Will we have a recession this year? | Bloomberg Surveillance 07/10/2023

how high is the Fed gonna have to go

because the fence not going to quit

until Labor Market quits the data

clearly suggests that the FED needs to

continue to tighten it depending on what

we see from the inflation data we could

see another rate increase there's still

a long way to go in terms of bringing

inflation back down to the fed's Target

things are moving in the right direction

but gosh we really want to go faster

this is Bloomberg surveillance with Tom

Keane Jonathan Farrow and Lisa

abramowitz

Here We Go Again live from New York City

this morning good morning good morning

for our audience worldwide this is

Bloomberg surveillance on TV and radio

alongside Tom Keane and Lisa bramitz I'm

Jonathan Farrow your Equity Market

Equity future is just a little bit

softer going into CPI later this week in

earnings season TK earnings season

kicking off on Friday JP Morgan City

Wells Fargo just around the corner and

as we said here in John particularly

when you're away Lisa and I really

focused on this and Lisa really decided

she was going to dive into it this time

is different I think that after CP TI

Wednesday to start earnings Friday is a

huge mystery and will be a little bit

smarter what two and a half three weeks

the CPR on Wednesday catching on CPI

Wednesday just ahead of API first date

brought to you by Bloomberg surveillance

welcome back all the dates are coming up

after payrolls and payrolls for most

people disappointing relative not to the

estimate but relative to the ADP report

leaving the door open for another hike

at the FED later this month what

happened I go on vacation ADP matters

tremendously all of a sudden that's the

most important number that's going to

shake up markets and then people look at

the actual data from the US government

and say who's wrong we're not sure and

The Angst arises my question is how much

are people bringing forward some of the

rate hikes and will they get confirmed

by the CPI print making it impossible

for the FED not to hike at this month's

meeting and potentially even in July

yeah I think all the data over the

weekend I thought it was a really rich

weekend for people thinking about this

Mike Wilson reaffirm some earnings

challenges as well but the one statistic

that that stuck out to me and I'm going

to give the economist credit for this

I'm not sure where is prime age America

Prime time America I'm not prime age

America John you're not Lisa's prime age

America prime age employment I got

someone in trouble once TK I don't think

you want to go 22 years 22 years I say

Lisa we are fully employed around all

these challenges at 80 plus prime age

employment I will say I was on vacation

last week and the amount of spending is

dramatic the amount of inflation is

dramatic the amount of people who are

saying help wanted in every single

storefront is still the same as it was a

year ago even at a time we're talking

about a slowing economy So to that point

how does the FED deal with not

necessarily the year-over-year comps but

the last Mile and that I think is what a

lot of people are going to be talking

about with a stickiness underlying some

of the inflation we've seen precisely

what Sarah House of Wells Fargo said on

this program many months ago just for

the record we are all in our Prime we

agree on that 100 okay for everybody

let's just move on like Transformers

Futures on the s p

three day losing streak on the S P 500

and on the NASDAQ as well let's see if

that goes into day four in the bond

market yields just a little bit higher

let's call it unchanged on a 10-year

north of four percent early today

inflation data out of China seemingly

the takeaway from that Lisa just opened

the door leaving the door open to

stimulus out of China if they want to

deflation outright deflation now are

concern which is just kind of shocking

given the fact that everyone else is

worried about combating inflation what

we're looking at today President Biden

is beating right now with UK prime

minister Rishi sunak this is ahead of of

course going to the NATO meeting that

starts tomorrow in Lithuania very

curious to hear what kind of consensus

they can get on allowing Ukraine into

NATO at a time Juanito doesn't want to

be in an active war with Russia I mean

that's sort of one of the key questions

here as they debate this today fedspeed

Galore fed Vice chair Michael Barr at 10

A.M San Francisco's Mary Daly at 10 30

a.m Cleveland fed president Loretta

Mester at 11AM Atlanta fed president

Rafael boss sick at noon are they going

to say anything it's going to be useful

let's stop here this is important what's

the so what here John what are we gonna

what are we gonna know at 4 P.M this

afternoon remains closing the markets

what are we going to know from these

four we didn't know before what will be

nice so far is this um division on the

fomc captured by the most recent minutes

and we're going to find out who's who

who wanted to make a move in June but

didn't because they want to wait until

July and I would say take July out of

the debate Bremer this is about

September and Beyond this is about how

do you reset things at the end of August

in Jackson Hole and push on from

September especially at a time when

there is a key question of why the

resilience in equities in credit at a

time when yields are going higher does

that mean that the implied neutral rate

is significantly higher than previously

expected at 3 P.M the last thing I'll

leave you with fed is releasing some

Consumer Credit Data for the month of

May the previous read show the biggest

uptick in borrowing in five months how

much of the Boom in consumer spending is

what I did on my vacation which is

charge it to your credit card and leave

it there you've seen the credit card

outstandings absolutely Skyrocket over

the past few years and then I know you

got to keep going here but in the new

regime of interest rates do we breach a

30 percent per year on credit cards is

can they do that I don't know I'm just

asking but go rates you're going to pay

that statement off Bremo I'm I'm going

to pay that statement off at some point

no I will pay that statement off I don't

like having points I did the same thing

just to collect the Box yeah come on

this is the biggest

biggest I hear this at the home John I'm

doing this for the points

I have to pick up a beverage of my

choice with somebody does this you don't

do that on vacation you do it for the

points

Echo here a lot of canvas scene enjoyed

this now at a U.S Equity strategy at RBC

Capital markets Larry wonderful to start

the week with you we're just reading a

note from Barclays and they said this we

don't see the tech Centric rally

broadening to the rest of the S P 500

we've got Bank earnings on Friday do you

see that rally broadening out

well thanks for having me as always and

look I think this Market wants to

broaden out we've seen the small cap

part of the market make several attempts

to fight back uh we have looked at

financials earnings revisions as well in

particular and we're seeing that they're

generally negative territory but they've

been getting a little bit less negative

same thing on energy when we look across

the s p most sectors are in recovery

mode in terms of earning sentiment which

means they're rate of upward revisions

has either flipped from negative to

positive or they are starting to get

less negative so I think this is a

market that has really done well in the

backs of the tech sector kind of the

broader timt space so far this year for

good reasons but I do think that

especially from the earnings perspective

there are some healthy undercurrents

going on in other parts of the market as

well Lori I'm looking over the weekend I

thought there's a lot of really good

Equity Zeitgeist as we get ready for the

roulette wheels starting Friday with JP

Morgan and the answer I see is a massive

strategy strategist bet that's pretty

darn negative is that what you observe

out there there's a pretty gloomy

strategist tone forward I I think so and

you know we've talked about this before

my target is 42.50 on the S P I pointed

to potential upside to 4400 4 600. three

of our models are three of our models

are bullish the 4250 is splitting the

difference but even in that context time

and I tell people you know I personally

feel

pretty neutral I don't feel like the

Market's been crazy I do see the

potential for some upside but this is a

December 31st game so any incremental

upside you might get some profit taking

all of that Tom people keep telling me

I'm one of the big bulls out there on

the street and I just kind of laugh

um but I think the reality is that

there's been this view that the earnings

expectations are too high need to calm

down Como markets I don't you know we

could walk through that later but I

think that's you know interprets how

stock prices discount stuff like that in

advance and did it last year but I also

think that this is a you know unique

moment in history and so if we do have a

recession I think we were all talking

about it last year is technical in

nature I do think the market has the

ability to focus on the bigger picture

and might not be as damaged by that as

some assume give us two attributes when

you screen for quality in mid-cap small

cap I get it I can screen for quality in

the world of Apple but how do you screen

for quality in mid caps

I think it gets tougher when you get

down into the small mid cap space one

thing we talked to a lot of clients

about is Healthcare and Technology

that's where a lot of your loss makers

are sitting in the Russell 2000s so if

you were to screen in small cap say on

positive negative earners on things like

Roe especially on that positive negative

earners you're going to come away with

the idea that technology is a low

quality sector that Healthcare is a low

quality sector sometimes you know we say

that investors are like okay fine that's

just what the data is we we like these

factors over time let's just let that

work in the filter but right now there's

some more Nuance discussion happening in

the small cap space which is that if

we're going to have sort of a subpar

economic recovery next year the DDP

stats and even for 2025 are both

comfortably below two percent which is

the long-term Trend in a subpar economic

backdrop you want to buy growth stocks

so people are having to look at things

like Tech and biotech and Healthcare and

say okay our losses are is that

necessarily low quality not you know not

necessarily you really have to do it

more from an art than science

perspective take into account the data

but I'll taken to the long-term

long-term gross Dynamics out of

management team is something else you

have to look at in small cap as well

Lori how much do you push back against

people who say that stocks are just

ignoring this feeling in bonds that

perhaps were underpricing the risk if it

has to go a lot further that the real

neutral rate is significantly higher and

as you can see the real yield go higher

you're not seeing that commensurate

sell-off even in small caps how do you

rebut that

so it's it's interesting Lisa and sort

of my late June early July conversations

with us-based investors they keep asking

me about balance sheets and I think

that's really where the interest rate

discussion intersects with the ability

of companies to manage through this

higher rate environment and we talk to

people about how I think only two

percent of s p companies have an effect

or or have an average weighted maturity

of under two years and the Russell 2000

even it's less than 10 percent so and we

have a lot of other methods we take

people through right so long-term debt

has risen short-term debt has come down

what does fixed versus variable look

like and what we come away with is the

idea that a higher interest rate isn't

as damaging to companies and their

balance sheets and their ability to

manage their cash flows now as it was in

the past and I think that investors and

portfolio managers who are really deep

in the weed are trying to wrap their

head around that issue this seems to me

this higher interest rate environment

like another one of these like five or

six things since 2018 that's you know a

hurdle it's a challenge but it's

something that companies seem like

they're able to manage through so far

and that's giving at least some of the

investors I speak with some comfort does

that mean Lori that right now fed policy

is not as restrictive as people think

and that in order to bring inflation

lower to truly their goal they have to

go significantly higher because those

higher rates aren't as damaging to some

of these companies

I think that higher for longer is still

what I hear I'll tell you pre-svb I have

a valuation model where we plug in

interest rates GDP 10-year yields that

sort of stuff um inflation rates as well

pre-svb everyone wanted me to run that

model at six and seven percent and see

what kind of PE estimate was spit out I

don't get those requests anymore we've

got I think five three five fake in the

model right now and people are pretty

content to sort of use that as a general

kind of you know rough bogey for the end

of this year and we've got some Cuts

baked in for the end of next year people

seem pretty sanguine about that I think

in general investors want the inflation

fight to be won and if you go back to

the debt ceiling Lisa I know we haven't

talked about this in quite a bit but I

think one of the reasons why the market

didn't collapse around that is I do

think the equity Market was on

McCarthy's side and wanted spending to

be reigned in so ultimately inflation

could be brought back down to more

reasonable kind of levels I think that

calculus at least on the equity side of

the business I can't really speak so

much for fixed income investors but I

think a lot of the equity PMS I talk to

they want that inflation site to be won

so they're willing to tolerate you know

another hike or two and hire for longer

although it's just a 30 second tease if

you can if you can I've got an article

set to one side for reading later this

evening it's in Barrens over the weekend

I saw the headlines your name and it

said something like it's kind of like

the 1940s what's the takeaway

so in 1945 we had a recession that the

stock market completely ignored it was a

technical recession that occurred

because of a transition from a wartime

economy to a peacetime economy

underlying economy was still okay but

you had a massive withdrawal of

government support back then in terms of

fiscal very very analogous to what we're

going through today and a lot of the

rhetoric we've heard about recession

over the past year I think that's one of

the reasons why Equity markets have been

so resilient this underlying economy is

still in pretty good shape and people

really understand what's happening here

looking forward to reading the article a

little bit later Laurie thanks for being

with us to kick off the trading week

Laura cavacino there of RBC on the week

ahead tons of data we talked about

Wednesday CPI Thursday PPI Friday

earning season so it's earnings season

but Lisa mentioned the deflation in

Japan it's one of the lead stories from

Bloomberg news this morning reporting on

the disinflation and deflation and John

you nailed it with your cover to cover

read this week in a Barrens the basic

idea here of 47 out of 5152 and the

collective memory and study of extra

efforts like calvisina is the Truman

Eisenhower deflation outright deflation

in the early 50s and that was

percolating into Zeitgeist over the

weekend I could have sworn a week ago

that if you got soft ditra out of China

late into a conversation about stimulus

Brahma that was good news wasn't it well

that's the funny thing about this people

are viewing this as potential slowing

and growth that's even further in China

not necessarily looking at the potential

stimulus that they haven't Unleashed but

they clearly have an opening to at this

point so is next week going to be return

of China It's the Return of the band I

think the band's back together for the

first time in about a month

no we're doing this all week we're doing

this all week oh wait very cool TK you

committed to that I'm committed okay no

it's not convincing features on the S P

to kick off your trading week negative

0.2 percent from New York City this

morning good morning

thank you

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is the risk of recession completely off

