Stress. Now, a month full of betterthanexpected Economic Data including u. S. Retail sales. The 10year, 4. 95 on the twoyear. 10year, 4. 6488. On the month so far, up by more than 30 basis points on the twoyear, 40 basis points on the 10year. Morgan stanley, for equities. Socgen, expensive valuation sitting comfortably with higher bonds yield. Lisa part is the right reason, part is the wrong reason. Retail sales came in betterthanexpected causing the increase of gdp positive for equities. The other side, it is stemming from increasing Inflation Expectations grading issues of how high the rates have to stay for how long. Jonathan we have heard the same thing from fed official after fed official. Patience and no urgency. Monetary policy is in a good place. Monetary policy is tight. Immediately after, hotter than expected retail sales. Lisa can they get ahead of this . Will he have the freedom to cut rates. It seems the market has moved on from fed speak. It seems the market is looking at the data, increasingly pushing out potential rate cuts. Fewer than two are being priced into the market. We have hot inflation. You have this sense, commodity pressures that will make life difficult for central bankers. Jonathan tons of fed speak this week including chairman powell, earnings from bank of america this hour, seven 30 eastern from Morgan Stanley. A lock to work through a lot to work through. We have the talk about china, data in march a little softer than expected. Many the talk about the response potentially from israel. From the israelis, there will be a response. Annmarie everyone is focused on what the timing of the response will be. What israel will potentially hit. I like to look at actual tangible things in the region, not just what people are saying. We heard from the iaea that their inspectors are no longer allowed to inspect Nuclear Facilities because the iranian Authorities Say they are keeping them shut because its security considerations. Iran thinks that this could be a target that israel could hit. Jonathan janet yellen preparing fresh sanctions for iran bowing the United States wont hesitate to inflict economic punishment in response to the unprecedented attack on israel. Lisa what is the willingness to absorb the consequences of that in terms of Higher Oil Prices . How much do you want to enforce sanctions that will cause oil prices to spike ahead of the election . Jonathan lets go through the price action for you starting with wti, down. 3 to 85. 10. Brent crude, down. 3 to 89. 83. The equity market pulling back on the s p 500 with the negative followthrough from yesterdays session in the United States in the afternoon to the european session through this morning. Midday, equities down in europe on the ftse by one point 5 . Euro stoxx 50 by more than 1 . Yields up by four basis points, call it five. Coming up this hour, we will catch up with blackrock. Chris marinac with Morgan Stanley earnings on deck. Equity selling off with bond yields near record highs. Blackrock saying, we remain overweight equities, the less so than a month ago. We believe a Strong Economy will drive double digit Earnings Growth which should allow for additional gains through year end. Russ joins us for more. Still overweight. Explain to us why the bullish thesis is still intact. Russ good morning, jonathan. Lisa described it will. You have rates which clearly this located the equity market in the shortterm but the backup continues good and bad. The bad is sticky inflation. The good is an economy that is much stronger than anyone expected three to six months ago. If you go back to last summer and you look at the consensus of Bloomberg Economic forecasts, economists were may be expecting the economy to grow. 5 . That obviously reflected a lot of economists that still expected summer session probability. Today those same numbers, growth is expected to be 2 to 2. 5 percent. Later, 2. 5 inflation on top of that, you get to an environment where nominal growth for 24 is probably going to be in the ballpark of 5 . If you get that, youll get better than is discounted now in s p estimates, something thats a very different dynamic from last year. Last year was all about multiple expansion. This year, we think the equity market can go higher, but not likely to go higher in valuations, likely to go higher on better earnings. Lisa what will lead it there because higher valuations has benefited the big tech complex. They took it on the chin yesterday and seemed to be struggling in this multifaceted world. What is the leadership . Russ yesterday tech did struggle, but other days tech has held up remarkably well when you consider the backup in rates. We have to be more specific. Early Growth Tech Companies have struggled along with small caps. Why . They are sensitive to the back of been yields. You think about the mega cap Tech Companies generating extraordinary amounts of cash flow, they are doing well and we expect from this quarter in particular many of those companies to lead on Earnings Growth. Lisa im thinking about a lot of comparisons to march of last year, the biggest selloff in the s p, the biggest spike in the vix over the past two days, how close are we to another moment like that with higher yields based on the fact that small banks havent dealt with the problems . They are still more vulnerable to higher rates for a longer time, especially without some of the deposit stability that a lot of people have been looking for . Russ i agree regional and Smaller Banks are vulnerable. We have been underweight that sector for some time. The other part of that is commercial real estate. That is part of the economy to be concerned about. Not in the sense that were looking at a systematic crisis but that these banks have a lot of fundamental challenges. Again, you compare the Economy Today to a year ago, and a year ago the concern was