>> the market is being aggressive on rate cuts and i believe that the fed is going to take it's time. >> by the end of the year, they are going to start cutting. >> our forecast is four cuts. >> that is a pipe dream if we have a soft landing. >> market is now calling for a 175 basis point cut by the fed. really? how about this? no way at all. >> this is bloomberg surveillance with jonathan ferro, we saw abramowitz and anthony overturn. jonathan: live from new york

city, good morning. this is bloomberg surveillance. your equity market on the s&p 500 positive by a third of 1%. bramo, leaving behind the gloom and doom of davos. lisa: does it feel like record highs? it is down on the year. nvidia up 20%. is this just nvidia driving the entire market up? jonathan: let's talk about the politics. the gift that keeps on giving to the news cycle. the republican cycle goes from three to two. lisa: a head-to-head race in new hampshire. nikki haley and former president donald trump. in a foreign a half minute video, ron desantis endorses the former president. jonathan: consumer confidence bouncing back, inflation

expectations coming in. lisa: if you take a look at markets, that seems to be the implication as you see bonds losing value but stocks gaining. we can exist at these types of rates and companies can still accelerate and do well. does this last? can this last or does something have to give? jonathan: let's take a look at the financial markets. equity futures on the s&p 500 positive by about a third of 1% on the s&p. in the bond market, yields coming in on a single basis point. bramo, yields higher across the curve. lisa: this comes after a bunch of pushback. you heard no way are they going to cut rates but at this point it is a good news for stocks because even if you could see bonds blowout, you could see stocks do well and that seems to be the presiding sentiment for the moment. jonathan: coming up on this

program, kicking off the week with equity markets at all-time highs on the s&p 500. it is quiet on the earnings front but it picks up next week with big tech. lisa: later this week, we get netflix. i'm curious to see whether they can reprise some of the -- there has been a lot of splintering in big tech. is this just ai and then everyone else or is this going to be the max seven? jonathan: desantis dropping out of the 2024 race and endorsing trump. is that good news for trump or nikki haley? annmarie: i think because of the timing, potentially it is good news for some individuals, for nikki haley but the problem is, he was pulling about 5% in new hampshire. is that 5% enough or nikki haley because if you look at the cnn poll over the weekend with the university of new hampshire, trump is up 50% in new hampshire. a lot of donors are giving her the grace period in new

hampshire but after new hampshire it is almost over for her. jonathan: the united states continuing to strike houthi sites. are they stopping the houthis? no. are they going to continue? yes. annmarie: until they potentially go after some higher-level targets, the houthi's do not look like they're going to stop anytime soon. lisa: this is a tortured balance to avoid some kind of altercation. whether it is a clear strategy, not so much but at the same time it is clear aversion to wanting a broader war. jonathan: our next guest from invesco joining us in about 10 minutes. top story, equity markets at all-time highs. evercore saying be prepared for the volatility of an election year, given that a momentum market could keep going until it stops, we want to own option -- it is very difficult not to make

money whether you are a bear or a bull. democrat or republican. julian manwell of evercore joins us right now. a brand-new studio, thank you very much. can you make money this year in an election year and ignore the politics simultaneously? julian: you can but the cycle will not allow you to ignore the politics but from our perspective, if you look at the last several weeks, you have what you had once again. act towards the summer of last year, the momentum trade really dominating and generative ai, which we believe is a long-term viable theme, embraced not only in corporate america but across the entire world as the productivity enhancer. every now and again, things get ahead of themselves and to us, this is one of those times where the teasers talked about too

many rate cuts being priced in. too much earnings anticipation being priced in and all of those are likely going to cause a bit of a pause. lisa: you put a number on that. a 10% decline of potential correction. what do you do with that if you are bullish long-term or bearish , saying i'm still going to make money? how do you make money if you are expecting a correction? julian: option hedges are extremely inexpensive, given the only the volatility we have seen the last couple of weeks but the volatility that is typical of this kind of year, when the balance of power coming into the election year is as tight as it is. this is the type of conversation we are having with clients, it's less about the defensive aspect and more about staying invested in themes that are likely to work and to us, that is communication services, health

