>> the fed is done. we are moving from a rate hike cycle to a rate cut cycle. >> the fed is going to ease. until we see data that it is not working, it is risk on. >> the more cautious i think they will be on the inflation. >> overall inflation is on the right path. >> this is bloomberg surveillance with tom, jonathan ferro and lisa abramowicz. jonathan: the bullishness is overwhelming. good morning for our audience

worldwide, this is bloomberg surveillance on tv and radio. your equity market a little bit softer this morning. the s&p closing yesterday just short of all-time highs. here some of the bullishness for you. mike wilson morgan stanley equities get a green light to ramp higher. citi positive. lisa where did all the bears go? lisa: the latest bank of america fund manage survey showing investors feeling the best they have since january of 22. cash allocations are falling. all of this just shows people are saying let's go. how fragile is this rally? jonathan: this in the wall street journal from the san francisco fed president. san francisco fed will get a vote on the fomc next year.

the conversation is changing. we will still be restrictive even if we cut rates three times next year. we have to be forward-looking and make sure we don't give people price stability but take away jobs. that's a monster change from where this fed was in august a couple of years ago. lisa: this is saying the balance of risks is not only evenly split but they are more concerned about the possibility for prolonged job losses. to me i thought the a contest the comments were notable and how much they shifted away from the inflation concerns more towards preserving economic strength. >> down the barrel of the camera, pain is coming now going to 2024. that's a big shift. >> you raise a point in the past couple of days how much is this fed chair powell being seduced by the idea of a soft landing. we heard from bill dudley yesterday this fear we could see

some kind of reignition of inflation and they will not be able to tame it. i do think about some of the supply chain disruptions and the fact that people are getting more optimistic about buying homes and goods and what is the counter. in terms of economic growth and inflation. >> the ship in the red sea ground to a halt. we also need to talk about the changes with central banks elsewhere. the bank of canada governor speaking to our colleagues signaling rate cuts are coming in 2024. hearing from the bank of france governor that rate cuts are coming in 2024. if you are looking for change from our friends in tokyo, we have absolutely nothing from that meeting. >> nothing in terms of a decision or guidance. ueda said there isn't much likelihood they will raise rates a month in advance. we don't do forward-looking guidance.

if you want to know when we are going to -- moving away from negative rates, you'll have to keep guessing. do they want a stronger yen or do they want a weaker yen. they concerned about trying to get ahead of the fed cutting rates because they're worried about strengthening too quickly. what is the calculus they have got here. >> they are getting a much weaker japanese yen. approaching 145 on that currency pair. equity market on the s&p 500. pulling back just a touch. positive 1/10 of 1% on the s&p 500. yields are low by a couple of basis points. >> we get u.s. building permits for november and u.s. housing starts at a time when we see mortgage rates plunge more than a percentage point from the all-time highs of more than 8%. this is the reason why i find it

compelling that fed chair powell did not push back against the market activity but also the fact could this reignite some of the activity in housing that's added to the disinflationary action we've seen. all the pushback includes tom barkan at 9:30 p.m.. chicago fed president austan goolsbee who came out and said everybody just calm down. didn't he do the same thing about two months earlier to try walk things back. jonathan: i went through the comments for president goolsby. of the other seem to be some confusion about how the fomc works. speculatively about the future. every time i've heard from them over the last few days i just want to get that piece of sound and just reply it. are you telling that didn't hear what he told us which they are contemplating the appropriate

time to reduce interest rates and that could be next year which is ultimately what we were told. >> which left me thinking about this last night. what if they wanted to send the message that you can ease financial conditions, we could talk about that coming up. there is an obvious dissonance here and some sort of disagreement on the fomc. just want to point out the shares are up so far this year. 63% now. this comes as they gain market share after some of the union labor talks as well as some other issues. very curious to hear the forward-looking comments given the rate on the economy. >> chairman of the strategic research partner. let's get straight to it. chairman powell wednesday in the news conference. the question of when it will be appropriate to dial back the amount of policy restraint in place.

clearly a topic of discussion in the world. a discussion of our meeting today. we all heard it. what on earth is everyone else talking about. >> i don't know. you asked the question where did all the bears go and i think we know, the fed is shopping for the last 2.5 years which i think is appropriate chairman powell talked about avoiding the stop and go monetary policies of the 70's and all of a sudden we are now talking about preemptively easing and that leads you to maybe three conclusions. seeing some -- something we are not. i think that's unlikely mainly because they really see thing -- rarely see things. we are better at forecasting than we are. the second is the fed has become politicized which i'm not sure is fair, but certainly among our

clients there is a growing sense that is the case and the third possibility is it is institutional arrogance the fine tuning is really possible when you're talking about economic systems this large. i'm kind of going with the third. it doesn't make me feel any better but i also think as one of the other guests in the intro talked about until this changes its risk on. i think that is clear. >> equities up again by .1%. can you talk about the risk of institutional arrogance. a second wave of inflation next year? jason: my colleague looked at over 30 countries over the last 20 or 30 years and one of the things he found was once you reach 6% to the upside in about

nine out of 10 times you have a second wave of inflation, and echo wave. that's partly because of the way contracts are written on the way expectations get into the system and i certainly -- we think it's certainly not impossible this time. we have to remember the fed increase the size of the balance sheet from $4 trillion to $9 trillion. it's now a little less than $8 trillion. that's awful lot of money created in a short periods of time. so it is incidentally running budget deficits of 6% of gdp at full employment. so the possibility of having another wave of inflation is not impossible. i know there's a lot of chest thumping now and a lot of spiking the ball perhaps you'll

see some beneficial try to walk -- some fed officials walk that back today. i am somewhat concerned. at the same token, i think they are counting on the fact there won't be another wave. lisa: how much can you pushback against the recent wave. signaling the all clear. how do you become a bear if the fed is going to shoot them all. >> it's a great question and the answer is you really can't. you have to incorporate liquidity, you always have to but i think more now than ever, i would also say the treasury department is certainly playing an active role in terms of their refunding in the bills market to try manipulate interest rates as well. i don't think that sounds overly

conspiratorial. i think it is obvious. as investors you have to incorporate that into your thinking. this year is also an election year and i've always -- my interactions of always been so positive in terms of their intentions. i think as an institution i've always felt the fed more than any other republican or democratic administration almost always trying to do the right thing and now there are real questions among our clients as to whether the fed is playing politics. that may be unfair but it certainly the perception out there in the institutional investment community. >> you feel uncomfortable, you can really lean against this market rally and you have to lean in. where do you lean in? jason: i think maybe in some more of the cyclical sectors aside from tech and i certainly wouldn't short tech or

communications but they have had big runs so there may be some other sectors like industrials, like energy perhaps where there was decent fundamental cases to be made for strength next year or at least they are cheaper and they are more cyclical so those are sectors that seem to be kind of interesting. you may know we have passed some pretty extensive infrastructure bills and remarkably so little of that money has been spent. it's been appropriated but it has not been spent and it will be spent next year in an election year which i think is that final point on it being an election year i think is looming large. and a lot of the decisions both by the administration and sadly the fed. jonathan: it may be has to some extent been politicized. jason: i do and it saddens me to

say that. i'm just looking at the -- what is happening. it's hard to come to some other conclusion. the institutions may have better answers but certainly there is perception out there that the fed is becoming more political ahead of the election year next year. that may be unfair, but i spent all my day talking to institutional investors and i would say there is mild shock from the tone we saw. jonathan: a lot of people walked away asking some big questions. just for the record, no bears will be harmed or shot in the making of this program. bears are welcome on the

program. lisa: are they? i've gotten a lot of -- i get little cartoons of a bear sitting and looking lost. jonathan: the conversation needs to start with last year. going through the price targets in the s&p 500 as of december 12 months ago, the average of -- was 4000. by the end of the year for might fall 20% short of that. 20%. lisa: they missed to the downside. are they going to do that again? how much do they have to ratchet that back up. jonathan: from new york city this morning, equity futures just about positive, good morning. ♪

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state should test our resolve. so in the red sea we are leading a motion -- multinational task force to uphold the bedrock principle. iran's support for attacks on commercial vessels must stop. >> that was lloyd austin speaking in tel aviv alongside the israeli president benjamin netanyahu announcing a joint task force to counter attacks from militants in the red sea. shipping through the red sea grinding to a halt. the container shipping firms that have so far paused transits through the region account for 95% of all the transportation capacity deployed through the suez canal. that according to clarkson research services. lisa: you can see the increase in natural gas prices in europe and see generally this feeling that there could be some disruption. can this task force step in quickly enough. or are we going to see this is

the new headwind to the potential of disinflation going forward. >> bp to start this week and maybe even more to come if there's any left. s&p 500 equity futures pushing higher talking about 4800 potentially on the s&p. we had a media average target of 4000 points year end on the s&p and here we are looking at for just 4800. funnily enough back to where they were on a 10 year to start the year. we are down a couple of basis points. >> this raises the question into next year. will we get the expectation for 2023 just a year late or repeat of what we saw. everyone was set up for a recession and some sort of expansion after that. now people are expecting maybe you could get growth and then slow or slow and then grow.

it was like can you bet on what's can happen. this glorious expansion before you get any recession. >> you popularized research for them. on wall street there is exuberance down in washington dc for democrats. this coming from greg. a gloomy holiday season for democrats. it's impossible to exaggerate the mood of despair among democrats in this town. greg, let's start there. how bad is it? greg: they worry not only they could lose the white house but they could also lose the senate and the house. the democrats have narrowly got the senate. there's a feeling the joe biden job approval numbers are so bad that you still have to think there is an outside chance he could be persuaded to drop out. jonathan: how bad with the loss

be if the election were held today? greg: significant, maybe three or four points. the key electoral vote states, michigan, pennsylvania, border -- georgia would probably go to trump. the election is still 10 months away, there are issues that could break in biden's favor but on just about every issue, immigration, except abortion, on almost every issue biden is not doing well. lisa: who do you think could take over in the democratic party to run a presidential campaign? greg: there is a strong feeling that kamala harris lacks the gravitas to take over. i think she is actually underrated, but there obviously could be a strong focus on gavin newsom who has said he would not run. i think also a strong focus on gretchen whitmer in michigan.

i think she would be a sleeper to watch. >> there are still questions around either republican -- who the republican nominee will be. everyone assumes it will be the former president trump yet there was some dissent as the former president came out and said immigrants are poisoning the blood of our country creating a really awkward setting for them to come up with some sort of border control deal with the democratic president. how much is the republican party away from former president trump. >> not much. i would say the majority of people in the party here in washington refused to speak out against him. that comment on immigration was straight out of 1937 germany. it's unnerving but i think the democrats are still on the defense when it comes to immigration. this is may be the greatest crisis facing the country right now and the biden administration has not done well.