the table from your point of view I mean

where do you put the odds

it's not completely off the table but we

would expect with the job market as

strong as it is now to see a slower pace

of ongoing job gains Janet Yellen on

tour over the last week U.S treasury

secretary speaking on CBS on the risks

of a recession following a slight bit of

controversy over the last couple of days

Bowing in in China well I was confused

you're talking about diversity or

something whether it's Diversified

there's a new word so they've been

trying to draw a distinction between not

de-risking term not decoupling it's now

Diversified right Brahma what's the

difference between decoupling sounds

really dramatic de-risking and

diversifying I mean I took a look at her

own words over the weekend de-risking

involves attention to clearly

articulated and narrowly targeted

National Security concerns as well as

broader concern with diversifying our

supply chains basically anything we

wanted to mean and then I think is this

key distinction at a time when the U.S

is going to possibly ban X Sports of

chips and China is going to possibly ban

the exports of the raw materials needed

to make said chips that's where we are

I'm going to go back to Michael

Rosenberg the Giant and foreign exchange

his textbook is treasured worth a

fortune on Amazon and also the work of

the academic Catherine Mann now holding

court at the bank of England and

Rosenberg and particularly Professor

Mann codified the the psyche of this the

co-dependency of this maybe yellen's

over there in therapy or giving therapy

I'm not sure but the answer here I mean

everyone's vulnerable right now baloney

it's a codependency of Beijing and

Washington must be so thankful premo's

back your headline Monday morning is

secretary Yellen went for therapy in

China I don't

but but Catherine nailed this 15 years

ago we are wildly codependent with China

for different reasons why does that

change her I just don't think can I get

your take on international relations

this morning I guess the president's

turn to go on tour he lands in London he

meets with the Prime Minister Richard

sunac the ukrainians want some new

weapons President Biden's willing to

provide them other people in Europe

don't want it to happen you've got this

other issue Tom that Sweden wants to

join NATO turkey's not keen the

president's got some work to do over the

next couple of days it's a stew in the

backdrop here we'll get to this with

Maria today I'm told at some point and

the backdrop here is a new conservatism

that we see across Europe and maybe it

redowns and accentuates in America as

well we could talk about root of

Netherlands out as well but the big big

problem

um I see with Europe is and this is true

of every president they end up loving to

go abroad going abroad is so much easier

and sitting at 1600 Pennsylvania Avenue

worried about the senator from Kentucky

it usually is this time though might be

different last year at this time there

was real consensus among NATO members

about helping Ukraine it was a real kind

of come together Kumbaya moment now is

not now is a time of Divergence where

you've got the U.S and Germany coming

out against supporting outright

Ukraine's membership in NATO and other

people saying well hold on a second

you're not giving them really the

backing full backing that they really

need but the issue is how do we do that

without declaring war on on Russia and

really engaging in World War Three

really complex stuff looking forward to

the coverage from Maria today out of

Europe this week alongside Bloomberg's

ambery Hawarden as well stand on top of

the price section two for you with

equities a bit softer over the last

three days coming into Monday we're down

again by 0.2 percent it's a big week

ahead for earnings for the economic data

as well and if you go through the latest

from Barclays it's the takeaway at the

moment they've raised their price Target

to 41.50 it was as low as 37.25 that's

about as far as the Bears will go right

now as far as capitulation goes and they

say this we think equities would remain

range banned through year end we do not

see the tech Centric rally broadening to

the rest of the S P 500 that's going to

be the debate going into Friday morning

brammo when we get those Bank earnings

here's the tension right now if the FED

is truly restrictive is it that this

economy could just slowly and softly

land or is it that the FED isn't quite

restrictive enough and I think that

really is the key question behind the

resilience that we keep seeing and

people saying okay perhaps we have to

capitulate perhaps we have to get into

the fomo trade which seems to be what

everyone's doing but then does the music

ever stop or does it just keep going

like this until we're just this new

neutral that's just fabulous I would

look at the revenue line as being the

key to determine here and with sticky

inflation you may get a little more

persistent nominal GDP more persistent

Revenue remember the Gloom 90 days ago

OMG we're all gonna die 180 days ago you

were all gonna die the bank crisis and

all that and I I'm sorry I'm broken

record corporations will adapt and

they're going to do it right now into

the end of the year Primal use that word

fomo this is from Miss love mataker over

JP Morgan today fomo is in full swing

there is complacency being built into

stocks with the vix at the lows of its

range Miss life goes on to say if the

activity momentum does weaken in the

second half relative to the current

projections of no and or soft Landing

Lisa's stocks are unlikely to shrug it

off and members from his analytics team

point out that you've seen a complete

piling in in capitulation with asset

managers and hedge funds and individual

investors piling into a more overweight

position in some of the tech names Etc

going back months and months so this

nearly 18 months they had so here we

have a situation where people are piling

in creating maybe a dynamic where there

needs to be some sort of I can't catch

both ways to me the most important chart

of the week and I think bar chart out on

Twitter had this it's all not on threads

on Twitter that's a whole other topic

it's that handle it's like a handle yeah

it's very valuable These Guys these are

smart smart value-add the strategist

Wicked Laurie calvicina are wicked

negative they're they're like Wicked

that's not true she actually came on and

she said that she was that item carry-on

no but but I like your points and I'm

I'm gonna search it right now to be sure

I have that right

bar chart

on Twitter

look at bar chat

just want to make sure Tom and what's on

bar chart on Twitter smart charts and

particularly showing that strategists

like Lisa mentions are negative where

the negative crew they're not adjusting

to Bulls your Point's taking 3 800 up to

4100 is all we can get but the low for

some of the Bears is getting less low

because they're looking around and

they're saying hey maybe Tom Keen is

right and companies adapt and adjust we

should just keep repeating that in our

heads and then we'll be just fine and

that seems to be where we are with these

upgrades that we get from here and again

I'm going to go off the October lows I

just did it with a total return we'll do

bonds later but the bottom line here is

October was the low we had a surprise

OMG bull market fine now what that's

where we are so now what earnings we had

a guest lined up and they've gone so

hopefully they'll come back soon and we

apologize that we never got to see it

that was kind of here on a bit of

attention let's go and attention about

the Federal Reserve Andrew holness a

city thinks we go again in July in a few

weeks time we go again in September

Morgan Stanley Zen and Zen was on the

program on Friday ahead of payrolls she

agrees we're going to go in July does

not agree about September the incoming

data will not make the bar for the FED

to deliver a hike in September the labor

market remains strong there is continued

evidence of slowing that we expect to

persist over the next two jobs reports

ahead of the September fomc meeting July

debate is done with like I think

everyone's moving on unless you get

something dramatic later this week from

CPI PPI and or a big surprise from

elsewhere it comes down to what happens

after August into September Tom and

you've got September 20 not like

September 5 after Jackson Hole 10 days

no it's a good amount of data after

Jackson Hall and again it goes to the

idfc of CPI Wednesday and you know we'll

have that data but I I do agree strongly

that we've we moved Beyond July 20th you

want to finish on a bit of sport

Silverstone last weekend to enjoy this

enjoyed it immensely high speed Corners

beautiful track where is it is it like

where you grew up is it near north of

London Santa where I grew up somewhere

in between yeah I I just thought it was

great there's a lot of it I still don't

understand

um this first happened to me

I mean I just they just don't give them

enough love they're so worried about the

netflixy stuff and the battles for Ninth

Place can I just say sports for dummy

they're talking about Formula One and

I'm very excited when I came in you guys

started talking about this and I was

like I know what they're talking about

they're talking about car racing so what

did you observe everyone's into it I

know it actually is true everybody is

they're talking about it but do you

think that it's actually going to have

the same flavor in the US and Miami yeah

you know what I think about the cracks

you know what I think of anything

Silverstone one of those Legends of the

F1 Canada it's so so cool it's made for

car racing and I look at what's

happening in America with some of these

tracks and should let should Lando have

pitted should he have gone to mediums oh

look at you getting technical there we

go she's so proud of himself

[Music]

[Music]