care, consumer staples, in anticipation of a more advantageous time to deploy capital, which we think comes later in the year. annmarie: do you think what we have seen with bonds underperforming and stocks outperforming can continue over a longer term? or do you think this is the beginning of that reset, that we will see that correction? julian: we have to go back to the nine. -- the 1990's. there was a lot of money made in stocks. with yields and interest rates at these levels. it is less about are we going to revisit 5% again, that is not likely given the economy at midyear, but frankly if the volatility in the interest rate markets comes down, that is a better sign for an equity investor in terms of understanding risk reward. jonathan: what can shake the

nothing can go wrong optimism? retail sales came in hot. jobless claims came in much lower. you look at consumer confidence picking up and inflation expectations falling. isn't everything going right to start the year? julian: there are only a couple ancillary points. a manufacturing survey, it was quite week. services verging toward that 50, but frankly the concept of a slowdown, the non-soft landing is still on the shelf are now. jonathan: you got to the essence of it. last week was a clean sweep. the last couple of months, you see some conflict. how much of the economic data do you look at? is it conflict? julian: it is a small but slowly building number. evercore isi's proprietary

corporate surveys have started to show a little bit of weakness, that there was some stability in and around the holiday season which is why i think a lot of these confidence measures are really sort of coming off of the holiday season and let's see how that evolves into february. lisa: you talk about volatility but you are also overweight defense stocks. would that change if you see trump back in power taking a more isolationist approach? julian: i think there is a bit of a conflict, in terms of how the sectors are likely to perform. if you look at the last two election cycles, there was a deep ratification of the more industrial type stocks and sectors, but actually when you think about this year, again we go back to this idea that what is driving the market right now is very much concentrated around ai, and the way we know that is

if you look year to date, the more economically sensitive sectors, consumer discretionary, industrials, materials, all down on the year. annmarie: so regardless of who wins, ai is the winter. julian: we think so, but this is one of those times where these things go in ebbs and flows. i'm reminded of the middle of 1999 when the nasdaq pulled back about 14% on its way to 100% and a stock which has become the world's most iconic stock pulled in 29% to a split adjusted price of $.50 versus its current level of $190 a share. you have to think long term and be able to ride out volatility. jonathan: great to have you with us. going to have you with us. everyone can -- with the trajectory of that technology. lisa: because it is going to

take over our jobs and undermine the world potentially? jonathan: it has the real potential to do what services -- to do to services what globalization did to manufacturing. we couldn't trust government last time around. lisa: michael pushed back on the a little bit. people in my family saying is not going to be armageddon for older people in particular? a lot of people pushed back on that. where is the trust? annmarie: when i say this to individuals, they say we are not trained to put you out of business, we are trying to enhance your job, making it easier to do your job. but it is concerning. jonathan: before we see computerized annmarie horton in the control room -- annmarie horden in the control room. let's catch up with dani burger. dani: good morning. for the governor ron desantis has dropped out of the 2024 presidential race on sunday. now he is endorsing donald

trump. he exits the race just two days before the new hampshire primary. former u.n. ambassador nikki haley is now the second-place candidate. the latest polling shows trump leading new hampshire with 50%. nikki haley is at 39%. macy's has rejected a turkey -- a takeover from investors art-house management. the offer initially made last month represents a 19% premium to macy's closing price on friday. the macy's board declined to provide to diligence. spirit airlines says it's deal with jetblue remains quote, in full force in effect as a carry -- as the carrier looks up -- looks for ways to shore up its liquidity. they look to refinance their debt as an effort to reduce anxieties over the merger fallout. that is your bloomberg brief. jonathan: appreciate the update.