>> how do we get an agreement there to fund two wars. one in ukraine and another in gaza. >> i do think the need especially for ukraine is so acute that we will get something. not before they go home. you can write a bill between now and christmas. we also have a big budget fight as you know. so we go right into a very volatile period. around the world there has to be some sense the u.s. is not a reliable partner and look what's happening in the red sea, you almost get the sense countries may test us because we've shown an inability to act with resolve. >> the reluctance to support some of these wars is pretty clear. do you think the reluctance of republicans to carry on funding the war in ukraine is bigger than the reluctance of democrats to provide aid to israel. >> i think the need for ukraine

is more acute because the ukrainian army has stalled. pruden feels that he is now the aggressor. i think there's probably more important. i would say in both parties there is a strong sentiment that we have to do something about immigration. we are getting over 10,000 people a day coming into the southern border and that cannot be sustainable. >> your note started with it's impossible to exaggerate the mood of despair. the headline is the newsletter was that january would be terrible. have you ever seen a corollary to this type of dysfunction and lack of action in the face of real necessary decisions. >> there's been a lack of leadership you have to say. we have a new house speaker who is not fully tested. you have an 81-year-old president who seems to be not

perhaps on top of a lot of things. and you've got a very disgruntled public right now. that still worries about inflation prayed i think biden has done a pretty good job on the economy. i think the public does not agree with me and everywhere you look there is a controversial issue. there's a wildcard that could be huge which is abortion. >> you said we have an 81-year-old president two appears to not be on top of everything. specifically. what do you mean by that. >> i think when you hear sometimes he sounds hesitant, not clear, i think he got way behind the curve on the immigration issue. i don't think he fully appreciates how serious the crime issue is. this a lot of things that have the american public worried and they get the sense biden does not share their anxiety. jonathan: you still think there is a chance he is not running

next year? greg: just to be provocative i said there is a 25% chance. let's say he does not do well in some of the early primaries, that could be a factor. lbj dropped out on march 31 of 1968 so you could see somebody drop out later than january. >> appreciate the input and insight. enjoy the christmas holiday parade fantastic to hear from you. the democrats king is not biden, it is barack obama. he goes on to say given the third term if the constitution allowed it. lisa: he said privately obama is raising questions about the possibility of president biden winning another term. we heard this again and again. publicly the message has been the same. we have a mandate, absolutely

prayed look at the economy it's doing well. by a lot of metrics, it is. there's a question of why sentiment has remained so depressed. and you can just project the way people feel out right. this prostration feels -- is persisting even though they keep doing the same thing. >> the president struggles to connect with the anxieties of everyday americans when it comes to the economy. and of story, people don't want any statistics shut down -- shoved down their throat. lisa: if they are paying $100 more for groceries every month it will be hard to make them feel good. jonathan: equity futures just about positive. this is bloomberg. ♪ whatever you see, at pgim we can help you rise to the challenges of today, when active investing and disciplined risk management are needed most.

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jonathan: coming off another day of gains. equity futures just about positive on the nasdaq. some participation again beyond just the big tech names. energy playing off the rally. tons of energy going into clarifying the fed position. then san francisco and the wall street journal got my attention as well. >> it showed the shift in the balance of risks. there is just as much of a risk

of really hampering the labor market as there is curtailing inflation prayed the fact inflation is no longer the main concern is a massive change really underscores why cutting rates is not necessarily considered even being accommodative. but still restrictive based on the implied disinflation. >> getting ahead of any potential labor market weakness as well. let's turn to the bond market. we talked about these levels we were at in october north of 5%. 3.91. down a couple of basis points on the 10-year. on a two year maturity we are down a single basis point. >> i keep thinking about the idea of a deficit. everyone sang next year will be so messy with the election and the fact congress cannot get anything do. when do we start caring about the deficit again? investors of the most overweight bonds in years.

at what point is there a head fake, have we seen the move out of cash already. jonathan: this is the real deal. is it just people chasing underperformance trying to go to where the pain has been. we will have a conversation this morning. the dollar against the yen. dollar-yen feeling higher. that's positive by 1.4%. the boj sticking by its negative ratio leaving policy unchanged offering insight. saying it's difficult show exit plans with certainty. jane foley saying the end reaction shows there is some disappointment in the market that who wait a -- that ueda did not play that down. >> he specifically said he will not tell us.

this raises the question what is the goal? do they want a weaker yen? is that helpful in getting to their ultimate goal of keeping inflation up. i ask that because if they want to do that in a controlled way they might want to do that before you see rate cuts at the federal reserve because that will turbocharge any move stronger. >> elsewhere shipping in the red sea grinding to a halt. force move companies to avoid the area. u.s. secretary of defense calling for collected action and announcing a naval task force with allies to counter attacks in the region. saying rising uncertainty in the suez canal combined with the global economy rebounding because of financial conditions could put pressure on goods inflation over the coming months. >> i have to say people send me

gifts -- gifs showing bears running around saying what if. this is another what if an we saw that with oil prices before. what if they surge on the heels of middle east unrest. at one point is this another potential headwind that turns out to be remedied. you cannot ignore it if it counts for 10% of global trade. jonathan: do you tell them they will be pulled off the shelves on christmas eve. isn't this just slightly convenient. lisa: i love your conspiracy theories. jonathan: i'm just saying this is highly convenient. lisa: heading into the christmas holiday. that apple will stop selling the latest versions of its smart watches in the u.s.. facing a patent dispute. the tech giant will stop selling the two models online december

21 and guess when they stop selling them in physical locations. christmas eve. lisa: this is $17 billion of revenue for them. the shares are not moving. a 1% response to the loss of this. if they did there would probably be a bigger move. is it to encourage people to buy it now or is it to basically pressure the u.s. government to give some sort of stay. this is not a conspiracy theory. jonathan: highly convenient christmas eve is when they will stop being sold. jane foley joins us now. not to talk about apple, but to talk about dollar-yen and the boj. jane: i think if you were to ask many of the diehard boj watchers if -- they were not expecting

this to be a live meeting. not a single soul thought this would be a live meeting. i think that the commentary has been pretty consistent. why should they be in any rush? they are anticipating that ease into 2024. also if you take the comments made about a month or so ago they would rather inflation overshoot then undershooting. because of the overshoot they just hike interest rates. if they hike rates too soon they get that deflationary environment they've been struggling to cast off for decades. they would rather have an overshoot of inflation. jonathan: there seems to be a bit of excitement on the prospect of divergence between central banks. the federal reserve starts to go

one way and the boj goes another. what degree of divergence are you anticipating in 2024. jane: not a lot because i don't think the bank of japan will go for a lot. it's a fair comment now that if they go they will choose april for instance. they get the next year's round of rate hikes around and there are complications to that. suggesting they may go for a 6% wage increase for instance. the huge proportions of japanese people are not unionized. so there is no guarantee everyone will get really significant pay rises but the wage rises we saw this year at this with the highest in 30 years. so we are moving in the right direction. they just don't put themselves back. april is a decent month to anticipate they could move out of negative interest rates.

like he commented, they are data dependent everyone else. this virtuous cycle of inflation i.e. wage rises pushing ahead with consumption which bridges of profitability. that's what they are waiting for prayed we have to wait and see what the data says by then. lisa: data dependency is getting harder and harder for me because it means different for different central banks pending on the month, the week and what data is capturing public imagination. what about the data of the foreign exchange rate. does this bank of japan want stronger yen? jane: if you look at the companies they are very big exporters and certainly to those it's helping them. the companies when we had really high prices, it was really the

midsize caps for instance focused on a domestic audience. a domestic consumer. they had the high input prices and could not pass it on through their pain they did not have the export price. so they were the one struggling. you could argue commodity prices for instance are a lot lower than they were they will probably be lower into next year. it does take the strain off the worries of the impact of such a weak yen. again we go back to this argument that no authority wants a fast-moving exchange rate. something stable they can work with. as long as it's relatively stable i think they will be ok with that. >> that's the reason a lot of people are questioning the timing. especially the fed -- the market thinking the fed will cut rates

in march. this will turbocharge any kind of strengthening based on the double barrel. how much does that create a problem for them in terms of the timing put out there? >> it's certainly a factor. and clearly they are not going to tell us what they are thinking about for all the reasons we've been discussing brain it is an input for them. the movements in dollar-yen were really quite extreme starting to move down significantly. that is going to alter that decision. it is certainly a consideration. again it's one factor in many and it comes back to this. so i don't think the bank of japan will be moving significantly. because of the impact of the yen. april is probably again in play if the fed is perhaps not in a

till slightly later. >> let's wrap things up at the ecb. how credible is the relative hawkishness of president lagarde after what you heard last week? >> looking at that pmi data i think it's difficult to really get into that hawkish cap. that hawkish pushback. i am of the view if you look at some of the views with the competitiveness or lack of it, the fact so many big energies being adjusted are really finding it tough dealing with the energy prices are still higher than they were and remain higher than they have been for some time because of the lack of cheap energy from russia. i'd come to the conclusion for the next cycle or two or 10 years or so, germany might benefit from a weakened euro because -- to try nate its competitiveness.

we've got this issue in europe. working on that for the european commission. i think a weakened euro could be beneficial as long as inflation can be kept in check. >> morgan stanley thinks maybe we head in that direction. what's your call for next year? >> we haven't got parity on the forecast table. i would actually say we moved to the next five or 10 years, we will probably be more centered than anything higher which is from most fair value models that is weak. i think it's -- germany and the eurozone will need a weakened euro in the next cycle or two. jonathan: the data on friday was terrible. jane foley, we can revisit that data on friday if you want. 47, a dividing line between expansion and contraction is 50. 47 is not pretty.

that sort of on the brink of ugly over in europe. >> we saw german business expectations going down, a worsening for the first time since august. at the same time the ecb is pledging to remain strong which is the reason why nobody believes them. right now it's not credible and yet what's good to be the trigger for them to change their rhetoric. jonathan: this is why think it's more than just selective hearing. any potential pushback from a central banker is only as credible as the data behind it. on thursday you are like may be no. i don't think that's what's can happen. when you are the bank of france governor talk about the prospect of rate cuts, that's what i expect from the ecb. data can change. >> it seems that markets are in the lead.