after Silicon Valley bank and First Republic and credit suisse. We were looking at another systemic banking crisis. I dont think that that is the problem today. If anything we have the opposite problem. Aside from issues and the Smaller Banks, the economy is very robust. We saw that with retail sales. If anything, rather than people adding fed cuts, the case a year ago, they are taking them back. Jonathan there is a reason why some people are still calling the survive until 25. They want rates of the come down by 2025 and they need to survive until then. It is selfexplanatory. I am looking to see where credit is starting to confirm those concerns. How would you frame the move developing and credit . Russ credit has been interesting. Spreads are tight. What we have been doing in the portfolio is maintaining the credit and spread exposure we have. That has been a nice tailwind that has allowed us to carry above the benchmark. You have to go back to the strength in the economy. Its not that there will be pockets of stress. If you have an economy where growth is solid and lets remember, many companies, including those with high yield, refinanced how their distribution of when their maturities come due. We refinanced that in 2021, 2022, so you are looking at an environment where we think that the default rate for most companies will stay low. It is well below the longterm average. If you have that position in your portfolio and you carry above benchmark, we dont have to be in a rush to sell it. Jonathan you said a few times in the last five minutes the strength of the economy. We have to be more specific, the strength of the u. S. Economy. Can we talk about the rest of the world and how that factors into some things you are telling us this morning . Russ i think the u. S. Is leading in this is one reason to remain overweight u. S. Stocks. We have been overweight the dollar versus the euro. This is the differential in growth we see. Europe is clearly struggling a bit more. Japan is doing ok. China, we had positive news this morning. I agree that this is a Global Economy. As we have seen many times in the past 20 years, it is primarily being led by u. S. Strength. A lot of that strength is based in the u. S. Consumer, where you have a strong labor market, decent household Balance Sheets, and a consumer that is willing to spend. Jonathan fulton into the policy conversation. We have fold that into the policy conversation. Russ between the u. S. And other Central Banks . Jonathan look at the euro this morning, one point 06. Dollaryen through 1. 54. How much further the ecb could go without the Federal Reserve joining them in a rate cutting cycle . Russ the ecb will probably have more latitude to cut than the fed. The reason is obviously you have a weaker economy. In the u. S. , we have some persistence in inflation, particularly around services which you are seeing in other parts of the world. One reason the dollar has been so resilient is because you have the policy to vergence. Another policy divergence. Another aspect that is interesting, until 2021 when you think about building a portfolio, what is your hedge against equity risks . For to for two decades it was bonds. What has worked very well on days when equity markets have sold off is generally having a long dollar, overweight dollar position. If you worried about the fed when the market is selling off, you generally see better dollar strength. Lisa gold and the dollar, bonds dont work that way. Is that how you are playing it . Russ i agree. Gold has empirically worked that way. I have to be honest, clearly there have been Central Bank Buying supporting that. When you look at what has happened with the dollar, what has happened with real inflation and Interest Rates, it is hard to explain why gold is doing what its doing. We are in a environment of high geopolitical risks and many investors might lean on gold because they have in the past, that geopolitical safe haven. Jonathan it is great to catch up as always. Still bullish, still overweight this equity market. Speaking of gold, the call from citibank . Crazy. All is goldman too. Lisa people will ride the train that the central bank started. We have heard across the board, is this the new haven . Gold in one pocket, triple leveraged gold fund, triple leveraged dollar funds, kick bo nds to the curve. Jonathan gold a little softer this morning. Elsewhere, lets get your bloomberg brief with dani burger. Dani i was going to start with gold, but instead lets get to geopolitics. Axios reporting the u. S. Treasury is preparing sanctions for iran following the weekend attack on israel. The treasury vowing the u. S. Will not hesitate to inflict economic punishment on iran. The move comes as President Biden urges the israeli Prime Minister to be strategic and show restraint when it comes to possible military action. Xi jinping is pushing back against european and u. S. Pressure to rein in chinas powerhouse industries. The chinese leader told the german chancellor that chinese cleantech exports has helped the world tackle inflation. President xis suggests china may not be swayed by western leaders who want the country to reduce its manufacturing capacity. Shares of tesla falling in the premarket to the companys top executives announcing their leaving the company amid the carmakers largest round of job cuts cutting 10 of its workforce to cut costs as ev demand slows. Sources tell bloomberg the cuts could reach 20 and some divisions. Already tesla shares are down more than 30 . Jonathan a difficult moment for that industry. For sure. Next, israel is vowing to respond. Israel proved it has superior military capability and critically they do not stand alone. The United States stands with them. No question that iran recognizes the coalition that was put together to help israel defend itself. Jonathan that conversation is next. Live from new york city this morning, good morning. Harlem has everything. But i couldnt find pilates anywhere. So i started my own studio. And with the right help, i can make this place i love even better. Earn up to 5 cash back on business essentials with the chase ink business cash card from chase for business. Jonathan live from new york, welcome to the program. The biggest today loss going back to march of last year on the s p 500, a weak session. Crude is behaving itself, for now. Wti 85 dollars and about . 