up next, desantis dropping out, endorsing donald trump. >> here i am today, suspending my campaign. i'm proud to have delivered on 100% of my promises. i will not stop now. jonathan: that is coming up next. you are watching bloomberg surveillance. ♪

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jonathan: live from new york city, good morning. a quick check of the price action. equity futures positive by a third of 1%. yields lower, down 2%. under surveillance this morning, desantis dropping out, endorsing donald trump. >> i am today suspending my campaign. i'm proud to have delivered on 100% of my promises and i will not stop now. it is clear to me that a majority of republican primary voters want to give donald trump another chance. i signed a pledge to support the republican nominee, and i will honor that pledge. he has my endorsement because we can't go back to the old republican guard of yesteryear. jonathan: the race for the gop nomination down to two ahead of the new hampshire primary. the latest polls show donald trump widening his lead. nikki haley intensifying her attack on the former president,

saying quote, we are seeing he is not the same level he wasn't 2016. lisa: people were talking about that video of him over the weekend when he kept talking about nikki haley but he meant nancy pelosi. everyone is weighing in on ron desantis dropping out. the washington post saying does mr. desantis have a president of future? he has an excellent record in florida. republicans gamble on mr. trump once again. win or lose, he can't run again. maybe then, mr. desantis will offer a conservative stance that offers more than second string trumpism. jonathan: this campaign started absolutely terribly. and never just picked up did it? lisa: there were are all of these sort of postmortems talking about infighting and financial problems and the lack of direction. not to mention how do you fight back against someone you aspire to be? although we can say is now the question is, is he on vice president watch?

does this help nikki haley or does it help the former president more? jonathan: let's have the conversation right now. joining us is the head of u.s. government affairs at invesco. great to catch up with you. let's start with if nikki haley can close the gap. jennifer: it is not looking good. those polls you were referencing showing that most of those votes are probably going to go to trump from desantis. that double-digit lead trump has going into new hampshire, the momentum is behind him and it's going to be potentially a difficult decision after new hampshire if haley doesn't get within at least five points of trump. annmarie: so when does she drop out if trump does take new hampshire? jennifer: that is the question, because it has been a month -- it is a month until south carolina and we have nevada in between but there election with

the primary versus a caucus has put them off to the side. on february 24, you have south carolina. if she comes within five points of trump tomorrow, she could have some momentum, some real wind to her back and neck could keep the money flowing, which is really important going into south carolina. if her numbers continue to show that south carolina isn't really in play for her, i could be embarrassing, so she will have to take that into account when making her final decision. annmarie: does she even go for south carolina if the polls were to remain in her favor and senator tim scott decided to endorse the former president? she is losing that state at the moment by more than 20 points. is it safer for her to back out before she has this embarrassment in her home state? jennifer: you hit the nail on the head. conservatives in south carolina

and new hampshire is much more independent. when you go into south carolina, you are looking at a more traditional republican base. her numbers are not as good in south carolina as they are in new hampshire. you mentioned tim scott endorsing donald trump. also it is the governor of south carolina endorsing donald trump, and most of the members of congress. only one endorsed her. you have a real momentum for donald trump in south carolina. lisa: is ron desantis gunning to be vice president? jennifer: i don't think so. i think ron desantis is looking to 2028 and the key is young, 45 years old and he sees a political future for himself but i doubt it is running alongside donald trump. lisa: meanwhile, there are some things that have to get done like passing a budget and dealing with national security concerns. there seems to be a bit of a stalemate. what do you think of the chances of getting a bill passed this

month, but that can also carry through to march, so we don't end up with this on repeat again and again with more acrimony each time? jennifer: they were able to pass a cr march 1 and then march 8. staggering those appropriations bills. schumer and johnson were able to reach a deal on a topline spending number. but they still need to get those -- numbers that are the thresholds for each of the individual 12. appropriations bills that is going to be on the shoulders of the appropriators in order to reach that march 1 and march 8 deadline. jonathan: i want to turn to what is happening internationally and finish on the strikes on the houthi's in the middle east. the president was asked about the strikes over the weekend and he gave an almost bizarre response and he said the quiet bit out loud. are they stopping them? no. are they going to continue? yes.