did the work in the break so you don't

have to bar chart is real and on Twitter

follows me so I'm following back great

charts Tom thanks for that chat you know

we've been working today this morning

we're celebrating grandma back and I

just got to say folks if you want to

send in your emails or tweets or

whatever on we're doing it for the

points

that's the biggest thing we've learned

this morning here on economics finance

and investment if I get 5 000 more

points I'll pick up the Platinum yeah I

had kids for the points some controversy

I'm just kidding I don't wake up 6 30 do

they yeah no because that's the good

news Okay equities shaping up as follows

on the S P 500 software by 0.2 percent

three-day losing streak on by the S P

500 and on the NASDAQ the longest losing

streak of the month so far if you switch

to the board and get to the bond market

two-year ten years thirty year two year

yields higher for five consecutive weeks

not by much last week though I think you

have to look at the 10-year for the

major move up find more than 20 basis

points last week on the 10 years so we

had that deep deep inversion a bit of

sleeping actually but a statement three

last week some haven't talked about this

this is really really serious and I was

sitting there suddenly going what am I

going to do as first thing look at the

terminal Monday morning and this is

brahmo's world the Bloomberg Total

return index the Lehman Barclays series

at Bloomberg picked up really really

informative John just about what you're

talking about the worst was negative 18

down in price a glorious major Bond bear

Market well we've recovered but no we

haven't we've rolled over in the last

couple weeks as you say higher yield and

the answer is now it's negative 13 from

the peak in Bots have we brought us

through to new Gloom no but we're there

bit of a potential paint trade emerging

there given that people were starting to

lean into duration taking on the 10-year

believing deal to a drop the back of

this recession debate but the date has

been pretty decent relative to

expectations even if you have a look at

a payrolls report on Friday I mean let's

face it if you take out the ADP report

that was still pretty solid pretty solid

to see payrolls where they were and

unemployment as low as it was let's

finish on Foreign Exchange the Euro

looks a little something like this no

drama pretty much unchanged just at the

110 109 59 on the Euro against the

dollar plenty of data this week plenty

of fed speak to a of fed speak on

the way today from bar Master Bostick

daily had a CPI on Wednesday JP Morgan's

Bruce kasman writes in the following we

should see global core Goods inflation

fall sharply in the second half as the

disinflationary impulses propagate more

broadly the decline in global core

inflation through the third quarter

should not be extrapolated as robust

labor markets strong wage inflation and

elevated near-term inflation

expectations hold core inflation above

Central Bank Comfort zones Tom well into

next year a smart Insight here on the

Dynamics of price change and the review

here there is inflation there is

disinflation which is a lesser inflation

there is outright price decline the

great fear of say middle 20th century

England deflation and there's Cosmic

thing which is only understood at

Columbia at University reflation Bruce

kasman first in his class on reflation

at Columbia a few years ago joins us

right now Bruce there's a question out

of the time of Greenspan but here we are

people will go OMG China deflation can

we import deflation

can we import deflation from China or on

a global slowdown basis

I think we can definitely import

deflation in Goods pricing and I think

there is definitely a force at work

which is related to China downshifting

uh the Yuan going down

um and it and perhaps more powerfully

simply the unwind of uh Goods price

pressures in a world in which

manufacturing has been contracting so I

think Goods pricing not is not going to

deflate but there's a deflationary

impulse I think the problem is that

other things are going to be blunting

that downward movement and keeping core

inflation on an underlying basis

probably around three percent perhaps a

little higher in the US and globally as

well are we beyond the pandemic

um I think we are hopefully by on the

pandemic from the point of view of of

its impact on Behavior but there is

reverberations from this which are

powerful and profound I think what

you're seeing in the U.S for example

right now is in the employment report a

moderation in some of the post-pandemic

recovery sectors Leisure and Hospitality

perhaps being the most notable but I

don't think that transition and that

decline in growth of jobs is a sign of

shifting from strength to weakness I

think it's a sign of shifting from

strength to more normalization I think

it'd be a mistake to use the normal

business cycle Dynamics and try to

attribute that to the uh the move

towards an early start of a U.S

recession one consistent aspect of both

the ADP and the jobs report was the

strengths in the wage figure that was

far beyond what the FED would like to

see and this comes in the heels of

people worried not about the

year-over-year comp so to do see coming

down because of rents and because of

used cars and things of that nature but

because there is this wage pressure on

underlying some of this strength and

some of this ongoing inflation how much

are you factoring that into how high

real rates neutral rates truly are

so I would be a little bit hesitant to

put a lot of weight on the the swings at

average hourly earnings which went down

sharply earlier this year and have

bounced back up but I do think wage

inflation in the US is running above

four percent on an annualized basis uh

that's too high to be consistent with

getting inflation down into the mid twos

I would not argue that wage inflation is

the primary driver of U.S inflation

though I think there's an issue here of

tight labor markets there's an issue

here of psychology having shifted uh and

I think the interaction of those things

in the absence of a slide into recession

or something like that it's just going

to blunt some of these unwinds that are

happening here and we shouldn't ignore

that as well we were running inflation

at the core of five percent this year I

think we're going to slide below four

but I don't think we're going to slide

on a sustained basis below three how

long is it going to take to get there

I think it's going to take a recession

to get there I think you have to blunt

hit hit pricing power pretty hard I

think it's a mistake to think that the

primary thing you need to do is create

unemployment what you need to do is hit

pricing power unfortunately when you do

that uh you change labor market Behavior

and the unemployment rate will go up

alongside it are rates restrictive

enough right now where they are to

induce some sort of recession

I don't know might be I I don't think

the fed's going to wait around though

and I think in our forecast of the FED

boiling the Frog they don't wait uh they

continue leaning against this they

tighten again in July and possibly more

later this year and by the time they're

done rates will be high enough uh with

the lag to create a recession probably

sometime in 24. it's just your study Dr

K act to higher interest rates do they

actually you know if we breach through

and we start talking a six percent level

for early ages whatever it is if we get

a higher interest rate structure does a

central bank respond

um well I think when you look at the

move up in tenure yields we've been

seeing in the last uh month or eight

weeks I think some of that is a

tightening in financial conditions as we

reprise the FED but some of it is also

taking out recession risk and you can

see more broadly Financial conditions

moving up and I think in that

environment it's very hard for the FED

to look at that and say okay this is

lags in the monetary transmission

mechanism and we can be patient against

that backdrop so I think the FED is as

you can see struggling to figure out

where is the right degree of

restrictiveness in this economy uh it's

probably going to be moving too much uh

at least in the context of trying to

preserve an expansion because of the

inflation news and that's eventually

going to take us down I think it's just

really hard right now to get the timing

and to be too cute about the time the

level of race that's going to end this

cycle I think that's dead on and I

thought about this over the weekend

Bruce are we asking too much of our

central banks by definitely Mission they

don't get the timing right I think this

is this this absurdity that they're

going to nail plus or minus 14 days a

turn in the macro climate is absurd

well I think we're in a really difficult

macro environment in terms of getting

right the inflation Dynamics the

appropriate level of what rates are but

I think the fundamentals here are

relatively straightforward this economy

is resilient it has elevated inflation

and I think the chances of delivering a

soft Landing here are pretty small uh so

there's every reason for the FED to try

to calibrate and try to deliver that

kind of outcome But ultimately I don't

think it's going to be successful and

ultimately I do think we're going to

need a recession it's a question of

getting the timing right getting the

rate path right which I think everybody

should realize is hard people are

forecasting recession starting this

quarter people have been very confident

about forecasting recession forecasting

a break in the economy like that is just

not that easy to do there's also a

question I understand that there's also

a question Bruce about what the trigger

could be of some sort of recession and I

was thinking a lot about geopolitics

over the weekend with Yellen in China

how how closely are you watching the

price of rare metals of some of these

sort of tit-for-tat focused areas of

chips and the the instruments the

commodity is required to supply said

chips

I think it's very unlikely that that

Dynamic specifically will be the

Catalyst for recession but I think your

point is really important which is

recessions are about the FED recessions

are about the vulnerabilities of the U.S

private sector and recessions are about

shocks oftentimes those shocks are in

the commodity space and energy

specifically and I think it's quite

reasonable to say that the next

recession will not only be about the FED

hiking rates but it'll be about some

Shock that hits us again shocks are not

easy to to anticipate both in terms of

when they hit and exactly where they hit

how do you measure the vulnerability

then of a financial system to a

potential shock because that really is

the key to How deep the recession may be

so I think vulnerability is Broad it's

it's vulnerability in the financial

sector and as we well know we've got

banking sector stress and credit

tightening that's going on we're not

seeing that spill over to the broader

Financial space and I think that's

important but vulnerability is also

about where the private sector is and

this is one of the reverberations of the

pandemic is how healthy the U.S and

Global private sector is both on the

household and business sector side that

doesn't mean they're going to be a

strong engine for growth but what I

think they're going to be are buffers

against the potential for a break at

least for the near term Bruce love

catching up with you sir good to hear

from you as always Bruce kassman there

of JP Morgan just a little distracted

here by Max Kellerman HSBC bullish and

right in the first time let's put it

that way this is what he got to say on

the second half contrary to expectations

the first half proved to be a good half

for risk assets and we see little reason

to change risk on stance it goes on to

say for the second half we see risks

around macro data running too hot far

from recessionary expectations brahmo

that's Max pushing back once again he's

been correct he's coming back the idea

of a positivity uh from what we've seen

in the past from HSBC which has usually

been quite negative highlights how much

people are really changing their tune we

see risks around macrodata running too

hot from recession far from recessionary

expectations again does this mean the

FED has to counter it does this mean

it's okay does this mean just Bulls can

keep on running Max Kettner hsbct okay

Stan bullish it seems yeah well I I

think there's a lot of different

opinions out there Mike again as I said

I believe in the resiliency of of what's

going on and you know we're going to get

it Friday with JP Morgan we're going to

launch into the week following maybe 10

days out from there we'll have a lot

better handle on you know you know the

the Gloom that's out there I I go to the

the bar chart from bar chart that says

there's a lot of Gloom out there the

strategists are really cautious You Love

This Bar chart don't you no I just like

the chart it says it says what Calvin

Cena Wilson all the other costs and all

the other Gina Martin Adams sure what

they're all saying and they're all

really who you know there's a the Bulls

are a lonely group right now

getting lonelier based on a price action

I think Bruce did a great job by the way

in the last 10 minutes re-pitting his

hand on the tension on the fomc at the

moment the point of division amongst

participants do you believe in the long

and variable lags the amount of timing

of the pipeline of the last 12 months

and change at least what do you think

we've got to do more and that's the

debate they're going to be having right

Beyond July and through the rest of this

summer and what we're seeing right now

in terms of expectations in the market

is a peak fed funds rate of 5.4 percent

and staying there for a couple of months

and that coming around November so again

people are saying yes they've got to do

more but do we misunderstand the

vulnerability of this economy to race or

perhaps just the sort of immunity of it

I mean no no I'm saying the resilience

of it I think we have to get away from

this binary recessionary debate if you

look at manufacturing right now there is

a recession you look at Services there

isn't one if you look at good prices

they're rolling go for look at Services

prices you've just been away stick here

from a bus that's ridiculous and look it

depends where you look and I've had a

lot of people writing to me particularly

over the weekend talking about these

rolling recessions popping up Here There

and Everywhere and if you just have this

singular approach which is recession yes

or no and that should obey and you take

it from there I think you're missing a

lot that's going on this economy at the

moment I agree what I really notice is

growfeld couldn't tiebrem or shoelaces

grow felt tried to do the Gloom crew oh

did she ever go she's gonna go out and

she tried she didn't get to the edge of

toxic group and did you get a brim you

give Katie that feedback oh yeah I gave

her that feedback you gotta be more

gloomy it works is that the requirement

for anyone that sits I'll sit there and

just tell her about

what's this I said it's a bramble cam I

thought he's a bit softer from New York

this is Bloomberg

the big strategic issue is that Ukraine

wants membership in NATO

should it get membership in NATO I don't

think it's ready for membership in NATO

I don't think there is unanimity in NATO

about whether or not to bring Ukraine

into

the NATO family now at this moment in

the middle of a war I think we have to

lay out a path for the rational path

for Russia for excuse me for Ukraine to

be able to qualify to get into NATO

president bond is speaking on CNN over

the weekend coming into a key week for

him in the UK at the moment alongside

the British prime minister Richie sunac

later this week on to Lithuania for a

NATO get together we'll get to that in

just a moment if you are just tuning in

welcome to the program Equity Futures

just slightly negative down by 0.2

percent on the S P 500 a few days of

weakness to close out last week coming

into a new week and Tom softer once

again it's a softer once again and I I

think more than anything it's a

compendium of it you mentioned foreign

exchange before and what's it critical

on a Monday is there's not much

information from foreign exchange and

that's okay because we're waiting for

CPI Wednesday that's the next big step

PPI Thursday low to bank earnings too

then Bank earnings moves over to Tech

earnings to close out the month of July

Federal Reserve decision in between yeah

take care I'm getting excited you're

cutting in you know just let me build up

the enthusiasm going into August

are we close to August already you know

just in terms of the calendar thinking

about it sure have you got a vacation

planned at some point are you taking

some time out no I'm not taking it all

right I'm the father you know

they're like in six time zones and I'm

at home with that bill nice that's

that's what it's like this is important

this is a conversation particularly for

our American listeners and viewers it

was buried this weekend there's

something going on in Europe expert on

this and the moment is Maria tadeo our

Bloomberg Europe is getting more

conservative correspondent at the

distraction of Lithuanian or important

conversation with the leader of

Lithuania later but far more Maria

todayo All Eyes quietly are on the

Netherlands Mr Ruda is out the door why

well Tom and and I think you you nailed

it it's a shift that we're seeing across

Europe and this is not an opinion you

just have to look at the elections and

the election cycle the European Union is

tilting to the right and Mr Rude had a

spat with his Coalition over migration

and quotas and today he has decided he

is going to leave politics obviously

this is a shocker because Mark Ruto has

seen as a very smart and also very

smooth uh operator obviously he can

probably tell the wind is changing in

Europe too and he's leaving but this is

someone with incredible experience more

than 13 years in office and now leaves a

gap in the Netherlands and I think to me

even today operational we're not even

sure who's going to represent the

Netherlands here in NATO and of course

as you know anything that happens here

has to be ratified by all the Allies so

I think this speaks again to some of the

turmoil that we see in the European

Politics As I say in this shift that

we're definitely seeing with the

continent turning to the right what does

it mean for the big nations of Germany

in France and the United States we had a

president who got very discreet and

tried to build a wall to Mexico you

can't build a wall in Europe can you

what are they going to do about

migration in Germany and France

look technically in some places you

could but the problem is that some of

the progressive voices will tell you

those are not European values those are

not our European standards and obviously

we don't want to do anything that

President Trump suggested at one point

the U.S wanted to do the issue here of

course is that when it comes to

migration this is becoming now a toxic

debate and you see it on the public

opinion again changing and wanting

tougher measures I think when you see a

lot of the turmoil play out in France

over the past weeks when you look at the

situation in Germany obviously Olive

shots is not pulling well in that

Coalition well obviously this brings

about a new debate as to what to do with

migration but this is a never-ending

issue for Europe time and ultimately the

issue comes down to the fact that nobody

at this point wants to take in more

migrants essentially that is what it

comes down to it's not politically

correct it's very tough it's very crude

to say but ultimately that's where

Europe is at and this underscore is a

shift to a sort of more conservative

Viewpoint more on the right side of the

political sphere in Europe how does this

debate Maria color the NATO discussions

taking place in Lithuania where you are

starting tomorrow at a time when there's

a lot of disagreement over how to

proceed with respect to Ukraine and NATO

well Ukraine is one big issue of course

but today if I have to be honest it's

about erdogan and turkey that is the

Zeitgeist this morning especially now

because we hear from the Turkish uh

president what is a power move uh on

behalf of turkey suggesting okay if you

want me to say yes to Sweden joining

NATO then we have to talk about the

European Union and turkey and you know

very well there is very little appetite

at this point in the European Union to

talk about turkey joining the European

Union and I suspect European leaders

will say this makes things very

difficult it's not the time nor the

place to talk about this but also for

Sweden now this is incredibly

complicated because those are National

Security but if you're the one is

serious about this EU component well

they're probably going to wait a long

time to enter NATO what would the sort

of Olive Branch be I mean where are the

sort of nodes of contention but also the

nodes of agreement of where there's

going to be some sort of potential

resolution

uh well look on the turkey Sweden

specifically we know there's going to be

a bilateral meeting today between

President erdogan and the Swedish prime

minister Mr staltenberg II the Secretary

General is going to sit that meeting but

remember this was about legislation

changes in Sweden this was about Sweden

proving to or the one that they are

serious about some of those issues when

it comes to potential terrorism when it

comes to the pkk which is an issue that

erdogan really cares about but now this

issue of the European Union membership

really changes the game this was not in

the debate I have to say when I woke up

this morning at 5am I was not expecting

this uh today and obviously it really

changes things if you make a connection

between NATO and the European Union it

definitely makes things for the EU and

I'm not sure they want to get into this

debate not right now right just quickly

you with the leader of Lithuania a

little bit later walk us through what's

going to be the topic of conversation

well the medium is a message and of

course we have a NATO happening in real

news this is the heart of the Eastern

flank this is a Baltic country huge

supporter of Ukraine but also when you

look at it on a map it's right next to

kalaningrad that belongs to the Russian

Federation and it is right next to

Belarus because I think one of the key

points that we're going to talk about is

pregocian where is he and also does he

worry about Wagner potentially operating

out of Belarus that is something that

you can really feel here they're so

sensitive what is going on with uh

Wagner and what about percussion Maria

only you can say this the way you say

the Eastern flank

what is Central Europe think about

redeveloping redeploying military assets

material to the tadeo Eastern flank

well I think they would probably say yes

and I would point to a speech that

Eminem made in Bratislava just a few

weeks ago in which he said there isn't a

western Europe and in Eastern Europe

it's Europe overall the fundamental

issue however is that this is a

continent and you know this world that

did not spend enough on defense for a

very long time so even if you want to

move some of those capabilities to the

Eastern Front the question is who's

going to make them do we even have

enough and what is going to happen with

the European industry we need more

obviously that is what European leaders

will say but then obviously the question

is what about the money how do you

finance this and you have to really

think big about the next 10 years an

important conversation coming up a

little bit later Maria looking forward

to it Maria today are there with

lithuania's President the host of the

NATO Summit taking place this week the

conversation taking place Tom I

understand a little bit later today

language is everything and and I'm sorry

when we say Eastern Front you know it's

Hollywood and movies and the history of

this war and that war but just to hear

Maria today or say that's chilling the

Eastern flank and and that's where we

are in this new world we in Daily day in

day out we have to remind ourselves this

has all changed the reality of things to

those countries involved Lisa you wonder

what the dividing line is over at NATO

at the moment for those countries that

would support the president's effort to

provide this new Weaponry to to the

likes of Ukraine when others are trying

to push back it's a complicated debate

especially because of the type of

Weaponry that the U.S government is

looking to provide cluster bombs which

have been banned in other places and

have been really castigated for some of

the the negative effects however you

take a step back there is a difference

between supporting uh Ukraine and

bringing it into NATO now at a time

where that would essentially bring the

entire NATO membership in the middle of

the war right into war with Russia so a

lot of people are saying wait until the

war is over and then we can discuss this

and probably you know we can have a real

conversation but that's that's the

tension here that sounds like a

non-starter TK for most people raging

debate steeped in history good morning

Ambassador Haas at CFR with a great

leadership they've done in thinking

about this and the answer is it goes

back to I believe it was Belgrade 2008

Condoleezza Rice and others saying be

patient go slow and America didn't and

some people attribute that to the jump

start of how Putin responded coming up

very shortly Alicia durawana of the Rock

Creek Group look out for that in the

next hour we'll also catch up with

Mandeep Singh of Bloomberg intelligence

he's got a lot to say on threads

Instagram's effort

Twitter respond we'll get TK's take on

evil lichen for that we'll get that in

the next hour from New York City Futures

just slightly negative this is Bloomberg

how high is the Fed gonna have to go

because the fence not going to quit the

labor market quits the data clearly

suggests that the FED needs to continue

to tighten depending on what we see from

the inflation data we could see another

rate increase there's still a long way

to go in terms of bringing inflation

back down to the fed's Target things are

moving in the right direction but gosh

we really want to go faster this is

Bloomberg surveillance with Tom Keane

Jonathan Farrow and Lisa abramowitz

getting your way started here live from

New York City for our audience worldwide

good morning good morning this is

Bloomberg surveillance on TV and radio

alongside Tom Keane and Lisa bramitz I'm

Jonathan Farrow your Equity Market's

slightly negative recovering just a

little bit off session lows we're down

by 0.1 percent on the S P 500 just a few

days of weakness to close out last week

Tom and we start this morning with a

touch of softness as well we started

with a touch of softness to get to a CPI

on Wednesday and under earnings on

Friday and it's not that Monday and

Tuesday don't have value but I think

it's you know it's churning off of the

jobs report I thought Dr kasman from JP

Morgan was brilliant they're the the

mysteries of their jobs report the way

it cut both ways and it gets to a CPI

report that may cut both ways CPI later

this week PPI as well I've been talking

about how earnings season begins with

the big banks on Friday what's the big

risk for the second half Max Kettner of

HSBC in the last hour publishing this

one Lisa for the second half we see

risks around macro data running too hot

too hot far from recession and

re-expectations he says maybe the ADP

report's correct maybe this is the issue

suddenly we have an economy that still

uh has a lot of steam I will say that

based on the tourism industry that I

partook in last week it seems like it is

a very robust economy and it is

internationally so which kind of

rebounds upon itself there is this

question though of how much the fed's

going to respond to it and how that

factors into market pricing do we have

to worry about the FED again there was

about a month where people were less

worried about the fed and suddenly that

seems to be changing any crazy Airline

stories from your travels no which is

fantastic

the only thing is is that when you

travel an unnamed family-friendly

Airline there is a an announcement that

comes on that says if there's any

inappropriate behavior please alert us

which was really interesting to me where

I didn't necessarily get some of the

other other airlines

um

can we talk about a shift here which I

think is germane to everybody worldwide

and John you're living it terribly in

the United Kingdom and that is it's not

the first thing I looked at this morning

but the 30-year mortgage rate with its

jump condition and rates is about 2.6

standard deviations that's a huge deal

for the fancy people and the middle of

America

7.38 on the bank rate 30-year mortgage

and John this goes to your observation

which someone codified this weekend I

was shocked at the percentage of

mortgages under

four percent I was completely this

completely confirms this is some hard

data folks on what John's been talking

about for weeks and the basic idea that

I believe it's 70 of mortgages are four

point zero zero percent or under I would

have never guessed that that's the

question we've got to ask right who's

paying it and this is the problem the

feds go as they try and tighten policy

and slide this economy down at least how

and where are those interest rates

biting and the same debate goes to

corporate debt because a lot of the

companies haven't refinanced and don't

have to so they're still paying

relatively low coupons just like people

who are staying in their homes not

moving those houses are not going for

sale pushing up prices and people are

not paying those higher rates so at what

point does it bite does it bite soon

enough to really inflict the damage

necessary to bring down my issue is and

I think Jeff Curry was the interview of

the second quarter on this at Goldman

Sachs the new rate regime the new rate

environment for us it's a Bloomberg

surveillance Financial exercise let's do

a data check let's look at 14 spreads

this has real impact across the the real

economy as Jeff Curry said about a

barrel of oil and the cost of moving

Commodities home builder stocks get the

joke just on the house in a shoe they

get the joke those stocks are absolutely

flying year today on the s p on the S P

right now future is a little lower

trying to recover here we're down by 0.1

percent on the S P Lisa it was basically

unchanged as well we're still north of

four percent on a 10-year right now what

we're looking at is uh the discussion

that President Biden is having with UK

prime minister Rishi sunak they are

meeting today some initial uh communique

out of that meeting our relationship is

Rock Solid this according to Biden

couldn't be meeting with a closer friend

and a greater Ally we've got a lot to

talk about a lot of that has to circle

around Ukraine today the FED speak the

parade of speakers fed Vice chair

Michael Barr at 10 A.M San Francisco's

fed San Francisco feds married daily at

10 30 a.m Cleveland fed president Laura

Mester at 11AM an Atlanta fed president

Rafael Bostic at noon and at 3 P.M this

will be interesting credit card data how

much bunch of people just spending on

debt on Leverage The Fed release is the

latest Consumer Credit survey for the

month of May the previous one showed an

increase that was far beyond what people

expected this to me is really a key

question especially as I look at my you

know own circumstance just in terms of

you know the second time you've brought

that up now you go you go on these

vacations then you look at your bill and

you're like oh my goodness and then you

think all right well I'm getting at

least a lot of points and did some of

that over the weekend yeah it's pretty

intense I know I know TK saving TK's

been saving not contributing to the US

economy team oh no when you're across

six times the king family is spread

across 14 hours of time zones we're on

the far side of the world where it can't

you know the camp is the thing that

kills you oh it's ridiculous you just

didn't have Camp as a kid that just

wasn't a thing well we're a champion you

had a bicycle and a football and you

were left yeah to make a Summer Event if

you're a Big Spenders like uh George T

Keen I got 10 bucks which went a long

way for Mars Bars now I'm getting an

email can we do Chinese takeout for 16.

