willingness to say the recession playbook is still intact, and there is nothing different about coming out of this contraction compared to the other contractions. Would that be a fair characterization . Mike thanks for having me. I think that is a fair way we have positioned ourselves. You have to put the blinders on a little bit when you go into a recession from a financial becausetandpoint markets tend to anticipate these things. We have been talking about this set up for over a year or two. I came into this year more negative than most, expecting the risk of a recession being higher, so when it happened, the market was actually already ready for that. The only thing that is different this time is that we are in this financial period of repression. That is obvious. One thing i have learned the hard way is that when risk premium appears, you have to grab it. That appeared in march. Weve written about this extensively. We were as cheap in march as we were in march of 2009. You may say, how could that be . It is because rates had fallen that much. Markets had become attuned to that, and they reacted, and investors had stepped end investors have stepped in. Jonathan many people anticipate the bounce we are seeing in the Economic Data to flatten out later this summer, and for that reason, they are not willing to extrapolate recent upside surprises too far, too quickly. Some people are willing to disregard the bounce we are seeing coming into june. What do you say with those people when you have those conversations at the moment . Mike part of the reason why economic surprises are bouncing so much is because expectations is collapsed. That is also part of our view. You are getting a vshaped recovery because your comparisons are so easy. Of course, it is going to have to flatten out because every better, data comes out the expectations rise. So the bar gets listed as well. It will flatten out, but we think the rate of change will continue to be positive through the rest of this year. We are not expecting us to be back to where we were in the Fourth Quarter of 2019 until the end of next year. Theres still a lot of runway from here to there for the rate of change to continue to increase. That is what the markets will focus on. As long as growth is moving forward, the market will continue to look forward. It is really hard to think about this way. That means i dont have to worry about recession. , like it was perhaps in december and january, not knowing how this is going to play out. We know how it is going to play out now. It is happening. You could argue, given these stocks are longduration assets and you have removed the immediate risk of recession surprising us, you can start discounting the future. Tom how do we rotate in such an unusual, and particularly with the fixed income market, odd market . How do we rotate from seven or eight stocks showing profitability to those that are ,t a 12 multiple, a 15 multiple dare i say a 70 multiple a 17 multiple . What would be the catalyst to have those improve on a relative basis . Mike that is the right question. My experience has been that when the relative earnings revision breadth start to favor those cheaper companies, meaning the earnings start going up at a faster rate for those more cyclically geared companies than ,hese wonderful secular growers how could that possibly happen . Because the earnings were so lousy over the last year or two that they can grow mark that they can grow faster. And the expectations have come down more. One of the things i worry about, they work from home beneficiaries that did well in the early part of this recovery, they didnt really lower their expectations. Analysts continued to keep expectations high. Theres not as much surprise facture potentially as the economy continues to recover, and there could be a little bit of payback from the pull forward on the work for home dynamic. One reason i love reading your reports is your view on the shortterm, talking about last weeks selloff, saying it was healthy, overdue, and could be due for even another 5 to 7 decline in addition. I want to talk about the risks to that outlook, one being the potential increase in trade tensions between the u. S. And china, especially as we see Robert Lighthizer heading to congress today. How significantly detentions have to ratchet up for you to reassess your call . Mike this is definitely still a concern that is out there. The market doesnt seem to be too focused on it anymore. I think the market is focused on it, it just has so many things to focus on from daytoday. Theres no doubt that trade relations are still fragile. I would put it that way. We have far from resolved all of the issues that have been debated, and i think a phase two trade deal is off the table. Is that we risk now roll back phase one trade deal. We think phase one is ok for now. Becomes af this situation where either candidate can use to try and bolster their poll numbers, that is where it becomes a bigger risk. I dont think it is an issue right now. To go inther things the right direction, but if they decide to use it as a lever to bolster the polls, that is where it becomes more dangerous. Once you start saber rattling, it is hard to pull back in. So weve got to monitor