why would they continue if they are not working? jennifer: you are seeing a reaction from congress with the same sort of questions right now. he is getting hit from republicans, national defense republicans who are real defense hawks and wondering why the incremental approach to what is happening in the middle east. that will only increase and i think you are going to see a number of hearings and a lot of focus and spotlight from those committees when the house returns after next week. jonathan: appreciate the update. still with us around the tail, -- around the table, julian emanuel of evercore. i want to talk to you about the consequences. we have traffic to the red sea down, traffic through the panama canal down. how close are we to goods inflation picking up again because it was happening around the world? -- because of what is happening

around the world? julian: that is one of the things that bothers us about being ultra-aggressive to the upside in the markets, is that part of this expectation is that inflation is going to continue that gentle glide path lower and i would suggest that what you may end up seeing is if you have continued congestion, this could be an environment where the stickiness does remain, but in fact it does end up being manifested in incrementally lower demand, particularly given that from our point of view, you are likely to have the end of the pandemic ecess saving -- excess savings sometime this year. lisa: could you talk about the downturn you are looking at? julian: the biggest would be an interpretation right now, as far as news amongst the generative ai names. if you see earnings, and

earnings has been a puzzlement thus far, obviously you have had mixed results. it looks like this is shaping up to be not so great of a quarter. what is really important is again, as much of the last year, how the stoxx react towards the earnings numbers -- how the stocks react to the earnings numbers, given that there is much more upside. annmarie: at this moment, isn't someone's bottom line being hit by the fact that the ships have to take a longer and more expensive route around africa? julian: no question. if you think about those kinds of distortions in the pandemic, you still had the demand because we didn't have anything else to spend our money on. from that perspective, we are just in a different state of affairs. there could be the stickiness to inflation, makes the fed's

intended path a bit more trying but ultimately it could wind down into slightly diminished demand. jonathan: favorite trade this year? julian: we really like the names and it's across a variety of industries that are taking generative ai and asks julie -- and actually figuring out how to make it work. when you thick about financial industry commentary, they are the vanguard of the cost savings in this environment, but it is also the consumer companies who are becoming much more adept at connecting their clients, taking information and importantly, asking the right questions to make it all work. jonathan: thanks for the insight this morning. julian emmanuelle of evercore. about three hours away from the opening bell. s&p 500 pushing up a little

further after closing at all-time highs on friday's session. two weeks of gains on the s&p. can we add to it? coming up in about 20 minutes, we will catch up with stephen major of hsbc on the global fixed income market as we wait for this week's ecb rate decision. if feels like we've had two conferences already. lisa: christine lagarde gave a preview and had some spicy words about trump. jonathan: about three or four press conferences with christine lagarde in davos. from new york city, you are watching bloomberg surveillance. ♪

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jonathan: live from new york city, good morning. two weeks of gains on the s&p 500, looking to kick off a third week of gains potentially. the s&p positive by a third of 1%. the nasdaq up by 0.6%. the russell picking up by 0.4%. attention turning away from financials, towards what we have from big tech over the week or so. apple on deck. lisa: and before that we will get 10 land netflix. -- tesla and netflix. any kind of gains have been entirely from these stocks and it is shocking to see the russell 2000 still in a bear market as you see new record

highs for the s&p 500. jonathan: amazing to see all-time new highs on the s&p 500. the two-year currently, 43825. last week, we had pushback from governor waller against recut talk. consumer optimism picking up. a lot of reasons for high yields last week. lisa: this all came from the strike supporting equity markets. this was the beginning of stocks relationship and it's going back to normal and you can have a balanced portfolio. i don't know what to think of that because this seems like a sweet spot that could push either direction pretty quickly. jonathan: we need to talk about europe as well, the data not great at all. the euro looks like this against the dollar. the eurodollar 1.08. we joked about how many times we heard from the ecb president