you know she wants to bite after thought

wants to buy Chinese food it's like a

full week forever you know those two

camps there's lacrosse camp at Disney

World where you go away for a week but

it's four days that's the other swing

yeah yeah and then there's yeah

cams can cost ten thousand dollars you

have no idea what parents put up yeah I

don't I don't do that the summer rack I

think it's it's just it's just it's just

numbing let's say specific segment of

U.S society yes be clear on that okay I

think it's a hardship for a lot of

society I mean it creates a lot of

employment for people I'll give them

that but you know it's there it is all

right it's joining us now Olivia

darawana

Rock Creek growth and if you're

wonderful to catch up with you big round

of year today we've talked to a couple

of people about whether they think it

continues can broad now I was looking at

your notes and you were saying remain

overweight us underway em sure to turn

positive view on Europe let's start with

the US and break it down that way why

remain overweight the US after big games

already this year

yeah look I think investors have been

investing as you mentioned in a new

regime from the last 10 years right

we're in the higher rates higher

inflation for longer but if you look at

Equity markets while we're cautious on

equities in general after a very strong

first half what's going to break the

equity markets you know I think consumer

spending is something that we're looking

at very closely to see if that's what

brake Equity breaks Equity markets but I

think we also have to remember that

within the equity markets the bull

market this year has been driven by

eight Mega cap stocks it's more than 70

percent greater cumulative return in the

top eight stocks versus the rest of the

Russell 2000 year to date seems immune

to Fed action so when does the Party

Stop

Olivia I want you to take a long-term

view let's be honest if your leader Miss

best loss went to Marrakech in the IMF

meeting people would just simply stop to

know her opinion on the linkage of the

global economy and hydrocarbons when you

guys look out to a three to five year

look do you have the Gloom of the IMF do

you share their view of tepid Global

growth

I think growth is going to happen and

and particular Niche sectors and areas

so we are investing quite a bit right

now in Alternatives it continues to be

very interesting investors can take

advantage of those secular long-term

trends U.S Europe Emerging Markets you

see Tailwinds from the IRA and climate

infrastructure projects you see huge

innovation in AI you see things

happening in agriculture technology

Healthcare data centers as you mentioned

companies producing renewable fuels for

rails terminals livestock there are so

many interesting investment

opportunities today but they are not

going to necessarily make you money in

the next three months how do you sort of

navigate the idea of being less positive

over the next three months but very

positive particularly about the U.S over

the longer term how do you tell and

communicate that message to investors

who are not looking to day trade

you know we manage very institutional

portfolios for endowments and

Foundations and they are long-term

investors they want their endowment to

be there for the next 50 hundred years

so they can continue doing the good work

that they do and so diversification in

an Institutional portfolio is key

especially in this type of Uncertain

environment think about it just in the

public equities Market if you had taken

a very singular view of small cap stocks

you would be missing out entirely on the

first half of this year's rally so you

have to be Diversified we think but you

also have to look long term and start to

plant the seeds now for those areas that

are going to really be your biggest

return drivers in 10 years it feels like

diversification is changing the meaning

of it and the people we talked to used

to being stocks and bonds and now it

means private credit private debt some

other a private uh Equity other aspects

real estate that really are coming to

the four becoming more mainstream and

have been over the past couple of

decades but from your Vantage Point how

has the idea of diverse vacation shifted

you know that's a great question and

again the flip side is that there's a

lot of money chasing some of those

opportunities that you said as well

right so you know I wouldn't say that we

want to just run into diversification

for the sake of diversification but it

has changed because in any particular

period of time over the last 10 15 20

years you've seen one of those asset

classes really be able to drive returns

in your portfolio even today fixed

income right there's a spread between

shorter term and longer term bonds about

one to one and a half percent maybe you

can do something there eke out a little

return and fixed income even today so

diversification means something

different today because I think that if

you don't have allocations across

different asset classes you will end up

getting in a hole in a certain period of

time during the market and then it's

very difficult to climb back out and

again we're looking longer term we want

our endowments to be there in 10 15 20

years well let's talk about something

longer term just finally the geographic

diversification Japan Japan's getting it

done yeah today tough week more recently

over five sessions or so but Olivia

where are you on that country we're

hearing a lot of people say they start

to get interested

you know Japan's funny I think over the

last 20 years that we've been investing

there's been fits and starts in Japan

and the question is can Japan really

start to change their economy change the

demographics and really get out of the

disinflationary environment that they

have had over the last 10 years if they

can do all of that and there's a chance

for Japan to continue on this path but I

think it remains to be on you know it

remains um I think a question on whether

they can actually get those things done

and in the meantime it is a stock

Pickers Market probably more so in Japan

than in the U.S or emerging markets

today if you look at this version for

example in the U.S Equity markets

there's more dispersion on a single

stock level in the Japanese market today

so from a stock Pickers Market it's

great right now I think longer term

we're going to have to see whether

there's some fundamental changes in the

economy okay yeah today of 23 it's not

bad Olivia darawala of Rock Creek Olivia

thank you on the latest still

constructive on the United States this

question mark over Japan at least

there's so many people talking about the

same thing I've heard a lot of people

start to think about allocating a little

bit more to what's developing there yes

I heard about that from Steve paliuka he

was really hot in Japan has been

investing tremendously at that Nation

not only because of the fact that you

are starting to see some growth and

inflation that we haven't seen before

but also because perhaps a knock-on

effect of some of the labor some of the

manufacturing some of the dynamism

moving out of China into other regions

could potentially also bolster that

economy well this is critical John I got

a new they got a new governor of the

central bank I don't think it's a small

matter

I don't disagree I don't disagree if you

are just tuning in welcome to the

program Equity Futures right now on the

S P 500 negative

0.05 coming up very shortly coming up at

7 30 Eastern Time Gennady Goldberg of TD

Securities on interest rates on on the

future of the bond market the Federal

Reserve decisions as well just a final

word on Japan I think that people have

been there all year are probably

thinking bramo yeah if you're interested

maybe it's time for me to get out after

again a 20 or so especially if you have

the idea that perhaps there could be

some abandonment of yield curve control

in the future and what does that do

suddenly if you've got rates going up do

people go in or does that disrupt some

of the models of companies that have

been built on cheap debt I mean how much

of the debt Market does the Japanese

Central Bank owns oh it's ridiculous

that number Japanese is it a Japanese

bond market I would say John you've been

great on this because of your coverage

on the real yields see it with Katie

greifeld uh and the on Friday and the

answer is there isn't a Japanese bond

market no there are Japanese bonds

the market piece of it I'm I haven't

been sure about for a while Tom Kennedy

of JP Morgan Global wealth management

next hour don't miss that Equity Futures

right now negative 0.1 from New York

good morning

[Music]

foreign

[Music]

meetings served as a step forward in our

effort to put the U.S China relationship

on a sure footing I do think we've made

some progress and I think we can have a

healthy economic relationship that's

benefit benefits both of us and the

world Jenna you had another U.S treasury

secretary after concluding her visit to

the world's second largest economy China

your Equity Market more broadly to

kickoff things this morning and good

morning to you Equity Futures just about

unchanged on the S P 500 three-day

losing streak to close out a session on

Friday payroll's a bit softer relative

to expectations a whole lot softer

relative to the blowout surprise crazy

ADP report the day before but still

leaving the door wide open for the FED

to hike once again later on this month

before we get to that Federal Reserve

rate decision we do have some economic

data for you if you are just joining us

we've gone through these dates a few

times but happy to do sub again

Wednesday CPI Thursday PPI data and then

the bank earnings start to come through

on Friday into next week you know the

Arc of earnings season you get the banks

first and then time we move over to Tech

later on in the month uh Apple August

3rd I looked it up is well are you aware

that Adler local the Short Straw for the

Sun Valley Conference

now why he goes to Idaho and it's like a

hat it's a hazardous Duty I mean it's

seriously he's got to wear rattlesnake

boots up to his knees because in the

summer the rattlesnakes come out and

he's like I'm the one I did this with

David gurr years ago years ago David

David is on the lawn at the Sun Valley

Conference and everybody's in their

Patagonia trying to you know they'll

tell when they leave they don't exist

anymore

and and I'm worried about Eduardo's

Health here you know I mean it's a

security appreciation I'm sure he

appreciates that Lisa let me guess

you're volunteering too to save him the

Lord of trouble and that you'll head out

we're letting grandma go let's do this

let's get to something serious this

weekend that's in The Ether and is

actually really really important there

is a strident agreement in the United

States that China's the bad guy giving

perspective this morning and occur in

Bloomberg global economy reporter in

Washington truly encyclopedic on the

Pacific Rim and I I was really taken

away by the aloneness of Janet Yellen as

chair of the Federal Reserve she is our

Arch labor Economist the loneliness of

her Secretary of Treasury how lonely was

she on U.S policy in Beijing this

weekend

well she's certainly framing all of this

through the economic lens Tom she in

Beijing spoke all about the need for you

know guard rails deepening of

communication pushing this line that the

U.S measures against China are not about

economic containment they're actually

quite targeted in the areas of National

Security and of course she spoke about

it's not about decoupling it's about

de-risking but even within de-risking

she acknowledged childhood concerns and

she's willing to listen to those

concerns so all of his messaging coming

from Beijing over the weekend as her

colleagues reported a doesn't quite gel

with some of the more hawkish rhetoric

that we hear here in Washington but it

does underscore this idea that the

administration seems to be putting some

kind of a guard oil or the very least

getting lines of communication open

again between both governments what are

the great realities of landing at PNG in

Shanghai is you realize there's Goods

trade with Shanghai and with China King

yelland or Biden or anybody in the

future in America partition a tech

dialogue from from the massive

manufacturing Goods dialogue that we

have with China

well this is where the big complication

is you know churches turkey Allen is

making the point that they're focusing

on National Security areas and that

might be AI Quantum Computing higher end

technology Tom like you mentioned and

maybe you can separate manufacturing

manufacturing from that but I think the

broad point is when you have tensions

the way they are between both

governments it overshadows all economic

activity it overshadows the broad

manufacturing sector as well that's why

we have this ongoing discussion about

our supply lines being reshuffled our

company's MNC companies looking to

alternatives to China for example so you

can make the argument that there's a

narrow path and it can be navigated but

I think for business people it's the

broad sentiment that matters most is

there any way and uh that her view could

really represent the mainstream and the

Biden administration at a time where it

is politically toxic for him to take

anything other than a hawkish stance

with respect to China

well you would assume all right Miss

Allen was clearly given license a growth

and at least reopened these

communications she had about nine to ten

hours of talks with her her counterparts

and economics fair in China stressing

this point about let's talk to each

other and Michelle and said they're

willing to listen the feedback from

China and the actions they take and also

of course the

um by the Administration has the

four-year statutory review of tariffs

underway for example China's asking for

those tariffs to be on round or

complaining about sanctions or

complaining about economic containment

so you know on the one hand to give

Missy Ellen her Jews she might be just

saying this is basic communication here

by the basic efforts not wanting to

overstate it but you'd have to say

against the back job of the ongoing

hawkishness from the administration and

politics in general it doesn't quite gel

with the picture we've seen over the

last few years I was struck and I wasn't

as aware before some of these meetings

how dependent the U.S was in the Raw

Commodities from China to supply some of

the chips that the U.S is now saying

they aren't going to send over to China

how does that complicate the issue how

does that give China a bit of Leverage

at a time when the entire economy is so

dependent on these chips on quantitative

Computing on AI

yeah it seems to be fueling this kind of

tit-for-tately so as you know as we

mentioned the White House is considering

further export restrictions on controls

on investment China responding with some

uh talk of controls over some of those

special minerals like gallium for

example I thought you mentioned so

China's showing that they have some

leverage too but let's not forget how

weak China's economy is at the moment

those inflation numbers are overnight

speaking to how weak consumer is

underground and who weak the

manufacturing sector is surely China

wants to do business with the world's

biggest consumer which is the US so it's

a question of how far China can push

that leverage without cutting off its

biggest customer and uh thank you and to

Karen Adam Washington the treasury

secretary playing nice over the last

week with China who knows what's going

on behind closed doors though so much of

this brown as you know is for public

consumption particularly after the

events of the last couple of months this

is the second meeting by a high-level

official in the past month from the U.S

right Anthony blinken was a first that

was a couple weeks ago and now we have

uh Jenny Ellen the idea is we're trying

to set a floor have we set a floor did

we establish any anything over the

weekend especially given the blowback in

terms of the body language of Janet

Yellen so some of these Chinese

officials meet and greet we showed up we

showed the flag and on on you go but I

do agree that an economist a legit first

order Economist doing a politician's job

as Secretary of Treasury is unusual can

you imagine some of the secretaries of

Treasury that we've had which are

basically secretaries of Commerce they

were business they were CEO types over

there doing it I just think it's a

different debate with the giant Janet

Yellen do you think yellen's any

different behind closed doors

I think she's a tough what's great about

yellow and I've seen this at the

economic Club of New York I mean I'm in

the way back up in the cheap seats and

uh she gets upset at Hyman will ask her

some smart-ass question yeah and her

voice changes and she gets tough

Brooklyn is she's she's I asked because

access to chat with a story this morning

Old Yeller Biden's private Fury you read

this yet no I haven't read this it's

nice an interesting read there's a quote

in it I think this is really funny some

Banda Knights think that the president

would be better off occasionally

displaying his temper in public as a way

to address voter concern to the 80 year

old president is disengaged and too up

for the office oh dear Lord that's one

way I spit in the message isn't it to

answer us this morning he should shout

in public to get more Angry get get

riled up I have to if I if I see someone

at that age getting angry in public I'd

be more concerned about their Fitness

for office wouldn't you if that's really

the discussion that we've got bigger

problems that's all I can say no no no

no I mean yeah

[Laughter]

show us you're bigger you done TK okay

I'm done equities look like this on the

S P 500. the tank just a bit unchanged

that's what calms you down that and bar

chat Futures right now down by 0.1 no

real drama here yields unchanged let's

call it 4.05 on a US 10 year let's see

if things are unchanged by the end of

the week after getting through a ton of

fed speak later today which Lisa kindly

went through just a little bit earlier

than onto the data CPI and PPI to get

another read on inflation in America

going into this Federal Reserve decision

later on Tom this month well we're gonna

have to see I mean it's just it's just

huge inflation report and you know you

mentioned PPI as well that's not a small

matter I used to ignore PPI and I don't

anymore I mean the linkage in of the two

inflation reports is powerful you

certainly don't ignore it out of China

at the moment disinflation deflation

what are you calling that Bremo

deflation the risk of it it's

disinflation for now keeping the door

open to some stimulus potentially out of

the world's second largest economy

Futures are lower as we kick off a brand

new trading week good morning to you all

[Music]