there's a feeling markets are getting it more accurately from the fed. we were talking to different analysts that the fed is not trying to be bullied by the market. to create some sort of sense they will not follow suit with the market is asking for. it's been right. jonathan: the markets is when we are going to cut. and the market is like you are going to cut. 9:00 a.m. eastern time. more on that in a moment. the chairman of the supervisory board of the ecb on banking stress on the continent. that conversation up next. ♪

jonathan: we -- >> we have had pretty sturdy growth. the prospects of soft landing of

gone up. this is how powell thinks this will go. the fed -- powell think the fed will be cutting rates. inflation could be more stubborn. it might not turn out to materialize. >> the former new york fed president on bloomberg opinion columnist thinks this apparent pivot is a gamble. we will discuss that through the morning. the state of play right now, the scores look like this on the s&p 500. the s&p positive by 0.1%. yields coming in. we are down two or so on the 10 year. a focus on europe lisa. slightly stronger euro this morning. the data out of europe hasn't been great over the last few days. >> german expectations among businesses deteriorating for the first time going back to august highlights how things have taken a bad turn especially when the ecb seems determined to keep rates high.

that still is very much a problem. >> let's talk about financial regulation. 20 of the banks will need to raise the capital requirements next year. the ecb making an announcement at the presentation of its annual evaluation of the banking sector. warning that the resilience this year should not lead to complacency. there is still significant uncertainties and downside risks. economic growth will be dampened as the ecb monetary policy tightening and adverse credit supply conditions feedthrough to the economy. i'm pleased to say the chairman of the supervisory board joins us right now. wonderful to catch up with you. let's get straight to that quote you delivered this morning. where do you think there are specific pockets of risk we need to pay attention to in the year ahead. >> banks have shown to be pretty resilient so far. a strong position. profitability for the first time

in double-digit equity. if you look at the outlook for bases of course, we need to remain very alert. it is still a narrow concern especially real estate, commercial real estate. which are more sensitive to interest rate leverage finance. and then funding and interest rate, driven by the changes in the interest rate. >> one focus on this side of the atlantic has been what's happening. i wonder on your side how in gauging was developing in the market? how are you monitoring that? >> we are monitoring the exposures of banks. the risk is the main element. where banks are taking positions

vis-a-vis non-bank financial institutions. this is an area of attention for us. we should create expectations to step up their onboarding practices. monitoring practices and risk management. so this is definitely something we are looking into very carefully. but the key issue is with non-bank financial institutions sometimes there is a broader question for the perimeter of what this should be expanded. lisa: is there a sense there is another credit suisse out there? another bank that could be forced to merge or dissolve in short order in response to a sudden event? andrea: looking at european banks i think they have shown remarkable resilience. if i look at the events of the spring of this year, i think the two things that made the

european banks stronger are the fact the losses are relatively contained compared to offerings as banks in the u.s.. and the other fact is they are very well diversified deposit base. still this should not lead to complacency because indeed we see these moments of turmoil, markets start to look at banks not with her traditional balance sheet key indicators, they look at the value of equity and it will build the business model. these are areas where we want banks to focus the risk management and focus the improvement that we think is key to be safer from these type of events. >> would you like to see more consolidation particularly as you look for capital raises to insulate against the next cycle.

>> we have said since we joined we were opening, there was capacity in the european banking sector and that could be a good element to address that. the other point is the consolidation across would improve the private risksharing. with the profits, losses. so we have seen some consolidation within borders within domestic borders, we see some positive acquisition of business lines which of banks to refocus their business model. so our market remains for the national lines in the long term this is not good news. this makes the market more fragile. >> what do you think sparks that

change? andrea: of course the easy answer is a condition of the banking unions so having this that would create a common safety net and would remove an obstacle to consolidation. still i think this will not come for a while. there's been a very fractious debate in the european council member states crossing red lines so this is not going to happen soon. i think the banks should take ownership of this objective and themselves invest more in european markets. we've seen the banks they have opened branches, formed subsidiaries into branches and are now operating in the single market without any capital liquidity requirements.

we suggest european banks, we have not seen the move in that direction. jonathan: we have been talking about this for years. the conversation over the last decade has been how much stronger the u.s. banking system has been, how resilient it is and then march happened. i wonder is a european regulator what the lesson for march was to see this take place in the united states and very limited failures take place over in europe. why do you think that was? andrea: there are different reflections that can be done. it's clear in the u.s. there was a more bifurcated mill -- bifurcated framework on which systemic banks were responding in all senses to the international standards with smaller regional banks are not subject to that.

positive for european banks is the international standards applied across the board. irrespective of their size. another point which is important is having more attention to economic value of equity. it's been a positive for banks across europe where the profitability was depressed for a long while. of course it can raise issues if you have large unrealized losses. european banks -- still we have seen very massive outflows of deposits. funding and liquidity risk should be supervisors going forward. jonathan: just to wrap things up, better performance given what we seen take place in america early this year, the level of dividends shared by banks we saw this year, do you

see reason for that level to be maintained next year? andrea: of course that's not for me to decide. but yes i think that banks have been particularly profitable. they are planning distributions which are in line with previous years. very preliminary is around 70 billion of dividend buybacks for 2023. would we do is to check on these dividends and buybacks are more profitable with the trajectories and if so no objections of that. jonathan: appreciate the catch up. the supervisory board chairman and the european central bank. coming up just around the

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>> the fed is done. we are moving from a rate hiking cycle to a rate cutting cycle. >> the fed is going to ease, they are trying to get that soft landing. until we see data it's not working. >> the more resilient economic activity is the more cautious i think they will be. >> inflations on the right path. >> this is bloomberg

surveillance with tom keene, jonathan ferro and lisa abramowicz. >> the s&p 500 just off all-time highs. the nasdaq 100 record highs. for new york city, good morning audience worldwide alongside lisa abramowicz i'm jonathan ferro. your equity market positive on the s&p 500. a lot of fed speak. san francisco fed president saying the quiet bit out loud. it will still be quite restrictive even if we cut rates next year plus we have to be forward-looking and make sure we don't give people price stability but take away their jobs. >> it's just as much if not more about the economy and preserving momentum we've seen and achieving a soft landing. the idea baked in they will cut rates at three times and to use

mary daly's words they will still be quite restrictive even if they use that based on disinflation. jonathan: maybe they are not having that conversation at all. what about the pushback we've seen. >> i don't understand it. there's a question around jay powell knowing what he was doing. new the market would be flying and wanted to make sure he wanted to achieve the soft landing and then other fed officials are nervous about that. i have no idea how to understand it otherwise. people are not stupid, they heard what they heard. >> this is what you heard from chairman powell. the question of when it will become -- is clearly a topic of discussion and also a discussion for us in our meeting today. we aren't really talking about rate cuts. >> you could make some argument there is a question of what really means.

just to be honest there's a question of how closely are they analyzing the possibility of cutting rates. either way this is details that do not matter. for markets they won't hike rates again. the more concerned about preserving the economic trajectory upward rather than some sort of fast deterioration. at this point and they are worried about inflation which seems to be under control. that is the message. jonathan: here are the ingredients. strong growth, pausing fomc. positive stocks, the fed has extended the window into 2024. lisa: does the data cooperate and what's the potential for a big acceleration of inflation. people start to question these. these are some of the mood killers that leave some people saying there could be some sort of mild pullback.

slight pullback but buy it. jonathan: that's the grinch this year. lisa: jason said the fed shot the bear so where are they? >> a green light for a ramp-up in stocks. the bear sounding somewhat bullish. positive by 0.1% on the s&p 500. yields coming down. the euro just a bit stronger, dollar weaker on the currency pair. >> this has to do with the data over there as well as people try to understand what the ecb reaction function will be. building permits for november, out. this at a time when mortgage rates have plummeted. the high on october 25 was 8.1%. currently at 7.1%.

i don't know how many people want that mortgage but still something to watch. the fed pushback. tom barkin lining up. raphael bostic at 12:30. we hear from austin goolsby told us yesterday he does not understand why markets are reacting the way that they are reacting. >> we go through the transcript on wednesday. >> this is sort of the question. what's the hope here. do they not want to be the lead. is it a question of dissent on the committee that some people are willing to let it rip and some people aren't afraid >> -- aren't. jonathan: chucked it underhand, a softball and basically said easing financial conditions, what you think? no pushback whatsoever. easing financial conditions. rick rieder of black rock said the same thing yesterday. surprised by the lack of pushback.

how can you walk away from the news conference and be surprised by what happened in financial markets? >> you cannot and i don't think fed chair jay powell was ignorant of how markets would respond. maybe he is more concerned about economic weakening because of anecdotes that other members -- i am not a psychologist. after market we get fedex earnings. those shares are up this year. gaining market share from ups. this to me is interesting after some union negotiations. can they deliver going forward. i love the shipping and logistics areas. it is all logistics. jonathan: we will talk about shipping at the suez canal later in the program. we need a therapist for equity market bears. a therapist for the bears. the cofounder of sick -- in cio

of vantage rock, avery great to catch up with you. the banks are up 25% on the s&p since the end of october. is there more to come? avery: i think they are cheap relative to the rest of the market. it is everything you have been discussing. we are likely to continue to see a steepening of the yield curve which is the ideal environment. the fed has told us, i know they are trying to potentially walk it back a bit but they will not let this economy we can in any material way. they are not saying it but they will be willing to have inflation be higher if they are concerned about the jobs market and we have seen some anecdotal evidence and a few increased tech layoffs. mary daly is out there very dovish. maybe people are concerned about credit weakening because of jobs

coming in weaker and so the fed i think would -- would even accelerate the three cuts they are talking about if they perceived any weakness which is good for credit for the banks. jonathan: is it good for energy, some of the cyclicals. what makes that sustainable if you're talking about growth and job losses. avery: i think they will prevent it. the loosening of financial conditions that has just happened in the bond market in the equity market is stimulatory so there are companies that might've been considering laying people off but are seeing rates down. we think there may be some growth this coming year because consumers will have less to pay in interest rates on credit cards. we won't lay off people we would otherwise. you have companies that will be able to refinance debt and keep

those jobs alive. what does that mean for energy. we have a large supply dynamic with the permian having come in. you have china dynamics but the saudi's have said we will put a bottom on energy and you have energy traders looking for a cash upgrade. i think energy probably doesn't go down from here. especially with supply chain logistics we are seeing in the red sea and elsewhere. there are other areas of cyclicals that do not have the same supply dynamics that could have further to run and much further to run than the expensive stocks in the market. that have led to the massive rally over the past 12 months. lisa: jay powell wants to make people happy. opec-plus is putting a floor under oil prices. there is no free lunch. will this, in the form of higher inflation in the longer term.