10. Israel is vowing to respond. Israel has proved to has superior military capability and justice critically that the United States stands with them. No question iran recognizes the coalition that was put together to help israel defend itself. Again, i cannot speak to what either side will do going forward. Iran is increasingly isolated on the world stage, increasingly making it harder for anyone in the International Community to be sympathetic to any of their interests. Jonathan the Israel Military chief saying irans unprecedented attack will be met with a response. On capitol Hill Mike Johnson is planning to hold longdelayed votes on aid to israel, ukraine, and taiwan. Lets get to the options on the table. What do you think they are . I think israel has a number of options. They will try to do something proportionate to say we know that iran did a huge barrage of missiles on israeli airspace so we want to do something to counteract that. Maybe they target a drone facility in iran to try to take out the actual munitions that were the culprit of this attack over the weekend, that way they are not causing any casualties. They could do something covert. They could do a cyber attack. They could wait to bring down the temperature and act again at some point in the future. They have several options. I think theres pressure from the west to turn down any escalation in the region and say that they shouldnt retaliate. But it seems like israel is going to do something, it is just whether or not it is escalatory or not. Annmarie we learned in is typically close temporarily closing its Nuclear Facility citing security concerns. Is nuclear an option for israel . Jeannette in the past they have targeted irans Nuclear Facilities and development. That is probably something they are concerned about and thinking about if that could be an option, especially as youve had increased uranium enrichment and iran. I dont know if that might be on the table, but it is something theyve done in the past. It might be more of a cyberattack than a bomb since most of these facilities are underground, but that is something on the table. Annmarie are we at the start of a vicious cycle . When israel responds is it warranted that iran would respond . Is that what you would expect . Jeannette that is where this delicate balance comes into play. If you look at the u. S. When we kill general soleimani in iran during the trump administration, iran targeted u. S. Bases but there were no casualties, and that allowed the escalation to occur deescalation to occur. If they try to target Something Like a missile depot, something that is not a strong strike, just a little more targeted, that allows things to calm down and not require iran to retaliate again. There does have to be at balance to figure out how they can show strength but at the same time not escalate things further. I think that iran doesnt want to have a major conflict. They dont want to get the u. S. Involved. There is that piece of it, which is why the u. S. And western allies are trying to get israel to lower the temperature and maybe not retaliate. Ritika this raises the question lisa this raises the question if eight is passed in the near term. Perhaps two separate bills for israel and ukraine financing. What you think the probability is that we will get something or see action on this front in the next couple of weeks . Jeannette we are quite optimistic that we will get something done. Speaker johnson has been much more supportive of getting a to ukraine since has moved into the leadership position. This has been something he has talked about getting done since they came back from the march recess. He is putting something on the table. This is a tricky package he is trying to put together, because he is trying to create separate packages for ukraine, israel, and taiwan, but also putting other pieces in as well. Things like the repo act so they can seize russian assets and use that to pay for ukrainian reconstruction. The tiktok bill back into the package so the senate would be forced to vote on whether that app should be divested from bytedance. They will package it and send it to the senate to try to force its hand towards the end of the week. We are optimistic they can get it done, it just might be a messy process and there might be changes to what the legislation was that came out of the senate. Lisa the administration is looking to act unilaterally as they can. Treasury secretary janet yellen is saying that she hesitate to renew iran sanctions. How willing is the United States to enact some sort of policy that would cause oil prices to significantly increase ahead of the election . Jeannette that is a risk for the president as he goes into the reelection and into summer driving season. We are seeing gas prices go higher and they are expected to go higher during the summer. They are not looking to have an increase in gas prices over the next couple of months as that will hit american pocketbooks, and that is never good for the president s Approval Rating into the election. I think that they need to be careful. Sanctions have had a modest impact. So, you have china buying iranian oil, which isnt helping to actually make them enforced. The president does have other tools. He may lead oil out of the spr this year to help with oil prices, but i think that they will b