[Music]

live from New York City getting your

training week started Futures look like

this on the S P 500 on the NASDAQ 2 on

the S P just slightly softer negative by

0.05 then that's like down by 0.2 will

it be a four day losing streak for both

the s p and the NASDAQ after closing

down on Friday for a third day of losses

plenty of banks publishing this morning

including City us out performance taking

a pause as the headline of their read

this morning our U.S strategy team

thinks Mega cap growth is set for a

pullback U.S recession risk could still

bite they raised Europe back to

overweight this is their take on Europe

after the data out of China this morning

Europe is once again trading at a record

discount and should benefit from a

weaker dollar and any stimulus out of

China that latest read of course

following the latest PPI data that came

out of China the latest read on

inflation in the world's second largest

economy you will have a read on

inflation later this week from the

world's largest economy the United

States CPI Wednesday PPI coming out on

Thursday your bond market shaping up as

follows let's slash entice the yield

curve up two-year 10-year 30-year look

at twos your two year 490 82 your

10-year still north of four percent with

a big move last week time of more than

20 basis points higher on a 10-year and

the vanilla spread comparing the

two-year yield to the 10-year yield

we've really come in with we've

disinverted from a negative 105 negative

even 111 basis points a full percentage

Point difference higher two-year yield

lower 10-year into 86 basis points so

there's been I think it's been

underreported this week except by

creating Katie greifeld on the real

yield I mean there has been disinversion

great shot 1pm

fried ice even now in a summer Friday

which is impressive stuff from Kate

good for Katie

great show look out for that 1pm Eastern

Time on Bloomberg TV Bloomberg real

yield with category fat I want to finish

on FX away from the bond market for a

moment before Lisa gets you some single

names your FX Market just below 110 on

the Euro against the dollar 109.57 we're

negative 0.1 percent on a single

currency the Euro actually Lisa last

week shown a bit of strength to close

out the week even with high yields on

both the two year and a 10-year a

curious development as dollar weakness

began to reassert Just a Touch when I

take a look at some names that I find

possibly more interesting than some of

the macro stories rivian shares the

electric vehicle maker up 3.6 in

pre-market trading now this is

interesting because it has rallied 84

over the past eight sessions it has been

on a record streak this comes after the

company said that it manufactured more

EVS over the past quarter than expected

has shipped first time commercially

outside the U.S Tom is it a meme stock

is it like is it like the theater stock

that was before there is some

substantial story underpinning this

stock that people believe that it can

prove to be some sort of significant

competitor to Elon Musk I just always

felt that way good to see this I mean

she's up in the Adirondacks the kids are

outside the pup tent day trade Caribbean

they look like Ford Broncos but that's

exactly it they're kind of just like

before yeah and I know people very good

ordered them but the problem is that

people would pay for them and then

they'd get them in two years

yeah so the fact that they're able to

deliver more is is better oh he's got to

stop the problem I'm really sorry I just

think we have to stop this EV climate

change nonsense and just call them what

they are I mean are they good for the

climate for the environment it's driving

me nuts every The Branding around this

is just incredible it's so stupid you've

made an incredible point which is we

have to address the size of a vehicle

and if we're looking for efficiency it's

probably not the best just put a

different kind of battery in if you're

going to have you know a Hummer we can

can get to that discussion later well we

should we will and we will get into that

discussion we should have it I will say

I'll do that later John that was not how

I said it we will do it later Alibaba I

want to take a look at some of the

Chinese shares they're down about two

tenths of a percent they were down uh

vastly more earlier today in the

pre-market trading after the negative

data that came out uh overnight from

China the risk of deflation potentially

and slow down in growth what's

interesting is that there was a feeling

that perhaps the veil of the fog of

concern was lifted from some of the

Chinese tech stocks on Friday that seems

to be at least a little bit eased today

IEP this is the most fascinating story

of the day the Carl Icahn Enterprise

company up more than nine percent

because the Wall Street Journal is

reporting that he has finalized

agreements to decouple his loans from

the share price of his company so

basically the fear was he had leveraged

some of his purchases backed by the

shares of his company the more they went

down the more he could be susceptible to

margin calls that could potentially

spiral the shares lower today he came

out and basically said we've got a stop

Gap here we're not going to be doing

that and so you're seeing the shares

arise quite significantly so that's like

a Wednesday or Thursday discussion is

too much information from us it was

interesting and again I'm sorry for

jumping in no gosh just I think you know

sick to death if it's having us these

expensive EVS shoved down our throat and

we're told to save the world and spend

however many thousands of dollars to go

and buy one

it's I just think it's nuts and then

everyone you know you see the the

leaders of various countries get

together with the automakers I

understand the industrial policy and

that's really interesting and I think

they're really sexy cars and in many in

many circumstances and perhaps get one

if you want one but this idea you're

going to save the world by dumping this

kind of cash into a massive Hummer I

don't get it I think that the size of

the vehicle is very important and I

think you're absolutely right on that

there is a question of how to get the

materials out of the earth and what's

required to do that there's a larger

discussion that's important to have I

think I take your point I'm going to go

to Michelini's in 2020. here's the title

of the academic article thermodynamics

and the energy usage of electric

vehicles okay I got a quality C in

thermodynamics it's really tough stuff

it's really difficult but I think to

your point John there's a lot of

questions in the public and the

Zeitgeist not being asked on this we'll

ask those questions through the next

year and I hope let's talk about the FED

speak bad Bostick daily Meester excited

stuff on the outlook for the Federal

Reserve TD Securities pushing out their

recession call from the fourth quarter

to the first quarter of next year adding

given our new expectation for a downturn

in the economy We Now look for the FED

to implement its first rate cut drum

roll March 2024. we believe the market

is sharply underpriced and a potential

for deeper Cuts next year the longer the

FED keeps real rates elevated at high

levels Tom the more likely a hard

Landing becomes the calendar of the

x-axis and what we're going to do about

it seriously about price of bonds

Gennady Goldberg joins us rate strategy

at TD security he's gonna I want to go

to the outcome of this which is TD

Securities reaffirms with a vengeance

curve inversion and we could even get

out to a steeper curve inversion down

the road what is the process that gets

us to a deeper inversion

thanks for having me uh well I I do

think that front-end rates remaining

quite elevated for a while is what's

going to get us there

um I wouldn't be surprised to see it

it's been one of the most painful trades

uh this year I've I can't tell you the

number of clients who have tried to

enter uh curves deepeners here and

actually haven't been able to hold on to

that trade just because they're very

expensive from a carry enroll

perspective what you can see is the

front end of the curve continuing to

actually move a little bit higher as the

market has capitulated to the fed's view

of slightly higher for slightly longer

and that's very painful for the two to

five year part of the curve that's going

to keep pushing up two to five year

rates and in my mind could keep the

curve actually very very deeply inverted

for at least the next couple of months

and I can tell you you know the

steepening typically starts about three

to six months before the first cut at

least that's what our research shows

market right now is pricing in a cut

actually even after us we've got ours

our first cut penciled in for March of

2024 the Market's all the way in May of

2024 they're not looking for a cut

anytime soon Gennady is that including

some sort of trauma to the financial

system are you basically plotting in

this idea that there's going to be some

Catalyst to that downturn that's going

to prompt the cuts and that's sort of

the reason why you expect the deeper and

sooner Cuts than the west of Wall Street

correct typically you do have higher

rates acting in some unexpected way we

saw that back in March with the svb

crisis I wouldn't be surprised to see

more Tremors in the months ahead I don't

think the market is looking ahead and

realizing that irates a real high cost

of cash you know five percent is not

exactly cheap at this point that tends

to put some downward pressure on the

growth momentum that could actually push

the US economy into recession over time

I do think people underestimate how much

that can create shocks in the economy

over the course of the coming year I

don't think we're quite pricing that in

just yet let's say we don't get any

shocks Gennady let's say that the

economy is truly more resilient higher

rates than anyone previously imagined

that companies continue to as Tom would

say adapt and adjust then how high

should rates go and how high should they

stay for a longer period of time

well I think what you're describing

right now is the nightmare scenario for

the FED

um you know they think that they're

right near the terminal right they're

actually dancing around where exactly

they want to dial into on on the

terminal funds rate if you know

inflation continues to rage right if

there's no real impact on the economy

higher much higher at that point and

that would be very very scary and

honestly the higher you push rates like

that the more likely you are to get

downside shocks to the economy to the

financial system you know something on

the on par with what we saw with svb get

any people like you talk about The

Economic Consequences of price down

yield up I mentioned the Bloomberg Total

return aggregate index here earlier it

hasn't breached through to new price

lows but nevertheless it's on the cusp

if we get bonds to go down in price up

in yield on an aggregate do we get gamma

do they have an accelerative behavioral

tendency like equities where it picks up

steam

well you saw that back last year where

investors are looking at their bond

portfolio and saying well what is this I

thought the these Bonds were safe you

know I don't think they were supposed to

lose value and they were down a very

substantial uh at some point last year

they were down quite substantially if

that happens again this year certainly

you can have investors actually selling

out interestingly enough the rates are

now attractive enough where a lot of

investors are going in and saying you

know even though I think rates can go

there's a lot of investors who are you

know really looking at the bond market

and saying you know these yields are

quite attractive even if they back up a

little bit more even if I'm down a

little bit on my garden portfolio I'm

looking ahead to the next one year two

years and that's why actually this year

despite the fact that the aggregate

index hasn't done much you've seen tons

and tons of inflows you've seen over 120

billion dollars flowing into the fixed

income space overall

um and really not a lot of outflows so I

don't know if there's necessarily that

kind of moment that happens with fixed

income this year Gennady uh I I just

find it fascinating what's your 10-year

yield call quickly here what's a 10-year

yield call well as as we're heading into

the end of the year we do think things

start to slow down the consumer starts

to slow labor markets are to slow so

we're looking for three and a quarter on

tenure rates by the end of the year

appreciate it and sorry for cutting it

seems to be my thing this morning get a

Goldberg there of TV Securities on the

bond market slight technical issue at

the end of that conversation there but

you know that happens it happens it's

live TV and radio you know just warming

things up on a technical side yeah just

moving those we aspire to the stability

of the Bramble cam you know I mean on a

technical basis the Bramble cameras just

Rock Solid because it's consistent in

one note right

it's up and running there's film in the

camera 16 millimeter if you want just

tuning in welcome to the program Equity

features on the S P 500 just about

unchanged here we're negative 0.02

coming up in the next hour 8 30 Eastern

Time Steve rashido of mizuo Securities

he's gonna have something to say on the

economic data in the week ahead the bond

market Federal Reserve and maybe it may

be a read on what's going to happen with

these Bank earnings later this week I

remember it wasn't too long ago we were

obsessed with Regional Bank earnings and

what that would tell you about the

future the US economy and had anyone no

one talks about the sector anymore Tom

they've moved on and moved on quickly

you know I'm going to bring up pack West

here just because I remember the symbol

pac-w and I mean you talk about dead

it's just it's just like Flatline and

eat you know it's Flatline it went from

27 to 8. I would argue that the bank

earnings that we get including the

regional Banks they will become more in

Focus coming up as soon as they come out

sort of the short-term memory of the

market that it will be really important

everyone will say oh my goodness

everyone has to watch this maybe more

interesting than CPI maybe more telling

and instructive for what kind of

dynamism there is and how much we have

actually withdrawn some of the momentum

from the economy because right now we

have had Lowered Expectations companies

continue to raise prices firsthand and

so how do we see that play out you know

what's great here John is the president

drives a Corvette you think the king of

England when they meet here in a couple

minutes at Windsor Castle is he arrived

yet you think they're going to talk

British Grand Prix

you know the president's got to be in

they're going to talk about climate

engagement a little bit later on really

with philanthropists and investors

for those of you interested later on

this afternoon so a lot of people look

out for that an engagement between the

president of the United States and its

Majesty King Charles III

[Music]