can you feel less good about long-term bonds. >> i think the risk is to the upside in inflation absolutely with a fed that is as dovish as it is right now and this floor under the energy markets. we won't see it right away. will the second half of the year , do we have people more concerned about inflation because we see it, through the numbers. at this point in time we have enough weakness in consumer -- the recent consumer discretionary spending has real pressure on it because we have the covid savings, the discretionary part of the covid savings have worn out. we have people worried about student loan repayments and people still have been worried about their jobs in companies that are weaker. i think that dampens some of the

dynamics in the near term, but longer-term absolutely. we are set up for inflation to run higher for longer if this loosening continues. lisa: give us a sense of how much more bullish you got. did you just go out and press buy. avery: yes, absolutely. the last time i was on bloomberg i was very bearish because i was concerned about rates being higher for longer and everyone being concerned about the risk of inflation to the upside. the fed being concerned about inflation re-accelerated but the data points we were seeing right then were actually concerning. instead of being bearish what you needed to be was bullish to say the data is getting worse so rates will come down and that will loosen financial conditions and what we saw again is that powell was channeling his inner

bobby mcferrin, don't worry, be happy. he probably was seeing some data that was concerning him that things could get worse and as a result he decided loosening financial conditions don't matter because i'm more concerned about jobs that i am about inflation accelerating. if it some point their jobs there will be a really high bar for them to become materially more hawkish. at the same time the market has gotten ahead of their three cuts. they are still not talking about cutting anytime soon. if the data is negative there is this fed put it they will support this market. they don't care about valuations. when we look at the market as a whole we think it is very expensive. we see analysts continually chasing but everyone knows it so we should pay a higher multiple.

we don't think that sustainable forever. but we do think in more cyclical areas of the market valuations are still much lower than elsewhere. it is i think wiser to pay attention to valuation in these times. >> the balances shifted the federal reserve. of vantage rock. if you're joining us, state of play the scores look like this. positive. yields are a little lower by two basis points. crude soft or rallying through much of yesterday. down on wti. tons of feedback on the effective shutdown of the suez canal starting over at apollo who said this, arising uncertainty combined with the global economy because of easing financial conditions. could put upward pressure on goods inflation over the coming months. the effective closure of the

suez canal trade route is now an upside risk to goods inflation. >> this is the exact same thing we saw when shipping channels get disrupted, that leads to a longer wait time to get supplies. that means more expensive cost for the extra fuel and the extra hours. this is a clear trajectory to higher prices. it's just a big if if it gets prolonged. jonathan: if it gets prolonged what can officials do about it. later, about 16 minutes away. rich clarida, the former fed reserve vice chairman at pimco global economic advisor. good morning. ♪ (sfx: stone wheel crafting) ♪

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>> the bottom line is we have to get both military assistance to ukraine, other military

assistance as well is addressing the security issue. at the end of the day we will need bipartisan support to do that in the senate. we will have to come together. it's not clear, progress is good. >> democratic center chris van hollen speaking to annmarie hordern on balance of power last night. diminishing going into the new year. good morning to you. equity futures on the s&p positive i .1%. elevated over the last couple of months. the prospect of 4800. yields are lower by two basis points. the everything rally continues. lisa: and there's no real reason for it to stop. the fed has told us there gain pan -- game plan. that's been the message regardless of how much walk back we try to hear from other fed

officials. >> starting to consider a second wave. what's happening right now is traffic to the suez canal has been grinding to a halt. this is what we are hearing on the south side on wall street. the effective closure of the suez canal trade route is now an upside risk to goods inflation. we heard from that overrun apollo that rising uncertainty in the channel combined with the global economy rebounding because of easing financial condition should put upward pressure on goods inflation over the coming months. could put upward pressure. lisa: especially because it's unclear what the coalition will do without the participation of middle eastern nations. the list of coalition -- countries are came together did not include some of the biggest players who could pressure other

players in this. i am not an expert in this. i want to understand from experts what needs to happen to make this a viable shipping channel at a time when insurance costs are skyrocketing. jonathan: annmarie hordern joins us in washington dc. what's being done to reopen the channel? annmarie: you have the pentagon talking about a new maritime task force to make sure there is security within the red sea and this channel. a maritime task force already existed here, of u.s. has two aircraft carriers here. there's a tremendous mode of concern amongst companies given the attacks they are seeing. what you can see is the united states is trying its best to work with international partners to try and make sure that companies can continue to use these water weights and not have to redraw the map for goods and

oil. that would be another shock to the system which the global economies have already lived through with the pandemic. there's going to be this international outrage, this maritime consortium. this already exists. i am questioning what this new group can do that the prior structure was doing. lisa: basically reluctance to take military action. and to try and talk it out instead. is that what this is aimed at? annmarie: at the moment the biden administration wants to use diplomacy prayed they have ways of working with proxies. there is a lot of debate within the administration on if they go on the offensive or defensive, but actually attack the who fees -- attacked the houthis, there's

a lot of debate because does that mean the united states will get involved in another conflict in the middle east. that is a debate right now. as they try to unwind or put some pressure on the is raley's -- the israelis so they can stop their bombing when it comes to gaza. so while the u.s. is trying to force them to start to slow down their offensive in the palestinian territory of gaza, what you have at the same time is the consternation and concern about getting drawn into another conflict. lisa: i know you have a lot of conversations off the record with a host of different officials in washington. do you get the sense people think this will get resolved or is this a real concern where folks don't have a sense of how they can unwind this in an easy way. annmarie: this has been an issue

for years that the u.s. has dealt with via their allies whether it is riyadh or abu dhabi. i'm not sure anyone thinks this can get unwound very quickly. this is why they are doing a tremendous amount of diplomatic outreach to the gulf and via oman, bahrain. the concern is this is a massive risk, not just militarily but what does this mean for the global economies. supply chain risks for goods. that's going to be inflationary on goods and oil. right now it's been a sign of -- sigh of relief that you have gasoline prices where they are hovering north of three dollars a gallon. when you look at poll after poll and just yesterday the president received his lowest approval rating since he took the job in

this poll. only three in 10 americans think he is doing a good job when you look at the concerns at top of their mind. most notably the economy and inflation. this has dual potential concerns for this administration. it has the defense and military concerns of armed servicemen and women in the golf but also what does this mean politically into an election year. jonathan: a gloomy holiday season for democrats. it's impossible to exaggerate the mood of despair among democrats in the nation's capital. from your perspective just how bad is it? annmarie: 80's pretty bad and we saw the biden administration, biden talking to himself asking why is my message not resonating. do you know what stuck out to me in that note is building on the wall street journal reporting,

obama has huge cloud within the party and we are hearing he is privately telling democrats that biden probably cannot win. this is not news that your former president used to work for when you were vp, this is not welcome news. jonathan: in the same note, is he dropping out. everyone has been asking for a long time. any sign of that whatsoever? annmarie: not at the moment. for someone to get in it would be incredibly challenging at this stage in the game. they would've missed the filing deadlines on a number of key states. potentially if things do not look good for him in the summer. i think this is -- some people hoping for something new in the democratic party but at the moment joe biden is set to be their candidate in november of 2024. jonathan: thank you for the update. let's build on that.

the calendar, the one thing on his side is the calendar. we have another year to go. lisa: so far this has been more of a proxy. on how people are feeling now and their anger towards the inflation and specific issues with president biden. donald trump has not been in the news. he has sort of been the other guy. it's not necessarily the polls don't show there is an incredible amount of enthusiasm. there is a lack of enthusiasm for biden which raises the question is the operating in the same way biden did to win the presidency by simply being i'm not the other guy rather than running as who he is. jonathan: just coming out of the depth of the pandemic, the current president barely even campaign, made a referendum on the incumbent and now facing a different set of circumstances going into 2024. >> we keep asking this question

on the economy which people say is not doing well. the economic data points to something different. if the frustration is building what will they do about it. jonathan: amazing how miserable is on washington and how happy everyone seems to be on wall street. quite a difference. >> we have had a huge wealth transfer from the government to businesses over the past six years. jonathan: that's been the pandemic story i guess. they are miserable in washington, apparently happy on wall street. s&p positive by 0.16%. this is bloomberg. ♪

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. ♪ jonathan: stocks are just about positive for the best part of two months on the s&p 500. grinding higher again by zero 1% on the s&p. the russell to small caps, leading the way up by 0.6% this morning. the nasdaq 100 at all-time highs. s&p 500 not far behind. lisa: is this truly the rotation we've been looking for? we have finally seen in over the past month.

can you bet on that? no one is willing to say we don't like big tech. people might say we are rotating into cyclical phobia still holding a lot of technique is always going to win. anytime you bet against it, you get slammed. jonathan: price always sets narrative. people start to extrapolate the present out into the future. the issue after the rotation, the improving breath is that anything more than people have underperformed in 2023 and a chase in gains and don't want to go to the highflying tech names, so they go elsewhere to the places that have been enough. i the banks anything more than just a leverage player in what is happening in the treasury market over the last couple of months? lisa: i would argue no. there is this underlying feeling that if the magnificent seven has gained 76% so far this year, 75% year to date, the rest of the overall index, about 12%, if

you believe that the conditions are set, they are more in line with where the high flyers have been you play catch up and that sort of makes sense at a time when you you like there is the fed put back in the game. jonathan: you start thinking about small caps and the equal weight s&p 500. you know if you equal weight the max seven, you give nvidia a little bit more weight than you would have done, they are something like of 100% or they -- or some thing like that. lisa: that is nuts. jonathan: it is amazing to me that apple is up something like 50% year-to-date when iphone sales have not been tremendous, not been great. just an absolute cash machine. lisa: the apple watch is flying off the shelves. jonathan: you know my thoughts on that. just the convenience of it is coming off the shelves on christmas eve. cliff stearns reebonz. -- let's turn to bonds. 10 year yields down by two basis points.

lots of fed speak. san francisco fed president looking on the dovish spectrum. most people would assume that. becomes a voter next year, the san francisco fed. talking up three rate cuts has not been particularly accommodative, which is where the consensus is right now. lisa: if you have disinflation according to mary daly and according to many people in the economics profession, cutting rates is simply keeping conditions in line with their inflation is that, and that is basically just that if they cut three times they are still going to be quite restrictive based on where they expected asian to come in so is inflation going to come in, and is it going to be eight head fig and others talking up probability other week mission of inflation later in the year? jonathan: earlier in this morning talking about the prospect of maybe a second wave of lesion next year.

let's turn to foreign-exchange. the boj, about a month ago this meeting was meant to be live in the last couple weeks, nothing really happened. that is a weaker japanese yen. more on that in just a moment. an attack shutting them shipping in the red sea. secretary of defense lloyd austin saying the u.s., u.k., canada and france agreeing to a new naval task force to counter attacks and region. this is an international challenge that demands collective action. how quickly can they move? lisa: and what exactly are they going to do? none of these countries actually want to have a military altercation. they don't want to put some troops on the ground to make sure that there is free passage here. so can they jump on this, can they get the allies in the middle east to collectively prevent these attacks? i don't know exactly what the fair pricing is, we have seen

people saying there is more room to run. jonathan: things are pretty calm in the commodity market. oil still in the 70's, wti about 72 this morning. let's turn to the boj leaving its policy rate unchanged, in line with the d.o.b. and the fed who all held rates steady. but unlike powell, offering little insight on what to expect policy to change. the san francisco fed. -- fed president did entertain rate cuts telling the wall street journal it is appropriate to be contemplating cuts next year but this too soon to speculate on when they might happen. so are they talking about it or are they not talking about it? lisa: jay powell said they are talking about it, they are talking about it. lisa: we are not really talking about it. we are not saying the day, we are not writing up the document yet. that is basically how i interpret it. jonathan: well i'm pleased we cleared that up.