last week in davos. not entertaining the rate cuts by quite the same cut -- quite the same rate that the market seems to be. lisa: will she push that forward given the fact that you do have disinflation and you do have a bit of soft this, particularly in germany? we will hear from her again in the fifth press conference on thursday. jonathan: and the federal reserve is just around the corner as well. for the governor ron desantis dropping out of the 2024 presidential race and endorsing former president donald trump. desantis leaving the campaign trail just before voters take to the polls for the new hampshire primary tomorrow. the stage is now set for a two way race between trump and the former, nikki haley. annmarie: desantis dropping out. i spoke to some from his campaign and they said there was just no path forward. now everyone you mentioned is doing these postmortems but he peaked before he entered.

he was leading trump this time last year. then he had that bad release on twitter and from then it has been all downhill. lisa: he wanted to say he broke the internet and everyone just said he broke. nikki haley has now said may the best woman win. i'm curious what is the threshold for a drop out because it does not seem like there is a real path. how big does the gap have to be when trump wins and how big is her loss have to be? that'll be achy million asian. annmarie: does she make it to south carolina? jonathan: do think there was a chance she won't? annmarie: it'll be quite humiliating if she loses her home state, where she used to be governor. jonathan: what is the lead right now? . annmarie: it is not good. trump leading in double digits. two our earlier guest's point, it is not just senator tim scott who has come out to endorse former president donald trump. it is the current governor. she is up against a tough fight

in south carolina and maybe she wants to save herself from that embarrassment. lisa: the reason why new hampshire is interesting is because independents can vote. maybe she is trying to pose the best opposition to joe biden and maybe she can make that pitch in a new kind of way. jonathan: the latest update in the middle east. is really prime and disturbing to him and that now he rejecting a deal to release more hostages in gaza. the house is demanding a withdrawal of all forces in gaza. pressure ramping up for a deal to bring the remaining 132 hostages home. ramping up to mystically and internationally as well. lisa: what strikes me as compelling as this idea that the israeli foreign minister is over in europe making their pitch and europe is having some harsh words with israel, saying if you are not on board with a two state solution, we can't help you. biden splintering from netanyahu, at the same time he is losing a lot of popularity. there is a lot of internal push

for elections that could kick net and yahoo! out of office. annmarie: more than 100 individuals are still being held by hamas. this will be a huge focus of the administration this week. biden is sending -- over to egypt to negotiate this deal. it is not just domestically that they want to get those hostages out. this administration looks like if they can get the hostages out, that could lead to a cease-fire and that puts further pressure on that now who. jonathan: and biden has been hammered on this issue within his own party. at the start of this campaign, we saw the two leaders standing shoulder to shoulder. how much daylight is there between netanyahu and president biden? annmarie: it's a big gap. we saw biden ticket trip to israel and give this bearhug did netanyahu, an individual where they had a lot of friction leading up to that moment and now it is becoming more troublesome for this administration. you have people in his own party saying we are not going to deliver aid to israel without some strings attached. jonathan: trouble for boeing.

the faa expanding expend -- expanding inspections to another 737 that has mid exit door plugs, the same involved in the alaska airlines blowout. boeing saying they support the order to inspect the 737, an older generation of the max family. lisa: i don't know how things could get worse. a couple days ago there was video of a cargo plane, a 737 boeing jet on fire, literally on fire and some of the rhetoric, people posting these videos. it is just piling at this point, especially with this particular investigation. boeing shares down more than 17%. how do they revive trust and confidence winded -- when it's one thing after another? jonathan: i did not take the window seat when i flew back from switzerland. i took the aisle.