threads can it get critical mass I think

it's gonna be very difficult to get

critical mass I think right now the name

of the game for Zuckerberg and that is

just further expanding Instagram base in

terms of the cross-sell opportunity

eventually advertising they're trying to

strike while the iron's heart given some

of the issues we've seen with Twitter

and must but getting the scale is going

to be difficult

done Ives of wedbush senior Equity

analyst the latest tie up meta launching

threads or rather Instagram launching

threads but the same thing going up

against Elon Musk and Twitter tku with

promised her

some analysis

they got to get their act together the

news business is in an uproar you saw it

clicking into Saturday evening Sunday

Etc it's not Twitter that's the that's

the major message over the first the

review is it's not Twitter

can you write that down but you can't

it's way too hard it's way too soft I

got way too many people drunk at parties

on Saturday because it's an Instagram

feed into threads I don't want that I

want to know what our competitors are

doing what the Zeitgeist is and it's not

there they don't want people like the

three of us would you like period some

more of this the president of the United

States Tom just mating with King Charles

the Third Windsor Castle U.S national

anthem I'm told is plank president's

hand across his chest Damian from

billions saying God saved the king at

the Grand Prix you know what did you

think of that yesterday I wasn't

impressed by that I was gonna defer to

Mr Pharaoh I don't defer to me I'm no

expert on on national anthems but that

was that was odd and Silverstone

yesterday this is really something and

seriously the tension here folks is of

course Mr Biden's affection to Ireland a

little bit of delicacy here this is the

king of the United Kingdom after his and

I'm I may speak out of turn here after

his coronation in Scotland in the last

week in Edinburgh so there's some some

emotion here just to go through the next

few hours Toms so the president will

participate in a ceremonial arrival and

inspection of the honor guard with King

Charles III I understand there's also

going to be a private meeting with the

king at winter castle then later this

was the climate engagement story I

talked about earlier time the

president's going to participate in a

climate engagement with his majesty King

Charles and philanthropists and

investors after pandemic to Castle

particularly after war in Ukraine has

the debate of climate cup 25 26 27 Etc

has it adjusted and changed and what

will these leaders do about a new debate

over ESG and new debate over climate

change still while the war goes on and

how involvedful Kim Charles be in that

effort we know as the Prince of Wales

Tom he made a big push on that front but

you change his King I believe he changes

president as well you know the the

imagery here at Windsor Castle and of

course it brings back John uh the

funeral of the King's mother and late on

that afternoon uh the final private

Ceremonies for the family at Windsor

Castle I mean it's it's the history it's

the history of it away from Buckingham

Palace we'll step away from some of

those pictures now and if we get any

headlines a little bit later on this

morning we'll bring those headlines to

you the president making a stop in the

United Kingdom he'll go from that time

to Lithuania then the focus is really

going to shift towards all things

international relations and NATO I'm

here today in Lithuania with an

important conversation with the leader

of Lithuania coming up here on Bloomberg

radio and television right now we looked

at technology Mandeep Singh gives us a

brief here and there can only be one

brief and that is the Twitter threads

mandate I don't mean to make jokes about

this Mandy how unusual is it that one

billionaire copies the platform of

another billionaire

well so there is a history if you look

at what Facebook has done meta has done

over the years they have been very good

at uh copying features or just iterating

uh on their core apps and uh they did

that with SNAP they have to an extent

done that here but look I I think it

just goes to show that Twitter as a

platform didn't have the kind of modes

that you could argue uh meta has with

the engagement they have on Instagram

and maybe this is an idea for them to

you know do something similar for

Pinterest as well so it kind of opens

the doors for anybody to go out there

and experiment with a new app now we

know Mastodon and blue sky didn't work

because they never got the traction

going so in the case of meta they

clearly got that transfer over from

Instagram to threads which is why you

see that 100 million users in the first

week which raises a question of could it

potentially be a Twitter killer or is it

going to be distinct and a separate

entity was talking about how it doesn't

necessarily have the same tone as

Twitter I concur with that I think it's

much more chatty people kind of having

to give their take and personality and

much less of here's the facts here's the

data let's have an economic discussion I

mean is that how it's geared

I mean it's still week one and look I I

think one change you can see with social

media is there is a lot more AI driven

algorithms than it was uh you know

before with the user graphs and and

Facebook to their credit did realize

that you know as they realize the

engagement declining for core Blue app

they did pivot to AI with reels and now

they are doing the same with uh threats

so the thing about AI is there's

obviously a lot going on in terms of

innovation and your remote isn't as

strong as it used to be with uh user

graphs because that was more data driven

with AI it's like anything you can do to

train your algorithm for better

recommendations that's going to help

your engagement but how does this really

feature into whether this is a Twitter

killer I mean a lot of people are saying

this and certainly Elon Musk has

demonstrated some deep-seated

insecurities over the weekend with some

tweets I'm just curious from your

Vantage Point do you think that this is

truly going to annihilate their business

model from much bigger competitor

I mean look uh with social media or any

consumer app for that matter it's all

about engagement and if they are able to

take engagement away from Twitter that's

gonna hurt and look at the time spent on

social media apps isn't growing use a

great growth has stagnated so in the end

it's a zero-sum game and and in meta's

case they really needed something to

drive engagement they tried that with

metaverse last year I think this is

probably the answer for the near term

and they may look for more drivers down

the line but metaverse we know was a

flop this thing definitely is showing a

lot more momentum early on just to build

on Lisa's line of questioning it's

really difficult to break this out but

mandate we've got a number of new sign

ups to threads but I want to understand

how much of that is new numbers to

Instagram and how much of it is just

people coming over from Instagram and

spending some time on threads then the

number becomes maybe less impressive

I mean you were right uh John that first

week it was really onboarding existing

in this Instagram users but there are

network effects and look at the Facebook

has three billion uh users across their

family of apps even if they convert you

know 20 to 25 of their daily active user

base they're probably gonna bring over a

lot of those Twitter users and more and

that's the power of their platform that

no one else has I mean alphabet could

have tried to build something similar as

well and they failed with Google plus

they probably may be thinking that they

could do something similar as well

because there are only very few

platforms that have over a billion uh

daily active users across their

platforms and they are the ones who can

try out a new app and you know Port over

the existing users to the new

functionality man they love your

coverage and insight on these topics man

Dave singed a Bloomberg intelligence

what's the number over at Twitter

monthly applications something like

North 300 mil it's about 330 million

okay but it's yeah exactly in just you

know couple weeks you've got 100 million

that's the estimate the latest estimate

as many Depot is talking about if those

are active users

is that the end I mean is Elon Musk

facing 40 billion dollars of useless

loans that he's got to repay you'd have

to think Tom he starts making some

changes

but I mean in terms of using actually

using git in the same way that I'd lose

Twitter uh why I want to get it I can't

the point that you just made there

Meadow used to be the bad guy people

were talking about Facebook and

Instagram how they were collecting too

much data and had too much power

suddenly people are cheering for Threads

because they were that fed up with

Twitter which just shows you how Fed Up

the Twitter people have been but are

people concerned about giving one

company so much uh Power they want to

make it lightweight and fun they don't

want to make it the news organization is

let's be honest folks and our team in

the control room when news breaks we use

Twitter with attribution because it's

the fastest thing in the world from

legitimate news sources that's where you

learn it as news is breaking are we

going to say that about threads don't

know yeah I mean I honestly don't know

just from a personal standpoint I'm

still making my mind up on whether I'll

actually I don't want to be on the

platform hosting garbage take a walk get

some fresh air

you know get some take up golf I think

you know like myself again I might start

playing golf again yeah instead of

threads yeah yeah why not you wanna you

wanna come play with me

and I yeah why not look at the necklace

thing is it's about tennis Tom a bit of

tennis he's Wimbledon inspired you it's

good at tennis

we're calling for a soft landing and not

recession we're still we're still pretty

cautious in terms of whether the FED can

pull off this soft Landing when it all

goes wrong it's going to go wrong pretty

quickly and that's why the FED may have

to reverse course very very quickly you

have to worry that you might be too

restrictive for too long they're going

to end the year closer to six and they

build a five this is Bloomberg

surveillance with Tom Keane Jonathan

Farrow and Lisa abramowitz

good morning everyone Jonathan Farrell

Lisa Bremer since I'm Keen all together

again on radio and television CPI

Wednesday upon us and then earnings

begin on Friday John I'm going to call

it a quite essent Monday but there's

this tension in the air go to build on

last Friday Tom did you put more weight

on the wage growth more weight on the

low unemployment rate or more weight on

the declining Payroll Services

it's no words about it wage growth

that's where she's looking she's the

number one thing and you're back to what

Neil daughter The Optimist he said was

okay wage growth comes down but if

disinflation witness CPI Wednesday comes

down even faster you get flat to

actually true wage growth will we see

that that's going to guide you a call

for the Federal Reserve going into the

meeting this month looking for a hike

most people are then beyond into

September bit of division City say hike

Morgan Stanley say no and Adam zetner

and Morgan Stanley say no because they

think the Slowdown you're seeing at jobs

Tom will persist and ultimately the bar

to get that next rate hike from the FED

after this one um they won't meet it TD

Bank making clear when they cut out into

2024 they will cut with a Vengeance Lisa

what did bonds indicate to you over the

weekend as you came down from the seven

carry racket River Portage with lots of

mosquito bites what I'm looking at right

now is a market that looks early it's a

bond market that looks very similar to

where we were right before the bank

crisis right we have reversed almost all

of the declines in yields all of the

expectations of rate Cuts we have priced

them out we're now pricing in the same

kind of terminal 5.4 percent rate by the

Federal Reserve but stocks are flying

and this is the tension I think right

now can stocks keep Rising even if bond

yields keep Rising as well even if bonds

are saying a very different thing than

stocks well they have done haven't they

and that's been the difficulty that so

many people have had Yota writes her up

home builders are flying let's pick a

pick a sector pick an industry group The

Home Builders are flying because

interest rates are high so everyone's

staying in the home they've got because

they don't want to remarkage the house

or get a new mortgage so new houses are

doing great and the housing recession's

over is that right that's correct that

perfect summary I mean it just

demonstrates how complicated this moment

is and how so many people get it wrong

so one guest after another this morning

has come on and said they're pushing out

the recession forecast they're getting

more optimistic oh yeah right it's like

and again we're going back to this is

sort of going back to March 1st we're

back there again yeah within the

confusion I see and I'm gonna go back

and this is ancient history and I don't

think it's an equivalent analog I want

to make that clear I thought Lori

calficino was brilliant by the way in

the late 40s into the early 50s earlier

but what we're looking at here in the

equity debate and we're going to do that

in a moment is the second leg of a bull

market the first leg is easy to to pick

out at some point there's enough Gloom

boom up you go but how do you get to a

second leg into me it's January of 1976.