it closely. The one of your joys is fantastically concise reports of betsy gray sick. Of betsy graseck. What is the view of American Banking given what you see from ms. Graseck . Mike banking has been a tough gig for the last 10 years, post what aal crisis, in period of financial repression has done. I think back end rates should move up and increase the yield curve. That is potentially a positive tailwind. I think secondarily, everyone is talked about deregulation over the last few years. It hasnt really lead to any big boost in activity. One thing i would say is different now is during the post financial crisis period, we had what we call the shadow banks intervening and doing their job as the regulated Banking System had been compressed, not being able to operate as effectively for a lot of different reasons. There is a positive argument to be made that some of that business, there could be share gains coming back towards the regulated banking the stump backing system because the fed needs banks to be operating efficiently. Banks are the ones who create real money in the economy. We could see a steeper yield curve, we could see more deregulation and some share gains. That is why we are constructive on the American Banking system having a rebirth here as we get reflation and have a recovery. Jonathan youve been constructive, and so far, you have been right. Mike, always good to catch up with you. My best to you and the team. Equity futures up 19 points on the s p 500, up 0. 6 . Beijing wrestling with another outbreak. We have to be laser focused on whether this constrains the Economic Data as we try to reopen and whether we really start to test the tolerance of the policymaker, not just in china, but here in the United States, as we also experience small outbreaks in various states. Tom not only that, but let us not forget the koreas. If all of this other stuff wasnt going on, the lead story would be the tension on the west side of the demilitarized zone. I would add that into the mix. Jonathan we will cover that next. We will catch up with Richard Haass. From new york city this morning, good morning. This is bloomberg. Ritika with the first word news, im ritika gupta. Federal reserve chairman Jerome Powell is sticking with his message that there will be an uncertain path for the u. S. Recovery. Powell has a second day of Video Conference testimony before congress today. He told the Senate Banking committee the economy may be entering a period of significant improvement in implant, but warned it will leave the labor market well short of where it was before the pandemic. Brazil has reported a Record Number of daily cases from the coronavirus. There are almost 35,000 new infections, bringing the total to more than 900,000. Brazil is second only to the u. S. In cases and deaths. Meanwhile, the city of beijing has escalated containment measures to deal with the growing outbreak. More than 1200 flights in and out of the city were canceled today. South korea is warning kim jonguns regime against further provocation. North korea said it would send do militarized zone between the two areas. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. There are parts of the economy that will struggle to return to their old ways of activity because they involve getting people together closely in large groups, so if we dont so it will take some time to rebuild confidence. Jonathan jay powell on day one of capitol hill. Day two coming up. Alongside tom keene, im jonathan ferro, together with lisa abramowicz. This is bloomberg surveillance , live on bloomberg tv and bloomberg radio. The shape of this market right now, we add some weight to the threeday rally on the s p 500, up another 17 points. We advanced by around 0. 5 percent, coming off the back of a huge upside surprise on retail sales in america. In the bond market, unchanged on the tenure. 0. 75 on a 30to year yield, up by not even 0. 5 to 1. 5 5 . At the moment, shaking off a lot of tension not just on the pandemic data in places like beijing, but also on Foreign Relations. You have been on top of this last couple of days. China, north korea, south korea, a couple of hotspots starting to bubble up in the last few days. Tom let me say right now, this is my book of summer. Theres no question about it. Booktioned other day the on communities, the third pillar, but Richard Haass has written a jewel called the world, a brief introduction. You in your book on order and to stash you end your book you end your book on order and disorder. Echo whereow are we now . Unfortunately, we are pointing more and more towards disorder. Whether it is u. S. Chinese relations deteriorating or the increase in poverty around the world, the increase in the number of refugees, you could go on and on, but so far, this is a cloud without a silverlining. Jonathan if we can talk about some of the immediate friction of the last couple of days, i think people are trying to figure out what it all means, particularly Market Participants that might be willing to disregard this. What is the significance of what has happened with india and china over the last 24 hours . Richard these are the worlds two most populous countries. Theyve had essentially a demarcated border forever. They fought