apple taking some of the best-selling devices off the market this holiday season. kind of. the company will stop selling the two latest versions of its smartwatch in the u.s. due to a patent over its blood oxygen sensor online sales stop thursday. store sales ending on christmas eve. the convenience of the states. does not care, just about positive in the market. lisa: this is a $17 billion line of revenue so it will thought this actually was going to be going away, he would see the reaction in stocks. either way, this is basically a new marketing scheme. we have a concern about copyright, you might not be able to get my product anymore. jonathan: after christmas. buy it now. lisa: honestly the fact that shares aren't responding gives you a sense of what they think. jonathan: tells you everything you need to know. the head of u.s. rates strategy. i want to talk about your call on the bond markets.

it is not super bearish, not super bullish, just neutral. why? >> to your end, we've already seen a very large rally in treasuries in just the last few weeks. it doesn't make any sense for the market to continue to rally from here on the bond market from toluse of momentum given the fact that we priced for nearly six cuts for next year. that seems a little bit dramatic. i think our view is that the fed would deliver a hike starting in may, march rate cut definitely seems a little premature at the current time. as you were discussing earlier, you are looking at an outlook for financial conditions of eased quite dramatically. inflation is coming down very nicely. -- prices or oil prices in general have declined quite meaningfully, so the consumer is still relatively strong.

so the risk here is that we might see a resurgence. jonathan: let's build on that a little bit more. where would that leave the call on the yield curve. traditionally when we are talking about the end of cycle, the start of the rate cutting machine, you would get that bold statement what is the call for next year? >> out call in our outlook that we published at the end of november was that the first move would be toward the front end pegged and the long and rallying, but that hasn't happened. the long end has also rallied, so the part of the yield curve is still quite inverted. you are going to see that stephen out as we progress. that is going to be more of a mid-2024 story when the fed starts to cut rates aggressively. you are going to see that curve steepen out. for now, i think that inversion

is very much in play because esters are getting back into the bond market. that would mean that with the front end pegged fed expectations -- lisa: i was struck by the survey that showed people really going out of cash and into bonds. cash was cut to a two-year low and people were the most overweight bonds in 50 years. have we already seen the rotation out of cash come out of the market funds that would have transpired given the potential for rate cuts? >> i think that what you are seeing is an asset allocation toward bonds, given the fact that people have concluded that bond yields have topped around 5%, as high as it gets. if that is the case you are going to get the best yield you've ever had in the last couple decades.

it makes sense to allocate into bonds first because the sequencing way it is going to work is as the economy slows down, you are going to see bonds rally first. then we do see a recession like we are expecting the middle of next year you should see some weakness in equities and then you will see the asset allocation into equities. but that is really not have it is playing out. there is just a lot of cash in the system, $6 trillion or so in market funds and that cash is just being reallocated into other assets were you can tensely get higher returns in the long run. lisa: give us a sense of how much lower you think 10 year yield are going to end next year given the fact that there still is a lot of cash to flow into bonds and you do expect weakness in the economy. >> our call for 10 year yields tends to be around 3.75.

the u.s. economy goes into recession but we do see more room for 10 year yields to rally. granted, we put always forecast close 5%. could we see 10 year yields tip? perhaps. but really the core story that i'm sticking with is the fact that this premium buildup that we saw over the last -- since august to the end of october, that story is still very much in play. you're seeing tailed auctions. there's just not as much demand for treasuries as we've seen in the past. in the fed, our call it that the fed is going to continue to qt not just into 20 24, but also

into 2025. given that dynamic, it makes sense that we start seeing a buildup when the economy starts to stabilize. jonathan: this was excellent, just fantastic to hear from you. lisa, let's piece that altogether. in the equity market, the call is very similar to the calls in the bond market people making a call for next year on the u.s. 10 year, looking for the yield to come to 3.75 at a time when they are putting together the -- the yields of 5%. goldman sachs, we get there, have to lift a price target for year-end next year. they are chasing the equity move because there is a feeling that something changed with chairman powell last week. i didn't hear that just been on the bond market at all. lisa: as she was speaking i was wondering is the bond market different because it is going to susceptible some of the state of tightening, the selling. as well as the deficit.

it is going to be a political season, one where we are not going to get a whole of resolution when it comes to just how much the deficit has been expanding. jonathan: if you are just joining us, welcome to the program. positive by about 0.1%. we are down 10 about 3.90. coming up in the next hour, the conversation you do not want to miss. it is rigid of the former federal reserve, place chair of pimco global economic advisor. lisa, you will be leading that conversation at about 8:30 eastern time. lisa: you should stick around, i think it is going to be interesting for him to parse through the discrepancies between the tone of some of the fed officials. what make of the fact that fed chair jay powell has a very different tone, and that they are both saying there on the same page? i would be curious if you would come back out again and say i said what i said and i meant it. jonathan: newport beach, california, pimco this year. he talks about the federal

reserve accepting2.-something inflation. wasn't a big conversation at a time. you would have to think that the world is moving toward rigid based on what we saw take this last week. lisa: that's what avery sheffield was saying, that this was tacit acceptance of a higher inflation rate for longer in order to preserve the jobs economy. that was really the shift. jonathan: alex webb vomiting story with apple coming up next. lisa, excited about this one? go get your apple watches before they come off the shelves on christmas eve. a beautiful new york this morning. good morning to you. (sfx: stone wheel crafting) ♪

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♪ >> if you have inflation that is decelerating in rates that are coming down, that tends to be good for growth. do want to be in the cautious

around the magnificent devon given the rally there, given the 40% overvaluation of those stocks relative to history. is that one third of the index if you look at the top 10 stocks that only about 20% of rockets. people thing all the prophets are coming from the next seven. there are other sources of profitability. jonathan: we've seen a lot of that in the last couple of months. from new york city this morning, good morning and welcome to the program. stocks more broadly private -- positive on the s&p, yields down again by two or three basis points. we are talking up the everything rally. bonds rally in, stocks rallying. for a moment yesterday, commodities joining in. lisa: because of a different reason. this could be a potential red herring rather than something participated with everything else. concern around shipping routes, one of the biggest in the world getting blocked by militants attacking shipping container

ships as well as tankers, will tankers. -- oil tankers. this is a huge potential headwind if it continues. i don't know how much clarity we are getting right now. jonathan: how many apple watches go through the suez canal, do we have the answer to that? alex joins us out of london. a serious story so let's focus on the serious aspect of it. we're are days away from a u.s. ban of the newest smart watches that apple is selling. what is that issue right now currently and how do you see it being settled? >> there is a medical device or technology company which has successfully asserted that apple infringes upon its patterns with the blood pressure monitor in its most recent smart watches. and so the international trade commission is a u.s. government trade commission that is apple

cannot sell these devices starting on december 25. so there is the possibility always that there is some sort of settlement. doesn't look like that is going to be the case based on reporting when apple is now trying to do is find a workaround on a software basis. that could change the algorithm anyway does not infringe upon the pattern. unclear whether they could do that because it looks like it might also be a hardware problem. there's a feud from possibilities but right now it looks like starting thursday you won't be able to buy them online in the u.s. inserting christmas eve, you won't be able to buy them in apple's own retail stores. jonathan: a signal from maximo what they would like out of this is? >> they said that the statement they've given is that no matter how big the company is, you can't just use your wait to get whatever you want. typically in the past and the sort of cases there have been financial settlements. there estimates that the apple watch generate something in the

order of $17 billion in sales only a slice of that will be the affected devices here. presumably then, there would be some sort of settlement to be a slice of the profit they make from those devices but we are a long way from seeing that happen, even though a lot of other cases that don't involve apple tend to lead that direction. lisa: as you are talking, shiny pictures of the apple watch are flashing on the screen with all of the potential bonus features that people can get. there is this question, we haven't really seen any reaction whatsoever in the shares. is this really such a big deal, or is this convenient for apple of you're going to essentially get people rushing to the stores to get theirs to for the year. >> that could well be the case, but let's put this in a little bit of context. apple and its 12 month revenue has generated about $380 billion in revenue. the apple watch, the entire segment generates an estimated $16 billion of revenue.

the whole segment is about 5% total revenue. even further, how much of that is within the u.s.? 30%, 40%. if he comes in rounding error. that is still kind of useful for apple, clearly make decent money from selling and for any other company it would be a sizable chunk of their income, but they also tie people to the iphone. if you have apple watch, he spent $500, probably not going to trade in your iphone which is necessary to keep the apple watch running. it is a very good way of tilting stickiness even if people don't refresh their apple watches as regularly as they might do a smart phone. lisa: you have the sense of whether regulators have the backs of apple simply because of their place in the economy, or the opposite after mark there were some potential discussion about a reprieve from regulators. >> the other possibility here is the white house overrules the itc and says actually no, apple should still be able to sell them. they have done that in the past. a decade go there was a dispute

between apple and samsung, but of course the difference is that samsung is a south korean company. the company that apple is a dispute with here is an american company cu would be ruling in favor of one american firm over another one. that is a very tricky position for the government to be in, and therefore a lot of observers seem to suggest that it would appear to be a less likely eventuality jonathan: what is happening in china with the iphone? >> that is a more significant headwind at this stage that there has been a steeper crackdown of the use of apple devices inside not only government agencies but also state-owned companies. formally it was the case in two regions. now that has been extended to eight according to bloomberg reporting. the challenge of that is not necessarily the direct sales to government boys, but what it says about attitudes toward

apple within the company. when this is happened in the past, we see a big chunk taken out of their sales. they lost about $20 billion when there was a similar move for this. china has been a bright spot recently for apple growth. if that were to be the fallout from this, it would be a far more considerable repercussion than what we are seeing with the watch. jonathan: is competition increasing as well? how well is that particular phone, that product doing? >> it is quite hard to tell because always -- huawei doesn't publish those numbers. we sing reports that say they are sold out. we don't know whether that is due to demand or constraint on reply. -- supply. part of this device is a chip that is supposed to be a lot more advanced than people thought possible for china to develop domestically, about that also might mean that they can only bruise a limited number of them. there is increased competition with china across the board, and