it's not that anybody saw 74 4 coming or

75 I should say it was a second leg John

in January of 1976. nobody saw that

coming are you looking for broader

participation going into bank earnings

I'm looking for corporations to adjust

in earnings without again will surprise

they will address it's a broken record

I'm sorry it's all right do you want to

check the markets let's check the

markets I mean right ingredient the Dow

up 35 points nice Equity Futures on the

S P Unchained recovering in the last

hour or so three day losing straight

longest since late June something like

that and if on Market yields just about

unchanged on a 10-year still north of

four percent in the FX Market not doing

much this morning I have to say it's a

bit of a snooze the Euro Tom 109 55

against the dollar it's good to see

right now we're going to get started

here uh looking at the equity markets

Chief investment strategist JPMorgan

Global wealth adjusts as he's adjusted

Thomas Kennedy joins us this morning

what's the key adjustment July 1. I

think your key adjustment has to come

back to where you've been since Silicon

Valley Bank in those last call it 90

days what has really changed from the

macro perspective

is that working from home is a pretty

attractive opportunity set for people

the supply side of the labor market in

the US economy has really improved

participation rate in prime age really

trying to hone in on historic Highs but

we've blown through the pre-covered

levels but why does that even matter it

matters because your Trend inflation

level that we really thought we were

fighting about five percent during

Silicon Valley Bank has stepped down

closer to three and a half percent so

the macro Community now has to really

adjust to maybe the fed's not fighting

as big of an inflation problem as we

thought just 90 days ago so what are we

thinking about then three percent is the

new five percent and the fed's still

going to get a little bit higher and

gross going to be okay so the FED I

think is still in risk management mode

so let's put that aside for a second

okay but what you have to acknowledge is

that the fed's job is to maximize

employment and stable prices that stable

price level has come down I haven't

talked about it nearly as much as we did

at the Silicon Valley Bank time but

core service inflation core Services X

shelter has stepped down to three three

and a half percent that's your best

indicator of Labor imbalance and that

one in of itself suggests there's a

little bit more balance in the labor

market let's get to the market Cody is

this another West sang your bullish

um I think it's another it's another way

of saying that the Slowdown we are

likely to get 65 of all economists in

your survey say there's a recession it's

so natural to believe that that's going

to happen you have interest rates far

above anyone's estimate of what a normal

time would be

but how persistent does the FED have to

make that slow down and if the labor

market can come more into balance they

don't have to push nearly as hard so

this risk management mode for the FED I

think is part of the challenge that

people are having but just to build on

what John was saying if that's the case

if we do seem to be having some sort of

soft Landing do you pile into the equity

trade as a good place to be I think you

have to recognize what the Market's

pricing for you and say where is your

opportunity set JPMorgan Community

wealth management one of the biggest

pools of wealth assets in the world 26

of all of our investable assets are in

cash and cash equivalents so we're

trying to help people invest for the

long term that doesn't feel like the

right opportunity set for them what's

the easiest thing to do is to buy fixed

income you buy a municipal Bond it's

fine on the equity side though where do

you need to reinvest for our clients the

community is wildly overweight Tech and

we can start to find ways to rebalance

them why because the rest of the market

is actually pricing in a decent earnings

downdraft what about the potential that

we were hearing from Bruce kasman from

others about the vulnerabilities of a

market at a time when borrowing costs

are substantially higher and there is a

lag effect I mean it's unclear how to

measure that but as companies have to

refinance as people have to move they

have to start actually recognizing and

feeling the higher rates

how much are you expecting some sort of

significant accident to interfere with

some of these calls I think that risk is

certainly elevated Lisa I think that's

part of the reason why two-thirds of

Wall Street think that you will see a

downdraft the question becomes what is

it what do you do in the meantime while

you're waiting for that and equities can

rally quite a bit during that time what

can you do to help get your Investments

to where you need them to be over the

long run and things if the risk of a

deep recession goes down even if it's

subtle you have to make adjustments in

your portfolio right and opportunities

private credit opportunities

subordinated Bank capital and more of an

equal weighted s p angle can help you

get there there's got to be a huge

percentage of people that feel like they

miss this how did I haven't asked this

question how did 60 40 do in the first

half and can you just stay a vanilla 60

40 forward

the 60 40 did fantastically well it was

driven to your point though on equities

rather than bonds but again our clients

are underweight bonds how can I help

them renormalize diversify Tom and find

a long run strategic because they're

looking at a total return I mean the

reality is here's how they think they're

looking to Total return of let's say

five six seven percent and they're

looking granted s p hasn't participated

but all their friends on Nvidia and

they're making 15 18 20 Blended in a

stock portfolio that's why they're not

buying bonds Market Market breath has

been a problem without question Tom

every bull market though is a hated bull

market every time we've been through

them and in this experience though I

think we're just balancing where we were

I loved your Anchor Point we have to go

back to where we were pre-silicum Valley

Bank and that shock to this system

wasn't the thing that macro economists

like me thought it was going to be we

have not seen the material slow down in

lending yet it doesn't mean we won't get

it but you have to be able to balance

out what the risks are and the risks of

a deep recession I think are lower than

what they were at silica this is

critical Tom Kennedy's calling this an

anchor point so so if Bramble says

something profound we're calling it a

Bremo point it's a brown-up point it's

brahmos Anchor Point it's a prima point

oh boy Bank earnings Friday sorry Tom

what are you looking for from Bank

kearney's Friday all of this in mind

Bank earnings are going to continue to

show a challenged Outlook you have from

the deposit side banks are needing to

pay up to shore up their deposits and on

the lending side you are seeing lending

growth slow

but remember at Silicon Valley Bank what

we thought was going to happen small

Banks would slow their lending

materially and it's been the opposite

large banks have slowed their Lending

materially

it's keeping all ourselves honest here

it is different but the outlook for the

economy is quite challenged it's very

normal to assume growth will be below

Trend until something happens and

something breaks that's what the fed's

goal is meant to be in our Baseline

scenario S P 500 earnings below trend

for three years 2021 2022 2023. how do

you start to move and adapt to what that

world looks like diversify find good

ways to get to your goals with a little

bit less risk and that's what yields are

offering you well let's finish their top

pick favorite thing right now in fixed

income what is it I think it's just core

boring on sexy bonds muni's core IG and

you're locking in an interest rate of

five and a half six percent look our

community doesn't love unsexy ideas but

you can get six percent not take too

much risk tell them candidate good to

see you JP Morgan Global wealth

management on fixed income going back to

svb Tom we've been talking about that

the last last week yeah I wasn't here

for much the last month

I didn't talk about it I miss you but

did over the last week I I don't think

this is a marginal issue and what tells

me that it's still there is the stock

price action given the healing of the

bank system and the verbiage from

institutional authorities pacwest should

not be flatlining like it is it should

be have a bid to it it does not there's

a distinction between the risk for

regional Banks versus the risk to the

broader economy and what Tom was saying

there that from a macroeconomic

perspective the regional banking crisis

was not an economic crisis and didn't

have the bleed through effect that many

thought that it would and I think that

is what we're seeing priced into a lot

of the bond market at least as well as

potentially equities John is supporting

there because you listen there for the

brahmo point I always did the marginal

brammo point if something a few months

ago you know really was only a few

months ago when was the last time we

were all together I mean a month I think

it's been a month it's going to have

Brahma back around the table if you are

just tuning into the program welcome to

the program the S P 500 turning positive

0.08 coming up at 8 30 Eastern time so

18 minutes from now Steve rashido of

mizuo Securities pushing ahead to

inflation data later this week CPI

Wednesday top Thursday PPI it's going to

be a great brief no question about it

that you take away from Steve no it's

going to be a great proof I mean the

guy's wicked wicked granular you know

there's no question about I've got 90

seconds on the clock and you give me

three word answers well you know it's

like

I'm focused on the king and the

president you know I'm watching the king

and the president I'm trying to adapt

and adjust how's it going painful like

Corporate America Steve rashuto let me

explain this not only does he have the

glory of having Dominic constant with

him to provide a great financial

synthesis around it but he is expert at

digging into the Dynamics of that

algebraic GDP function he's the best at

it there's no question about it coming

into next year as we push that recession

call out and start to think about a

second half which maybe will continue to

deliver and we reflect on the calls that

came in through the start of the year

when we were thinking about dip and then

ripped over there and then it was just

rip and then maybe rip some more a bit

more yeah you're in temora Fidelity but

I don't know that I thought was really

interesting over enough Mr he was

talking about how the market always

inflicts the maximum pain on the maximum

number of people and a maximum amount of

pain would be to flush out all the

shorts to have it rip higher keep going

recession gets pushed out and then

eventually when everyone's rightly or

wrongly positioned then it will hit

Krishna said last week high yields

that's your next paying trade long tent

ten year happening last week at least

not this morning 10-year 4.04 five seven

percent Steve rashido 16 minutes away

foreign

it's my hope that and belief that there

is a path to bring inflation down in the

context of the healthy labor market and

the data that I've seen suggest we're on

that path Janet Yellen U.S treasury

secretary speaking on CBS over the

weekend to set you up for the weekend

with tons of economic data still to come

this from Stuart Kaiser over a city

Equity markets are a nominal growth plus

risk asset so continued positive

economic data alongside stabilizing

inflation is a positive combination for

markets we have had the first part of

that the positive economic data you need

the second part of it stabilizing

inflation numbers we'll see if we get

that on Wednesday and on Thursday

respectively at the moment your Equity

Market just about turning positive as we

inch towards the opening about one hour

and 13 minutes away Equity Futures here

Tom up by almost I say almost

0.1 percent it's going to be interesting

to see in a predicancy of the equity

Market rebounds perhaps Into The Angst

of OMG what's uh JP Morgan going to do

Friday but John it's amazing to me that

we're 12 13 vix and we've pulled back in

this Gloom

to 15.31 a hundred days ago 15.31 would

have been you know a religious

experience That's How Far We've Come

talked about this over at JP Morgan the

low volatility fomo full swing

complacency being built into stocks with

the vix at the lows of its of its recent

range yeah I I wonder what Global Wall

Street like Tom Kennedy was just with us

from JP Morgan what do you do to people

who are up four percent Blended up seven

percent Blended going

um excuse me sir what are we doing I

think there's well that's not enough

after the double digit gains elsewhere I

just think that that permeates the

Zeitgeist here of a busy summer somebody

over the weekend in the Hampton said

there's no Hamptons this year that wall

Street's just Grim about the potential

layoffs the right sizing whatever you

want you went to The Hamptons no I did

not okay you're talking about the

article in Business Insider maybe I

think maybe it was chaneli basic's

threads account you know she was on the

Hamptons yeah you know on the Hampton

okay Zeitgeist as well right now and I

want you to Lean Forward on this very

lovely it's hugely qualified out of

Syracuse University senior fellow at the

Peterson Institute to speak of the

mysteries of China including her

leadership at the China Economic Review

here a number of years ago Professor

lovely thank you so much for joining us

uh this morning I want you to sum the

mystery now the Zeitgeist of China the

Pacific Rim three or four big cities and

then all of that distance of China to

the West out to Chengdu is China

struggling is China flat on its back or

can we be more optimistic

Dinah is struggling it is not flat on

its back it clearly is struggling we're

we're waiting for the Q2 numbers to come

out in a week or so and we'll know how

badly it is struggling but it definitely

is struggling it had a little bit of

wind under its sails coming out of the

end of zero covid but consumers are just

not having it and of course uh the

global economy has slowed it has managed

to have several good quarters with its

net exports but it's looking for drivers

of growth Tom and it's not going to find

them in the households is the hierarchy

and I'm going to use this phrase as an

amateur the hierarchy of the Communist

party that all that matters is employing

people

no very much not it is of course

preserving the uh rule of the Chinese

Communist party and preserving the role

of the state and of course one of the

key ways you would do that is to keep

people employed but we've seen some very

serious problems with Urban unemployment

unemployment among college-educated

youth hitting almost 20 percent uh so

they have a really serious problem in

terms of driving jobs not in the

factories that were hit with the Trump

era tariffs from the U.S instead this

isn't a service economy it's in the

higher Tech sector it's in finance it's

in the kinds of jobs that

college-educated young people you know

we're trained to do and expect to have

given this backdrop Mary how does that

influence how does that color the

discussion uh the discussions I should

say that were had with Janet Yellen

treasury secretary over the weekend the

second high-level U.S uh policy maker to

how to Beijing in the past month

it's a great question because of course

the two intersect the Chinese would love

to see a decrease in tensions uh with

the U.S they would like to see some

rollback in the Trump area tariffs uh

Janet Yellen coming is good news not

only is it's a it's a further visit from

some someone very high up in the buying

Administration but is someone they're

familiar with it's someone who has

enormous respect globally enormous

amount of experience in the U.S both the

fed and out the treasury and in other

ways and so they treated her I think

with the dignity and respect that she's

due

given that there is that respect on one

hand there didn't seem to be a lot of

resolution to anything do you think that

there were any inroads made over the

weekend especially given some of the

blowback that Janet Yellen has gotten

for cow Towing maybe even quite

literally to uh Chinese officials in a

way that perhaps people in the U.S are

not as interested in

yeah that's just noise if you you know

if you look at it she's an older woman

tiny woman she's going up to shake hands

this is noise she's there to actually do

business and I think that her main

message from President Biden was that we

are trying to put some guard rails on

the relationship we do have major

disagreements with the Chinese but it's

a relationship we want to manage and

manage in a way that doesn't lead us

into high higher and higher levels of

conflict Mary your Peterson Institute

has led on thinking about an America

that post-pandemic will adjust to a

higher rate regime Adam Posen and Olivia

Blanchard really leading the charge on

this how does China fit into that if we

bring our general level of interest rate

up what does that do to China

well it's clearly a challenge for China

because it leads to a tendency if they

didn't have Capital controls you'd see

Capital flight AS investors would try to

get higher yields so there's Capital

flight there's pressure on the currency

that they don't want so that makes that

sort of takes their monetary policy and

says we have to do this with it at the

same time they would like to continue to

stimulate the economy they've tried to

do it with what's called targeting

credit expansion and they have a number

of different individual pots of money

for small businesses for different

sectors Etc but they're still having

trouble they're not really that is not

really having the effect on the economy

that they're hoping Mary thank you we

have to leave it there Mary lovely there

of the Peterson Institute on the economy

in China we talked about the surprises

of 2023 so far just moments ago in the

market this Market's ripped the NASDAQ

doing tremendously well after a really

difficult year last year that's the

market surprise the economic surprise

what happened to China to win all the

heavy lifting Lisa the reopening story

The Boom we were expecting there to

spread through Europe and now we've got

what Germany in recession

and China's struggling we're talking

about stimulus in China in the middle of

the year really right and we're talking

about not necessarily just a reopening

but a lack of willingness to invest a

lack of willingness to spend by

consumers who can't find jobs as we were

talking about with Mary lovely taking it

a step further how does this play into

the commodity space and the importance

there the idea that we didn't see also

the Boom in Energy prices and perhaps

that was a Tailwind that offset the fact

that China didn't provide the boom if

you've got an answer for that I'll pick

plus and the Saudis would like to know

I'm sure that they would because Tom I

don't think they're too happy they're

still down in the in the 70s after

pandemic surge I mean we went from 2020

in the Blended Bloomberg commodity index

to a boom index we've pulled back and

technically there's no way we've broken

Commodities to a higher visibility no

way whatsoever great lineup in the next

Air to get your weight started Amanda

line up at BlackRock Brian Levitt of

Invesco submissive Mana of Wells Fargo

Tom those conversations coming up in

about 35 minutes time be interesting to

see I mean there's no question about it

wouldn't Brian Levitt does here in terms

of acid allocation and to me I mentioned

it earlier the 60 40 conundrum for me

for a huge body of our listeners uh in

in viewers I mean this was gospel you

put 60 in here you put 40 in there and

you play golf and gone you know the

fountain out some yeah you put some

money and some some cash-like Securities

you pick up five percent you put some

money in Ai and you do something more

interesting than play golf

I don't you know I sir surf yeah got

away for a long weekend

lots of points in they don't need to put

up that on a credit card

we're having an October conversation in

July that's the heart of the matter yeah

you're just skipping summer aren't you

yeah no interest in summer

no vacations TK okay kids um

[Music]

[Music]

surveillance good morning everyone

Jonathan Farrell Lisa Branson Tom King

raw together again Farrell's gone off to

get ready for a nine o'clock cineramic

excavate it'll be wonderful to see what

he has at nine o'clock given markets

churning here it's a turn before CPI uh

Wednesday Lisa bramlets and Tom Keane uh

with you here and it's a rich discussion

to be the least in this morning for

those just joining in uh Across America

it's real simple it's about China The

Whispers

inflation to put it all together there

were a lot of weeks so far this summer

where not a lot happened and people are

just sort of spitting their wheels

trying to come up with a new narrative

this week is actually going to be

incredibly important with both the CPI

report the last week of feds Beacon lots

of it before the quiet period the

geopolitics of China and the U.S yeah

potentially deflation there but also

what's happening with respect to the Tit

for Tat between the U.S and China and

then to put the boot on all of this

we've got Friday we've got uh Bank

earnings kicking off you put that

together that is a massive pivot point

for people who are already reassessing

and pushing out further recession calls

to get out to Wednesday and CPI

Wednesday we'll have complete coverage

for you at 8 30. beneath the headline

data we stopped Tuesday it's something

that we're not spending enough time on

which is the Small Business Report the

nfib school Business Report what is the

mood of people small enough to run in

their businesses off their charge cards

but frankly companies that are bigger

than that there's I don't like the

phrase small business but this is the

heart of America 6 a.m Eastern tomorrow

we do get that small business optimism

survey how not optimistic are people who

actually have to pay the bills and pay

higher salaries and find the workers and

everything uh that we have been seeing

when we do go on vacation or if you

don't and you just you know play tennis

in Central Park like Tom Keane every day

I I watch them play tennis I'm not

playing tennis anymore which is a good

thing for the tennis community if you

watch Wimbledon I have I have not

watched them a little bit brief me on it

well I I mean just uh we will get more

from there but yes carry on

CPI data you're talking about that due

out on Wednesday Stephen rashido of

Mizzou Securities pushing out his

recession call among uh many others as

well on Wall Street to 2024 adding

without a rise in joblessness the

economy remains stuck on the current

trajectory which would eventually lead

to Rising inflation expectations and

higher long-term rates despite Global

excess saving and Tom to me this is

really the key question the resilience

that we see in businesses the adapting

and the adjusted and the economy and the

labor market how much higher do rates

have to go to really bring inflation

down to where the FED would like it to

be and it comes to the granularity of

Stephen ricciutto he's chief U.S

Economist at Missoula Securities and be

a cost across the core equation y equals

c plus I plus G plus something to do

with net exports but rashido of course

in a recent note goes much bigger and

broader I love how you push back against

secular stagnation that's the Gloom

that's out there and you say America's

different talk about America in the

media frenzy on secular stagnation you

know the point behind the U.S economy is

the underlying resilience the body in

the administration as well as the Trump

Administration provided an enormous

amount of excess savings into the system

through the coveted stimulus and they're

still by our estimates about a trillion

dollars there which contrasts easily

with the San Francisco fed number of 500

billion but even more important than

that we have healthy balance sheets for

the household sector and for the

corporate sector the non-financial

corporate sector when we look into the

banking industry despite all the

Regional Bank hiccups we've seen there's

still a solid balance sheet for the

industry in general and I think that

drives home the liquidity so between the

liquidity the excess savings the health

of the balance sheet this is not a

credit crunch recession that we're

anticipating that's why it's hard to

call the beginning of it this is an

inflation recession which means the FED

has to get short rates High Enough to

choke off levels of economic demand and

they're trying not to do that and the

net result of that is they're slowing

the economy but delaying the inevitable

so you run the risk that you could wind

up with increased inflationary pressures

built into the system what they need to

do is they need to get the belly of the

curve up because that's what

securitization takes place that's where

everyone funds they don't Fund in the

FED funds Market or in the 30 60 90 day

Market they Fund in the three to seven

year maturity Gap I look Steve at the

respect that you and I have for someone

like Lawrence Summers is early research

on hysteresis with Olivia Blanchard

among many other accolades as well but

there's still there's Lawrence Summers

on stagflation should we worry about

stagflation it seems to be is there

something at least a disc

stagflation is that a word well

I think you do have a greater potential

for stagflation to fold from this if

policy makers hold on to this experiment

that they're trying to run for too long

which is to craft a soft Landing you

look at the what the markets are doing

the markets are being very rational the

equity Market saying the fed's

forecasting a perfect soft Landing so

they've priced in a perfect soft Landing

you look at the curve the curve is

saying the fed's going to keep on

raising short-term rates but then

they're going to cut rates real quickly

so the market has this downward slope to

it and we were over 100 basis points

inverted between twos and tens about a

week ago and now we're about 80 to 90.