a war over this 60 years ago. Two armies, cheek by jowl. I dont think either government necessarily wanted it to come to blows, but anytime you have over contested areas, that is a risk. Both areas now are increasingly nationalist. We are seeing this as a trend, whether it is to distract with problems of coronavirus or its economic aftershocks. So this was something that could have happened. Think the real question now is whether the governments step in and calm things down. They wont have any solution, but the question is whether you have some sort of mutual pullback. Jonathan do you sense that deescalation is the path forward at this point . Richard i think it is more likely than not. How it so interesting is was almost primitive with clubs and fists, handtohand combat that we havent seen since times like the korean war. So this was really localized. I would bet that there is a pullback, so you dont see anything like a fullscale war. That would be my bet. Lisa the handtohand combat youre talking about perhaps is why some people are shrugging it not aaying at least it is nuclear threat. But over in korea, you have the of some altercation ther the bombing of diplomatic entity. I wonder if there is some sort of input asian for all of the percolating of geopolitical tensions. For allof implication of the percolating geopolitical tensions. Richard look at the United States. Weve got covid, weve got the protests, weve got the economic problems, and it is quite possible that countries around the world are looking to take advantage of a divided and distracted United States. So north korea might see this as an opportunity to pressure the south to relieve sanctions. North korea wants economic relief. The south korea relationship is bad because the u. S. Has been hammering them. It is possible the north koreans decided to put pressure on the south to see if they couldnt cut a better deal. I know you know, and this is the legacy of the Wright College oberlin [laughter] physics for poets, tom. An oberlinow, as physics giant, that there is a vacuum out there, and the vacuum is President Trump and his foreign policy. What happens after one term trump or two to trump when we try to close that vacuum . Richard i think there is a vacuum. There is a pattern of serial withdrawal, a pattern of isolationism and unilateralism. I would look at the vacuum as being allowed to fester. China is not in a position to fill it. The europeans would like to, but they lack the power. What is likely is things get messier. The United States doing less, we have been in some ways the general contractor of global order for generations now. I think theres also a big difference between a one and two term trump presidency. Two terms, i think american alliances might not survive. If they survive, they might be fairly empty. One term, i think a President Biden might restore things. The problem is he will inherit a country that really wants to face inward to deal with domestic challenges and one of the most daunting, demanding inboxes any president has ever inherited. That, nation means it wont be easy for anyone, no matter what the intentions are, to turn things around. It will be difficult. Jonathan Richard Haass, always good to get your thoughts on this program. The council of Foreign Relations president and author of the New York Times bestseller the world, a brief introduction. The eu proposing m a curbs in a challengetiny to chinese takeovers. Very much a goal of not just the United States, but i go that the eu shares. The way the continent goes about doing that over the next several years is going to be key, and whether the share in the effort is going to be a critical effort of that as well. Thisyou see interdependency of the developed countries and how they react to china. , thatd go back to obe they will be overcome by events. I dont know what those events will be, but you have to be ready. Am uncertain how ready we are. Where is the response even to hong kong . Jonathan much more still to come on this program. Up next, kevin warsh, former Federal Reserve governor, next on the Federal Reserve and Monetary Policy worldwide. With equity futures advancing, good morning. This is bloomberg surveillance , live on bloomberg tv and bloomberg radio. Jonathan from new york city, this bloomberg surveillance. We are live on bloomberg tv and bloomberg radio. Alongside tom keene, im jonathan ferro, together with lisa abramowicz. Two hours away from the opening bell. We add some weight to the rally of the last three days. The s p 500 advancing by 18 points, up around 0. 6 . Really muted price action in the bond market. Treasuries go nowhere. Your yield on the 10 year, 0. 775 . In foreign exchange, mixed session for the u. S. Dollar. A little weaker against the aussie, stronger against the euro. We wait for day to of chairman powell for day two of chairman powell on capitol hill. Tom weve got someone here right now, wonderful to speak to. I want to take you back 14 years to january of 2006, where president bush made a brilliant set of two appointments. One was randall kroszner, a great financial economist. The other guy was out of newman butch cassidyd and the sundance kid. Who is that guy . He was the youngest guy appointed ever at 35 years ol