that clearly creative problem, but shiny even with the more advanced huawei device remains a few years behind the bleeding edge of what is in the latest iphones. maybe 3, 4 nanometers which is 50% more powerful in very crude terms. lisa: from what you hear when you talk to tech executives and analyst, do you get the sense that the feeling is thawing toward china and continuing to try to play in that sphere, or that people are just quietly accelerating the shift away from the country because of the inconsistency in some of these policies? >> the second part seems to be very much the direction of travel. you keep hearing conversation that efforts with all relations with china but at the same time, policy goes seemingly in the opposite direction. you are still seeing an acceleration of the capacity outside china. foxconn, one of apple's biggest contract manufacturers meet -- bringing more capacity to india. automotive manufacturing which a

lot of people are saying suggest they are not as optimistic about the smartphone market going forward. this a lot of diversification going on right now, much of which is the fallout from those spheres around china and have promising market it continue to be. don't forget, the one massive caveat all of this, apple has an incredibly symbiotic relationship with china because and employs millions of both directly and indirectly to make venture devices we will try to catch up with alex a little bit later. saying it is highly convenient, maybe even a gift that the international trade commission starts that on christmas day. lisa: that's fair. we don't know. is a gift because people are going to go out and buy it. do you have an apple watch? would you want something to read

your blood pressure your oxygen level? jonathan: i've got one at home, i just don't want the screen on it. i prefer a dress watch. i don't like those big, chunky tech things on my wrist. i want to focus on the people at home, financial markets. jonathan: that was horrible, please stop. bank of america, private bank is going to join us very shortly. let's check it on the price action. the bulls are out in force over the last week, feeling very, very good about themselves. loving what because the external validation that he has been waiting for. the equity market positive this morning lisa: this is been a bonds and stocks story. wendy did average if we start see weakness in the bond rally? it is supposed to be now. jonathan: coming up next on the equity market, very close to all-time highs. then we will catch up with the atlantic council on the suez

canal grinding to a halt. from new york city this is bloomberg. ♪ (sfx: stone wheel crafting) ♪ the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪ what do you see on the horizon?

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>> 2023 was a year where despite hell -- having concerns

economically we held our nose. >> we are definitely seeing something that looks like post-pandemic normalization. >> there has been an enormous rally. >> if they are successful in pulling off the off landing we would have a little less rate cuts. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathon: good morning for all of our audience, this is bloomberg surveillance on tv and radio. tom keene is back with us tomorrow morning. last show of the year altogether. just before you get too excited about getting away, a few more trading days with equity futures positive by .2% on the s&p. but the latest is that china has left the station. the federal reserve is trying to pull it back but it is not. lisa: what we have heard is they have no reason to pull back because the fed put is back.

then came on and said the fed put his back and we set are you kidding me. and then one person after an hour and then jay powell himself. they are concerned about jobs and they are talking about rate cuts. jonathan: chairman powell december 1 is a different man from chairman powell last wednesday. the cleanup job sounds like chairman powell on december 1 but you cannot put that to one side and say that did not happen. already implied in the dots, three cuts, markets taking it further. but you have duffs on the fomc. mary daly saying three is not accommodative at all. and this is the worry and the shift. the balance of risk. we are worried about inflation, we need to cause pain to get inflation down so be it. and now the turnaround the last few months, you do not want to damage jobs to get inflation down. that is essentially what we heard from daly in " the wall

street journal." lisa: i have a lot of respect for mary daly. the problem is that the market is moving ahead of the fed and the problem is that accommodative conditions in the financial markets can affect the chances of getting inflation down. here is the question, ultimately, is this fed more willing to allow inflation to remain higher for longer in order to preserve the labor market. is that the new shift, to point something that they had been talking about. jonathan: this is set up perfectly for talking about. joining us in about 27 minutes time. the theme it started 6:00 a.m. eastern time. jason says there is a risk of the second wave of inflation off of the easy financial conditions we have seen. lisa: this is a reason why never i get a in email from andrew at citigroup this is why. pointing at the shipping groups

having inflationary pressure. the bottom line is that is, historically there have been echoes of inflation and historically you have seen people getting confident with higher incomes they go out and buy and you can see prices pick back up in a new way. jonathan: there is always something to worry about. someone mentioned it, don't worry be happy. lisa: are you telling me that? it is in my blood. i have seen all of those investors. jonathan: i wish i could feel the same way. lisa: stop. jonathan: here are the scores. we are just about positive by .2%. the bond market is rallying by three basis points. 3.9014. the traffic in the suez canal grinding to a halt. we have seen warning after warning about going through the red sea. looking at commodities, pretty calm relative to the conversation happening elsewhere.

need to, wti. lisa: kevin book came on yesterday and was talking about how he is surprised there has not been more of a reaction and why people are looking past this. that is a good question because anne-marie came on and said why is this an easiest revenue -- resolution. jonathan: chris joins us, the chief investment officer at bank of america. let us start with the dream and story for next year. inflation will keep coming down and growth is going to be ok and the federal reserve will cut interest rates. that is a story. tell us how expensive is the story now for next year given the rally that we have had in the last two months? chris: it appears expensive because of how fast it has been priced in. we have a long way to go in there is cash on the sidelines not only from an investor

perspective but also corporate cash still earning a very healthy return at the short end of the curve keeping markings wide. and with the debt structure right now overall the liabilities are still low. so, we can chunk out some solid earnings and lisa was talking about the echo of inflation and that was the perfect way to think about it. there will be a lot of echoes about are we having a soft landing? there will be pockets of bumping is, and that will keep investors still concerned. the wall of worry might be a little bit lower but that wall does not go away and it ends up rising a little bit into next year. jonathan: there are like five bricks left in it, what are you talking about? chris: there are a lot that will come out of the cupboards in the caves. earning and inflation from or something like that. and that will actually cause some second guessing. we think there is a lot of room to go. we are not out of the woods and

we have work to do. what we are not fully priced in. lisa: you are saying that the bears still exist but you are not one of them. the fed shot the bears. you heard that the powells press conference said that it is not about price stability but to make people happy. how much can people remain bearish with a fed that has a big put and they are putting it in? chris: i think the bears got very frustrated this past year and rightfully so. they expected earnings to decline and some sticking. the number one surprises that inflation came out as sharp as it has. that should not have been a surprise when you had quantitative tightening plus all of the hikes. the said did add a lot of liquidity to the program to the markets itself which helped greece the train tracks. overall what we have noticed is that the bears ultimately go away for a while and they come back and see some consternation

in the economic debt. europe could surprised to the downside. we do not know what the growth weight -- china's growth rate will be and that could be exported to the united states. we will still grow below trend in the drumbeat of soft landing is there. soon as you get some bumping as -- bumpiness the market will pull back and that is a buying opportunity because it is all about earnings. lisa: i knew what you are going to say because that is what everybody is saying. in january we will get turbulence and buy the dip, which is the same set up as this year. we did not really get a decline in people just came in gangbusters. is this going to be the broadening out that we see now, as is the playbook for next year, just a little bit premature? chris: the bulls are dream art -- are beating the drum on the mega tech still, because that is

the area of healthiest balance sheets and high quality but the question will become how much can they surprise above earnings expectations. the broadening out of the market is the area that some are warming up to. they have been left for dead. much of the left -- most of the rest of the market, we begin that this next story beginning this past month carrying it to the next year for the next five-year, the leadership in those areas predominantly because of the underpriced movement versus a large high-quality area of the market not just this past year but over the past few numbers of years. last but not least i will say this. the bears in terms of what they are looking at, they are looking at the what could be versus the what is. and ultimately that conclusion does not come through about what could be stickiness or resumption of inflation or much lower in the economic indicators indicating lower negative growth.

that is what could be versus what is and what the data is telling us. jonathan: you mentioned the small caps and we started to see that participation. the banks have absolutely ripped. this one area of the stock market that did not participate has been the energy stocks. the energy names double-digit percentage point games and energy is negative on the s&p. what is behind that and what changes that story into next year? chris: this is in the face of a years worth of gains in a month and a half. you think about the broad market -- broad market itself. small caps outside of the magnificent seven rallied over 12 to 13% from the flatline level and they have outperformed. the one sector, energy. high free cash flow and better balance sheets than people think. i think there is a growth worry for the energy sector.

we have been overweight, the energy sector has not worked this year. we expect that angle in terms of free cash flow and it is all about the oil price, the weakness in europe and the oil trend growth. it is a lot of the stories of a cloud hanging over what would traditionally be an area that you hunt for, particularly when financials are working. you are thinking like -- that some of the areas like energy one. we are not buying the other asset managers and they are waiting for signs that oil prices will come back up. lisa: when you talk to clients how willing are they to deploy cash and how much are they feeling the holiday season of bullishness? chris: two months ago it was about what was around the corner to any extra rally and now it is all about where should i be? not significant enthusiasm because of the geopolitical curve in volatilities is still there as you were talking about. but ultimately heading into next

year the common question always is how should we be positioned. now it is about how much and when should i be adding to areas of equities and longer duration fixed income. we talked about it in the summer and fall. no one throws up a flare gun or rings a bell when it will happen. that surprise came with the fed pivot, particularly powell. we expect a couple of more surprises. jonathan: the psychology of markets is phenomenal. enjoy the christmas break. of maryland bank of america private bank. you do not want to buy five you want to get -- because you will not get three -- because you will not get six. that is how financial markets. -- that is how financial markets are. every time i sit here i am like here we go again. lisa: it is the only place where something goes on sale you do not want to buy it.

it is shocking, how do you follow a herd as -- at a time where the herd has won as soon as it gets going. what it took was a shotgun from jay powell saying let's go. jonathan: the herd was already running, let me be clear about that. it is like keep going, 10 year, 3.19. -- 3.90. the s&p 500 posited by .2%. yields lower by three basis points. 3.9014. allow me to frame the next 60 minutes, you do not want to miss it. on the suez canal and traffic grinding to a halt. the atlantic council joining us shortly. then you will hear from the former fed vice chairman and him come -- pinko economic advisor. and then the bank of american boss himself, brian moynihan. as we anticipate the opening we will catch up with mohammed to weigh in on what has been happening with the fed speak

over the last week. lisa: an awesome lineup to give us more clarity. i would really like honest talk about whether people are just confused as we are about why there has been may a cleanup act among some existing fed officials. at the same time it seemed clear what jay powell was doing and saying. jonathan: i do not like the gas lighting. tell me i did not hear what i heard on wednesday, ok. it was very different to what i heard 12 days previously. very different. lisa: the shade you up -- the shades of gray you are trying to create around it was not great. jonathan: it was very black-and-white on wednesday. equities on the s&p positive by 2%. this is bloomberg. ♪