the difference is almost all of that

downward adjustment in the curve is

concentrated in the FED funds the

two-year to five year sector which means

a lot of the impact that you're getting

from monetary policies not winding up

finding its way through to the cost of

financing for households and

corporations you've said a lot that we

have to unpack the idea that this is not

a credit crunch recession building what

we heard from Tom Kennedy of JP Morgan

that the verdict is in we have seen that

the Regional Bank crisis was not an

economic crisis and didn't have of the

ramifications for the economy that a lot

of people believed how high do you think

the FED has to raise rates for it to be

restrictive in a way that it is not now

it's a function of the curve and to the

extent that we have to get the five-year

note to current two unit levels that

gives you the impact Now how hot is the

Fed funds rate have to be to get there

is the question and that's a difficult

question to answer I do believe that if

we had the five-year note trading where

the two-year note is trading right now

we would have a very very different

level of macroeconomic activity so that

differentiation there then gets into

well how much of a curve does the FED

anticipate a cut and that's what's

important about the dots in the SCP

because the dots in the SCP although

they did raise the level of rates okay

they actually made the curve drop

steeper over time so they went from

saying 80 basis points worth of

adjustment downward 200 basis points

worth of downward adjustment so they

kind of took out the sting of what they

were doing this all goes to if you're

just uh trying to parse through Bond

speak this idea that the higher you

raise rates the near term the more

quickly you'll induce a recession that

bring rates lower over the shorter to

medium term which offsets the actual

effects of monetary policy where does

the balance sheet play in then is that

the other tool at a time when you have

seen it actually accelerate in terms of

its deceleration of its decline well I

mean you got to remember they've put so

much into the system with the 5.4

trillion that they monetized and the

economy has grown so some of that excess

is being eaten up by the growing economy

and the expansion that's necessary in

the underlying balance sheet for the

economy but they've got more room to

take out but I don't think they have the

opportunity to accelerate it to be

honest with you I think there's there's

a good degree of risk in Fallout in

trying to do both interest rates and

quantitative tightening at the same time

and I think they would have been smarter

to have just done one first and then

done the other later when you talk about

pushing out the recession that seems to

be consensus with a lot of people who

you talk to it's kind of obvious if you

take a look at the data which is not

consistent with recession very much in

most areas of the U.S

what is the nature The Contours of the

recession when you expect it to hit next

year well it's going to be very shallow

or it should be very shallow they're not

going to try to kill it

um and and that's part of the process so

it's an evolutionary process of trying

to get there and this gets back to Tom's

question about stagflation if you're not

going to kill it and wring out the

excesses in the system you run the risk

that inflation expectations get embedded

in the system and if inflation

expectations get embedded in the system

then you could get an environment where

the economy slows but you don't

necessarily get the full bang for your

buck on the disinflationary side that

you have the benefit of the global

deflation story time is it's holding

down long-term real yields and nominal I

should say nominal long-term rates

that's helping to keep the economy

growing as well because that continues

to contribute to the idea that there's

still ability to finance out the curve

and it's helping to invert the curve

between twos let me squeeze this and I

got like eight ways to go here and any

questions this is so interesting is a

great moderation and over I mean I just

did a log concave chart of what the

price of bonds has done according to the

Bloomberg total return index and the

slope that acceleration of the great

moderation is ebbed can we say it's Peak

done and we're going to cut down to a

new non-great moderation that's darn

good question

um I think the global deflation story is

the key to that

um and to the extent that we have it

expanded our production facilities by

diversifying our supply chains in an

environment where the global economy is

Aging in an environment where the global

economy is slowing you do have cyclical

inflation that's taking place in the U.S

Europe and to some extent in Japan but

you have Global deflation taking place

outside of it and it's that trade-off

that's being reflected in this Indian

version of the curve the long ends being

held down by the global constructs the

short end is being pushed up by the

domestic cyclical constructs and that's

created the feds creating the problem by

anticipating Cuts if they weren't

anticipating Cuts we'd have a different

matter here in July on getting to

October my first question to gorgeous at

Marrakesh is simple given the imf's 2028

Gloom which you just voice with

disinflation how does America adapt and

adjust to a global slowdown in global

deflation it's hard it's hard but we do

benefit from the fact that we are the

largest net importer so so we wind up

suffering from the potential

deflationary risk which gets back to

your question could we get back to the

great moderation the answer is if they

deal with the cyclical issues correctly

yes we would get back to the great

moderation if they deal with the

cyclical issues incorrectly we could

wind up with stagflation before we then

have to deal with those issues and get

us back to the great great moderation

Steve rashido thank you so much for a

brief here from sixty thousand feet on

the American economy Lisa to me and I

thought about this over the weekend the

basic idea of John Williams reaffirming

a low R starred and I've been taking

about how many people I respect agree

with the president of the New York fed

that we can be optimistic and get back

to some form of that great moderation

with a sustained more subdued our start

Ellen zettner the soft Landing from

Morgan Stanley a lot of people talking

about this that the amount of debt the

demographics the Aging population make

it very difficult to see inflation

Gathering steam which is a reason why

I'm so curious about some of the

geopolitical tensions that could raise

prices of Commodities in a way that we

have not seen so far this year where do

some of these other factors come into

play when we start talking about the

bigger underlying inflationary it goes

into the oil call very quietly here

Brent nudges up near 80 a barrel I mean

did you go along while you were gone did

you go long oil no I went long barrels

Airline Futures and pretzel pretzel

futures for uh all of the all the

flights which I think uh is I don't know

how you did it I heard it was terrible

we will continue running green on the

screen right now the vix

15.41 to pick up on that though I just

want to say yesterday was the busiest

day for commercial Aviation ever

recorded by flight tracker which is this

tracking mechanism online which to me I

mean again that's sort of the tenor

behind some of our discussion about

inflation prices are higher experience

it's worse Pro tip and yet people want

to travel and get out there and they're

related look at the celebration of Greek

recovery and of course the Prime

Minister who's been a great supporter of

the efforts of Bloomberg surveillance

winning a resounding reelection I guess

everyone's celebrating I saw an image of

the Acropolis this weekend I wouldn't

want to be there it's so touristy and

crowded you know I I just why would

anybody go over and wait in line for six

hours and when you bought a ticket three

months ago the Vatican the across olives

I mean if you go to enrollment if you go

to any of these it's it's incredibly

crowded from all uh accounts it really

shows what Pharaoh did where he went to

four different islands and no one was

there yeah well I mean but this to me

goes to this sphere of if you don't have

inflation globally it could potentially

simmer down but since you have it so

strongly in Europe since you have it so

strongly in the U.S since you have it so

strongly in so many places around the

world it gets harder to see how we get

down to something that's more reasonable

without some sort of more material

intervention I'm in the camp that

there's other factors out there like

technology and maybe some American

exceptionalism as well I have to admit

Europe is to me the biggest mystery

right now not the least because they

have a war going later today our Maria

tideo in conversation on that Europe

with the president of Lithuania and

again I am hordon scheduled I believe to

be in Lithuania as well the president is

in London with the King stay with us

worldwide on Bloomberg News good morning

[Music]

there's an issue here of tight labor

markets there's an issue here of

psychology having shifted and I think

the interaction of those things in the

absence of a slide into recession or

something like that it's just going to

blunt some of these unwinds that are

happening here and we shouldn't ignore

that as well we were running inflation

at the core of five percent this year I

think we're going to slide below four

but I don't think we're going to slide

on a sustained basis below three our

treasure team there giving you the

voices on a Monday morning you need to

reset for the week Bruce kasman is Chief

Economist head of global economic

research and JP Morgan I really want to

state that you know on Friday you know

first of all we don't plan for anything

here it's surveillance but the basic

idea is somebody went to me or Lisa

you're you're in the racket River

somewhere or pharaoh who was having a

gelato I think they called up pharaoh

and they said what do you want to do and

he says I want to reset for inflation on

Wednesday and that's really what we're

doing today that's right reinstating for

inflation you could go on vacation too

you know rather than just sort of

lobbing these jobs

14 time zones and I'm covering now I'm

home with vet bill and uh kennel fee uh

uh getting it done I will say though I

take your point about CPI and how

important that's going to be it's the

last major data point before the quiet

period and then the FED although and we

were talking about this earlier I think

you brought this up Tom where we kind of

believe July is a lock it's going to be

a hike what about after that no we're

gonna have to see and the red and green

on the screen right now two-year-old

4.95 down from that 5 5.05 shock here

we've heard a lot on interest rates

today joining us right now what's really

good about this is our kids are at Camp

2020 hindsight Gina Martin Adams joins

us Chief faculty strategist at Bloomberg

intelligence 2020 hindsight October of

last year what did Bloomberg

intelligence say about the equity Market

um well we our models did give us an

indication that at the very least we

were in a massive sentiment washout for

the index which historically are pretty

good conditions to start taking on a bit

of risk at that point in time our fair

value model also suggested that the

market was positioned for a 15 downdraft

in earnings growth coming for the next

12 months so really big earnings

recession was priced into equities and

luckily enough that earnings recession

has not happened we've seen earnings

remain weak but actually excluding the

energy sector get a little bit stronger

or at least less weak and that's what's

taking the market by surprise so far I

went back in in my youth and I looked it

was a week where I bought two Bob Seger

albums these are records

and the hardest thing off the bottom in

that pessimism is the second leg of a

bull market I identify it is January of

1976.

is this the second leg of a bull market

what are the attributes that will allow

you to identify yeah we need to see

leadership broadened beyond the top five

in the index or even beyond the top

seven in the index to establish that

second leg we did see that occur in June

we saw a pretty significant broadening

of the events in advance indeed but I

think there's still a great deal of

nervousness as to whether anything other

than the top five can produce some

earnings growth into the second half of

this year which makes this earnings

season pretty consequential because the

top five is absolutely leading earnings

growth that those group that segment of

the index is expected to post 17 growth

in EPS year over year that's a big

earnings gain relatives

the biggest the biggest stocks in the

index but but that really uh just to

build on what you're talking about

highlights the concern that some people

have which is that the largest companies

are masking what's going on elsewhere

does it make it difficult to talk about

an index level when it's so heavily

skewed and doesn't reflect some sort of

mean it does because when you focus only

on an index level you miss everything

that's happening underneath and this is

being that goes beyond the top five as

well remember last year everyone thought

oh earnings are holding up much much

better than expected but if you

decompose the index and you looked at

earnings X energy you saw a very clear

earnings recession emerge in the s p

500. we're having the opposite occur

today so I think it's extremely

important to ex to decompose the index

into its constituent Parts look Beyond

even the sector level look at Aggregates

in a very different way because

otherwise you're not going to get the

investability right which is why people

are increasingly looking at equal weight

uh indexes and I've seen a number of

reports particularly over the weekend

highlighting that you're seeing actually

a real comeback there as well because

people are looking for other places to

put their cash in the fomo that JPMorgan

talks about

how can you judge whether that's gone

too far if you just take a look at the

bird's eye view yeah it's it's

challenging but I do think you want to

look at things like valuations for the

equal weighted index which are still

well below their pre-pandemic average

levels there's plenty of room for that

valuation sort of level to re-rate

outside of the big cap tech stocks and

outside of the largest stocks in the

index I do think you want to look at

earnings growth excluding the top five

which even when you exclude the top five

and you look at earnings growth X energy

you are starting to see some

stabilization emerge we need to see that

continue we need to see a bit of follow

through into the second half of this

year we need to see the macro conditions

continue to support that stabilization

and critically this has been an earnings

recession that's really all about

inflation and not about growth and I

think that's left a lot of people on

their back foot because we've been in an

environment where growth was the only

thing that really mattered and now we're

in an environment where inflation is

predominant and so it took a lot of

people by surprise when the earning

stream turned out to be a little bit

better than anticipated and most of that

is because of the inflation Dynamic

which shifted materially earlier this

year we need to see that continue CPI

has to grow at a pace faster than PPI

both need to continue to decelerate to

really support this margin stabilization

which will should lead to a broadening

in the in performance and earnings at

large I just brought up a small store

out of Bentonville Arkansas and I'm

looking at a PE on Walmart of 2426

something up there which I think is just

absolutely insane if it's growing at

single digit level but I'm looking at

the BQ screen folks the BQ screen is

where Gina Martin Adams goes every day

in the Bloomberg terminal to become

wiser price to cash flow of 11 times

cash flow yeah that's a lot smaller

number what does that signal to you yeah

I think that this is really important

very important because cash flow was

under an extreme amount of distress in

2022 as well and this is another thing

that was completely missed in the sort

of the consensus speech was earnings are

better than expected but cash flow fell

throughout 2022 year over year cash flow

is starting to improve we saw our first

quarter of improvement in the first

quarter of this year we should see cash

flow continue to improve for the rest of

this year and importantly investors are

not paying for that cash flow and I do

think that that provides an opportunity

for companies that can produce that

bottom line cash flow growth for some

multiple expansion now is it for the

overall index at large not necessarily

because you're still paying an enormous

amount for some pretty Grim cash flow

Dynamics for the broad index but on a

stock by stock basis an industry by

industry basis there are tremendous

opportunities and Lisa to give you an

idea I got the HP 12C on folks because

if the day gig doesn't work out I'm

going to go work for Gina Martin Adams

at Bloomberg intelligence Apple's free

cash flow from pre-pandemic to a model

of where we are now it's only up 79 I

know it's been a tremendous tremendous

rally I take what you say Gina about the

importance of both CPI and PPI and CPI

needing to rise at a faster price than

PPI we get CPI on Wednesday PP API on

Thursday this is another way of saying

that they can keep jacking up prices

more than the their base costs that's

another way of basically saying the same

thing dovetail that into Friday and the

bank earnings and what importance you

place on them at a time when people are

looking to some sort of lending

contraction yeah so Bank earnings is a

whole another story for what's going on

in the S P 500 because this is like

energy one of the weaker components of

the index where people are actually

losing a lot of faith Bank earnings

expectations for growth have roughly

been cut in half a little bit more than

half over just the last six weeks as

investors are continuing to get very

nervous about that and this is about

loan quality it's about credit quality

it's about sort of deteriorating credit

conditions it is about growth more so

than inflation with the one exception of

the inflation's dynamic on the inflation

impact on the yield curve so financials

are sort of in this worst place sort of

position because they've got negative

yield curve spread an inverted yield

curve is terrible for Bank earnings as a

signal they are not particularly

expensive but nonetheless no one has any

faith in the earnings Outlook because of

the risks that are still sort of

underneath the surface of this economy

and that is credit quality is a real

concern everybody's very worried about

the degree to which credit quality can

maintain some stability going into the

second half of the Year financials are

there for Ground Zero for this risk and

I don't think that's necessarily going

to change in second quarter we've seen

no indication of change at all as so we

probably will start off the quarterly

earnings season with some relatively

unique results and then have to ramp up

into the stronger components of the

index as the season goes on Gina Martin

Adams thank you so much I got to go move

on to a surveillance correction okay to

see if I can come back tomorrow kimon

from Athens listening he's with one of

the major athletes thank you for all of

you in Central Banking in Greece and

Commercial Banking and listen every day

to surveillance he says Tom you're an

idiot

he says he says I was comparing the

Acropolis to Disney World equating them

and I apologize if that was the tone

that I took I was not equating the

Acropolis of 525 BC as compared to

Pinocchio of

1949-80 I didn't want to

be disparaging to Mr mitsataka your

apology has been recognized can I come

back tomorrow

good morning oh yeah

foreign