>> the maritime task force to the degree that it can provide security for tankers in the region might not eliminate the

risk premium that they could keep it from rising. the supply cushion you get from spare capacity from opec producers is something else that can come to the rescue. in this case the supply cushion is less available. we might see more risk showing up in price perceptions as we go forward. we have been sleeping through some serious potential supply risks. jonathan: let us talk about it. joining us right now from the atlantic council is ellen wilde. it is a big story with traffic going through the suez canal grinding to a halt. you walk us through the additional time that it is required. if you cannot go through there and you need to go around africa, what are you talking about? ellen: it seems we are talking about 12 to 14 days of travel time to go around africa, but that is not the only issue. we are also talking about increased fuel for ships. longer trips for the crews on board.

it will cost more. they will emit more carbon. and so this is not just it is not safe or they suez canal is closed. we have had that before. this is a significant journey. it is particularly important because it used to be that europe was getting a lot of its oil from russia. that is not happening now and it is relying on oil from the middle east. if that oil cannot go through the suez canal, then we are talking about an extra 12 to 14 day trip around africa. and also cuts out the pipeline because that pipeline is accessible also. you have to go through the red sea to access that pipeline. you can get saudi oil if it leaves the west coast of saudi arabia which isn't a place where that oil -- that much oil leaves. that can get to the suez canal or the pipeline without threat of huti activity. but everybody else is stuck.

jonathan: if this was 2021 this would be dreadful. 2022 would be chaos and we would be talking about inflation spiraling out of control. in 2023 it feels like supply chains are in a better place. could you describe it as in a better place? ellen: we are in a better place. we will not see oil shortages or gas lines. during -- during the 2 -- during the suez canal crisis in 1956, that is what we saw. we also did not have the very large carrier which where these massive crude oil carriers which they basically invented in order to take crude oil around africa. so, they could get enough to europe. we have that now. we are not talking devastation, but increased time at a time when we already have increased time to get oil shipments to europe. and we are talking about increased costs.

lisa: are you surprised we have not seen much more of a pop in oil prices? ellen: i am not that surprise because this has been going on for a while and it has only recently escalated to the point where tankers and shipping companies not directly connected to any israeli interests are getting concerned and making moves. i think the market has been anticipating this for a time. and then you have the overall economic issues waiting on the market. i think they should be more concerned, especially because the idea that suddenly the u.s. defense secretary is only now setting up a commission to deal with this. and that does not bode well. lisa: there are questions about what the commission can do and what they are willing to do and the conversations are between the u.s. and riyadh which might have more influence over the hutis and canada. how much from your perspective

do you think that the right people are involved and do you have a sense of what the potential allies in the region might be willing and able to do? ellen: re-add would love nothing more than a green light to just on the heck out of the hutis in yemen. they will not get that. the quote -- the issue is where they are getting the technology and drones cause these issues. the answer to that is iran. when you look at the likelihood of maybe a u.s.-iranian confrontation, that is not something that the u.s. is railing -- is willing to risk. the question is what kind of force that the united states is willing to make. safe passage in the seas and freedom of the seas is an international issue. it is not just a u.s. issue. this is an international issue that china should be concerned about. korea.

everyone should be more concerned about this than they are. but the question is who is going to actually put the muscle where it needs to be? i am not sure that we are seeing willingness to do that. jonathan: you touched on potentially losers, european importers. who wins from this situation? ellen: africa. i am sure that south africa is thrilled to see lots of increased traffic added supports -- at its ports. sailors will want to stop, they will want to have a break and they will want to go on land. and so africa is definitely a winner because they are seeing a lot more traffic and they can charge for it. egypt is a huge loser that cannot be overlooked. we are seeing a lot more -- a lot less traffic in the suez canal, they are losing money over this. jonathan: to finish on versus

gas, is it a big issue for one over the other or the same? ellen: i do not think so because when he talked about oil talk about it in terms of petroleum products overall, and not differentiating between crude and products. so i think it is all tied in. jonathan: thank you and thank you for the update. lots of people weighing in. leads -- lisa mentioned one from citibank. the effective closure of the suez canal trade route is a new upside risks to goods inflation's. you should get -- just as you get comfortable with goods disinflation this happens. lisa: the line of clarity around inflationary impulse we will have to be parsing through. if it were in 2021, 2020, or 2022, it would be challenging. now that supply chains are up and running it is less disruptive. it does not feel like it is being priced in and kevin burke was adamant that there could be

more upside pressure on energy prices. but i wonder if it is beyond that and if it is goods. if it takes an extra two weeks to get something and there is the insurance, fuel, and labor costs, the company will not pay for it. jonathan: i will not use the t word, maybe i will. transitory. is this something that the central bank will be focused on? lisa: they never are until they are. oil prices are transitory and they come and go but they influence sentiments and what the price of different goods are in the price of airline tickets. at a certain point on the margins if you get goods re-inflation at the same times the service inflation is sticky. that is more problematic. jonathan: we are not talking about six rate cuts? lisa: that is part of the issue that people are talking about the reinflation risk. right now, i do not know.

they will worry about that in january. jonathan: here is up, mohammed, monica, matt of john hancock, and we will cut of -- catch up with the biggest bull on wall street and why he is so bullish and everyone else is joining him after what we have seen. lisa: to say he has the biggest bull right now does not feel even fair considering that he is almost consensus at this point. what is his call, 5200? jonathan: something like that but highly dependent on rate cuts and it makes it original, above five -- above 5000 before everyone else joined in. he has been right this year and is looking for more of the same into next year. lisa: the fact that it is not because of rate cuts speaks to the ceiling that profits will be robust. people bullish with the recession, a soft recession. jonathan: what is a nice recession? what does that even mean? lisa: a little bit of negative growth but it does not feel that

way and the labor market remains intact. jonathan: it does not feel that way for who? markets? lisa: this is the issue, individuals are feeling it, small businesses are feeling it and that is part of the dissonance between the composite data that shows good news and what people are feeling which has consistently been less than that. jonathan: that is the lineup for the last hour and for the next 10 minutes do not miss david westin sitting down with a bank of america and boss, all of that coming up in the next 60 minutes or so. equity futures positive by .2%. from new york city, morning. ♪

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pop on the heels of the disruption we are hearing about with the suez canal and the red sea being disrupted, the shipping channels. i want to bring breaking news when we get some economic data. housing starts came in higher than expected. this comes after mortgage rates came down. we are seeing that and an inflection upward in homebuilder sentiment for the first time since august. 1.5 6 million housing starts, estimation was for 1.3 6 million which is up significantly from the prior month. building permits coming in line. 1.40 6 million. you can see the sense of optimism as people walk out ahead because we have a constraint housing supply and we are not seeing necessarily some of the existing homes come back on the market. mortgage rates have fallen from the -- from north of 8% to 7% leading some people to feel

optimistic about the pricing. again, just another note of positive data even amid the disinflation. another pop to your yields but nothing significant as people look towards inflationary data that comes later this week. this is a conversation that caps off one of the most fascinating periods of economic history that i have seen. the former fed vice chair as well as columbia university professor and pimco economic advisor and renowned singer, and you so much for being here in person. i would like to see what you would make. the comments in the market reaction. >> the comment stuck me by surprise, and he had a difficult mission because it is the last meeting of the year, a look ahead. but i thought the press conference and the fomc statement were more dovish than i expected.

there is a soft landing base case and we are all hoping for it. the markets are focused on that. he did not say mission accomplished i do not know if he thinks that. that is being interpreted that way. as you have mentioned on-air we have had a little bit of pushback recently. we are all now trying to assess what message they would like to deliver. lisa: that is what i wanted to ask, what do you make of the pushback? rich: the delicate challenge is a tug-of-war between their guidance and market pricing. part of the reason inflation is expected to come down to point something is because financial conditions have tightened, as the markets think mission accomplished and rate cuts are coming in next year, that will ease conditions making it less likely that conditions come down. that is a tricky point for the fed. jonathan: do you think fed chair

powell made a mistake? rich: i think he was reflecting his committee and i think sometimes shares can distance themselves and i think he was embracing the baseline view. there is a risk case as well and some of the pushback is to remind folks about those other scenarios. jonathan: mary -- lisa: mary daly yesterday said that even if the fed cuts rates three times that the benchmark rate will still be quite restrictive even in that samaritan -- even in that scenario. we have to be forward-looking and make sure that we do not give people price stability but takeaway jobs. is this a new emphasis? rich: i think at the margin it is. inflation was so high for so long that the fed had a single mandate. we have to get inflation lower. the fed has a dual mandate. but i do think and i worked closely with mary and i am a big

fan. i think the issue is that the committee itself emphasizes financial conditions. they made an appearance in the november statement and reappeared in december. it is true that one element is the real funds rate but other financial conditions are easing which makes it less likely that inflation comes down. lisa: it raises the question of if it is right. it is kind of what the fed is embracing right now. is that what your sense is? rich: i always thought that to point something would be the thing -- would be the point they think about cutting and that is playing out in their projection. i do believe down to the individual, there are 19 of them , they all want inflation to get to two. if they hold off cutting rates at all, they are probably going to overshoot. but the timing is delicate. i think there is a risk case on

both sides. but i do think they are emphasizing the dual mandate more than they have been. lisa: is it because they are seeing something that other people are not or emphasizing in their own date of the weakness that is overlooked by people who are going into the market? rich: i am not sure. the fed was criticized a lot in 2021 and 2022 for being behind the curve. it is appropriate to acknowledge the progress and disinflation. they are seeing that, but there is still a ways to go, and in particular the labor market will acquire more adjustment than they can factor in. lisa: i will let you catch your breath. it is a confusing moment for both of us. do you think it helps or hurts the cause to see the fed come out, the fed chair jay powell with one message and then austan

goolsbee saying i am surprised by your reaction and hearing from john williams saying we are not talking about rate cuts. rich: that is not something you like to see coming out of a meeting. i think the market reaction, easing financial conditions is something they are trying to push back against. i do not know how successful they can be. lisa: do you think that easing and financial conditions do ultimately have an inflationary impact right now? rich: to the same extent that if you tighten financial conditions it lowers inflation. if they are eased on a sustainable basis, credit spreads are tight and valuations are up, at the margin it supports demand and if you think there is a demand piece, then yes. lisa: do you think it is concerning and counter to what the fed is looking for given the all in freewheeling -- all in

feeling. we just heard this morning the fed shot the bears and wants to make people happy i was bearish and now i am bullish. his is a positive thing? rich: i am very per midst that the powell said -- i am very convinced that the powell said do what it said. it will be more substantial in 2023 and more so in 2024. lisa: there has been speculation that there is a political element that the calendar is tricky considering that heading into november everything will be politicized. do you buy the argument that that would encourage them to make a move earlier in the year? rich: history shows and i checked that the fed has adjusted rates in most presidential election years. they cut rates in 92 and 2000 date and they have hike rates as well. the fed does not let the political calendar dictate the

outcome. at the margin could influence timing between june and september? i am not sure. but the number of rate adjustments we will get are the adjustments that the committee things are appropriate given the economy. lisa: given that we are talking about the politicized asian, does this jeopardize some of the credibility given that so many people have speculated and we do not have any ability to basically know or not know. is there some other consequence of the speculation? rich: i do not think so. the fed will be judged by returning to price stability and doing so at minimal cost to the labor market. so i think the fed's credibility will deliver price stability. rich: when you talk about the potential -- lisa: when you talk about the potential for a real excel -- a real acceleration and stickiness , which aerials -- areas of the

comedy -- of the economy could we see reignition. rich: goods prices are falling. the service sector typically lags behind. i would think where the rubber will hit the road is in the labor market. we have had a substantial adjustment without any rise in unemployment. that is great. chris waller nailed that in the summer of 2022. that is wonderful. i do think, however, you cannot have 2% price inflation target if wage prices are going up to 5%. if i were there, i would look at the labor market adjustment as well as the services sector. one of the measures is core services and housing has not adjusted at all in the several -- in the last several months. lisa: a lot of people have been talking about how the economic data is positive and how we have

seen unemployment stay low with inflation coming down. why do you think people feel bad? rich: i think there is a distinction and one that i have thought about and written about. economists tend to focus on inflation and the change in prices. individuals tend to think about the level. even if inflation returns to 2%, the level of things going to the grocery store in movies, rent on your apartment, those numbers are a lot higher than they were four years ago. what inflation is low and stable we ignore that. but what we have had a big move it creates more concern among households than you might infer. lisa: i want to ask you about the housing market. we got building prince coming in higher. we do see some of the rally pair back. does the high price of homes and

lack of any volumes also create some sort of real dampening effect to sentiment? rich: i think the how that -- the high valuation makes homes -- the people who own homes happier but there is a just you should consequence for the larger parts of the calculation with friends in the 20's and 30's who have not acquired the first home in whatever they thought about the cost of ownership is a lot higher. there is a huge positive wealth effect. presumably they are happy about it. lisa: that raises a question what it does to the inflation dynamic and sentiment for those younger individuals who have not gotten in. rich: it does and this is an unusual period in the sense that because so many people refinanced into lower mortgages, the fed was doing he to support

the mortgage market. because these are 15 and 30 year mortgages it is having an effect on supply that will be with us for a while. lisa: we are here with richard clarida of pimco and formally -- formerly a fed vice chair. you will have a colleagues -- a colleague with david westin and brian moynihan and i want to get your take if you are seeing the stability and banks as one reason a soft landing can materialize, is that sort of one tailwind that was not there say in march? rich: the global financial crisis tribute -- triggered a rethink of how we regulate supervised banks. if you look at all of the banks they have lots of capital and liquidity. and at the end of 2020 and we were going to the pandemic banks were a source of stability. absolutely.

i think it is an important reason to think of the banking system as supporting the economy and not being a headwind. lisa: thank you for taking the time and wonderful to get your insights. if you are just joining the program we see a bit of a decline from earlier highs in the s&p futures up about less than .2% after better-than-expected housing data. the euro is a touch higher with the 10-year yields one -- 1.0 956%. i am proud to present david westin with brian moynihan. david: worldwide we are joined by brian moynihan who is the chair and ceo of bank of america. thank you for joining us at the end of the year. brian: happy holidays and you can see the teammates working hard on the trading floor. david: you had quite a year in

trading. talk about the year overall. there have been a fair nobler -- number of surprises. the stock market has done well and we have had more interest rate hikes. unemployment has held down well. he did not have the recession that we thought we would. you kept saying it looks strong and some compatriots were saying hurricanes and tornadoes. how did you get it right? brian: we just tried to follow the data. there were unexpected events but there are in every year, whether it is the regional banking crisis or whether it was the hamas attack on israel and whether it was escalation in continuation of ukraine, these are all things that happen and go on all the time and what -- and we look at what is going on in the customer base and we talk about what is going on and plan for what could go on. that has been strong. in the spending continues at 4%

to 5%. half the growth rate of 2221 showing that the consumer has slowed down with inflation getting under control in the fed choking off some of the activity. overall it has been decent. the economy has grown and the banks have done well. david: let us talk about the consumer, you are the largest consumer banking operation. we are towards the holiday season. until now it was holding up now. where is the consumer as of today? brian: november of 2023 over november 2022 this is across billions of dollars of customer activity. that was up 4.5%. so far in december it has held at the same. that was half the rate of last year versus a year prior. that is because overall activity is slowing down. what is interesting is that it has broadened out. there were periodic things,

people bought stuff at the house and on they traveled and had a different kind of travel, international travel and they got through concert and things and now you see them spending evenly across retail stores, they are doing fine and online sales are going strong. they are up two to 4%. things have normalized and they are in good shape. they have money in the accounts and they are employed in wages are growing. it does not mean that inflation did not of -- did not affect certain parts of the public card. in general, unemployment rates are still in the mid to upper three's which is a strong place for the consumer. david: your -- you said that they are in good shape. what are you seeing in terms of the bank balances. those have come down some. brian: two different types of customers. for consumers with a lot of excess cash with the rate they went to 25 basis points to 5%

plus it moved the market. the very upper balance of the consumer in the wealth management customers moved. if you look at the consumers they are sitting at multiples of pre-pandemic. some have 2000 and $5,000 before the pre-pandemic average about 32 and 3500 and they are sitting at 13,000 accounts. it has come down to about 12.8. but it still -- it is still higher than before due to holding onto that and where they do that will be a lot of questions. they slow down their spending because things got expensive and they got worried about their job. they slow down there spending because the rates on car loans became more expensive. they are still spending more than last year and that is a defense -- and that is a decent set up. david: are you seeing balances and delinquencies going up? brian: balances on the credit

cards have gone up and people are like oh my gosh. but if you adjust it for the size of the economy they are down. the consumer capacity are strong. mortgages are locked in at low rates. the best asset for a lot of house codes -- households is the low interest liabilities. the reality is a 3% mortgage as an asset for people because it means that their payments have not moved. home-equity borrowings are down. that means that they are not using the equity in the house. the credit card the link when sees are consistent with 19 and they are back to 19 which is one of the best years. so that is a very strong place. and so we feel good about consumer credit. as long as the employment levels are steady. you hear about loaf aiko scores but the general consumer is basically a pine borrower. david: you are very big in

middle markets. is there a low in demand so what is the sentiments? brian: we keep growing customers and households and this company. we keep growing customers, more logos, the company is that we do business with, a record number this year. they are not using alliances much so the loan balance has been sluggish and flat. it looks like it will bounce around in the low single digit. why is that happening? loan ms. -- loan usage was 41% and it has got back up to 36%. why would companies borrow less? they are worried about final demand and is more expensive. the fed is having an impact which is 3% or 4%. people think about usage. they are not being as aggressive about hiring people or extending inventories because they are worried about the economy

slowing down. when we say a soft landing it does not mean the economy goes into recession. what the team is saying is that we are slowing for almost a four to 5% growth rate to 1%. that is a major slowdown in the business community is wrestling with that. david: one of the big surprises came towards the end of the year with the fed decision in the news conference that signaled most of us that they are considering rate cuts next year. were you surprised and why do you think they did it? are they seeing data slow -- slowing faster than we appreciate it? brian: let us talk about the economy. we have the number one research team in the business. they just shifted yesterday, literally and moved to more rate cuts in 24. the rekey was what they saw in the economy and they have moved from half a percent growth rate for the first three quarters up above 1%.

they have softened the soft landing. by doing that they have said the fed is seeing inflation slow as fast as it is they get to the low two and it carries into 25 and the fed needs to bring rate structure down. 200 basis points of rate cuts, it still leaves you 3.4 or 3.5. last time we were at that rate structure was 18 years ago. we have had a long stretch of low rates except what happened recently. that fueled a lot of activity in the rate structure can be higher and more structurally sound and it is not really a pivot to say we will normalize this because we have economy and inflation coming in and everything we can see the consumer spending is consistent with 2% spending. that level of spending growth was was -- was where it is when the fed raised rates to bring the economy back insane. david: the stock market did well

until that decision. your trading desk has done well. give us a sense of where it is? will you finish the year strongly so far? brian: from your lips to their ears, they have a few weeks left. they are up year-over-year which counted the trend on the market. the team has done a great job. it has rounded up and it is fixed, and equities and is much more consistent. i am not quite sure that it is exactly true but we have made money every day. there has been volatility and news and this. that is because they have a balance business in a way that goes through. we increased the size of the business three or four years ago and that has borne fruit and they are keeping in the market share. david: three or four years ago i was here with you and you said you will have to devote more capital and people into the business and you seem to be having success.

is there yet more capital that you will allocate? brian: as long as i can get the returns. our return on equity is at 15%. this business because of all of the regulations is a little lower but well above the cost. as long as they can keep deploying it we can keep pushing capital. we are gaining market share across the world global business so it can access a deeper base. it will be getting more commitments consistent with the return. david: are you concerned that the market is overreacting? brian: he has this challenge that the fed was on a mission and it was late to cutting off inflation and now he has to be careful not to be late to stop cutting off. i think people have to be careful. this is trading talk and the tenure moving around between 3.90 and 3.50. it is not the real economy. it is very restrictive and it is still coming through the system

and we still have a lot of stimulus coming through the system. those are all still coming through. that is the tug-of-war he is up against. but we believe that he has engineered a soft landing. david: brian moynihan shery ahn cielo bank of america -- chair and ceo of bank of america. lisa: good job as always. let us get a quick look at markets fading just a bit after better homebuilding statistics up .2%. no drama. you cannot dump this market when the fed has shot the bears and when the fed wants to make people happy. 48 03, looking at euro strength even after some negative numbers with germany and business confidence. the 10-year yield still settling in at about two basis points lower. looking at crude about flat. we are tracing some of the losses.

a big question mark about the attacks on shipping containers as well as oil tankers through the suez canal. a question about what people will be willing to do if anything given the fact that the u.s. does not want to be involved in any kind of prolonged issue. what you are seeing across the board is otherwise exuberance. two year yields coming in dramatically since the year term highs are basically flat today. in the credit space we were talking with rich clarida about the possibility of what rate cuts would look like in the stimulative nature of the rally that we have seen in markets. right now looking at investment-grade credit spreads. costs have come in and people are starting to borrow. is this a problem or is this warranted? coming up the bloomberg opinion columnist and -- and queens

college president in conversation with jonathan ferro. you do not want to miss it. this is bloomberg. ♪

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jonathan: the unstoppable rally continues. live from new york, good morning. the cat done to the open starts now -- the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading, this is ""bloomberg the open" with jonathan ferro. jonathan: coming up, fed officials struggling to put it at in this rally.