it's pathetic but ultimately it was on my mind. lisa: i checked to see if what a boeing or an airbus. jonathan: what was it? lisa: it was an airbus, which i found relieving. jonathan: that's not good. lisa: it would give me anxiety if it was boeing. jonathan: a conversation that came up or p diddly last week, the reality check for ev's. just three years ago, the white house went all in. >> the future of the audio and -- of the auto industry is electric, there is no turning back. jonathan: but now the auto industry is turning back. ev deliveries falling short of estimates. ford cutting production of its f-150 line. joining us now is crave trudeau. how much a reality check and we seen in the last week? -- how much of a reality check have we seen in the last week? craig: take a look at what has happened in to tesla, the amount

of price cutting that they did last year, and to mental grain -- into mental gains in -- incremental gains in volume. we have seen ford going from potentially fearing the arrival of the cyber truck and the potential threat that posed to the f-series line and perhaps not being as afraid of the sort of competitive blow that could come from that. also, let's be honest, some of these companies really struggling with execution issues. i don't think we can absolve some of these companies of some of the failures they've had, to take tesla on as much as much as they are having some challenges. they are still really sort of in a two horse race with tesla being way out in front of the rest of the industry and making this transition. lisa: you mentioned byd. how much of the pullback from the electric vehicle space by american manufacturers really comes from the threat that

chinese benefactor is can sell ev's so much more cheaply and as soon as they come to the shores of this country, prices will drop considerably? craig: i don't think they will come to the u.s. in part because of the trade barriers that have been set up. we've heard rumblings of the biden administration, raising tariffs that are already prohibitive. i don't think chinese manufacturers early see this as making any sense, trying to enter that market in the near term. i do think we will see a lot of politicking around this, messaging around the idea of do we want to go the way of losing out to the chinese? both sides of the political aisle will fight on the basis of, do we want to fold to the chinese? on the right, do we want to go in the direction of electric vehicles when the chinese are so dominant? it'll be different messaging but both will surely sort of cast china as the bogeyman to either

take on or sort of avoid. annmarie: i'm struck by the fact that ford is pushing back some of their targets but they still have targets of electric vehicle adoption in a much more mainstream way. do you think this is an interrupted transition or simply elite transition? craig: i think more so -- simply a delayed transition? craig: i think more so the latter. doing a slapdash effort of taking an existing platform in ford's case, only slightly altering the f-150 and sticking a battery in it, that is not the way to make a compelling electric vehicle. we saw an effort on ford's part to really sort of place speed ahead of anything else and get to market ahead of gm with the electric silverado, to take on the likes of rivian and the cyber truck.

some shortcuts that were taken led to some compromises in terms of how well the f-150 lightning performs. what we are going to see in the next couple of years is these carmakers bring to market dedicated platforms that from the ground up were purpose built to be electric and we will see, much more compelling vehicles and the question is whether that will be enough to bring the consumer who has proven difficult to get to come around to elect vehicles, whether that'll be enough to sway them. lisa: we spoke to john kerry last week and he said it is cold, disinformation on why consumers are not being caught up and persuaded. a by demonstration official and -- came up and said more needs to be done when it comes to charging stations because that is a real concern. which one is it? craig: it can be both. there is a lot of -- i mentioned the word bogeyman. there is some strange anti-eeev

messaging -- anti-ev messaging, just how clean are these? you can't possibly get by with the charging infrastructure where it is. does there need to be more progress in this regard? absolutely. are there people all over the place running out of juice and stranded by the roadside? that is not the case. there is some truth in the middle. i think the industry is going to go in this direction, and needs to figure it out. i also think it is going to be interesting to see just how much this compromise of making the transition to tesla's charging stander will help some of these manufacturers. that was a big deal last year with a lot of announcements but we won't see that come to fruition until the coming months. whether or not that'll help resolve some of these charging issues for these other manufacturers will be something to watch. jonathan: appreciate the upstate -- the update, craig.

-- ranging zaidi is the consequence of misinformation -- range anxiety is the consequence of misinformation. lisa: honestly, i was going to rent a car and i didn't rent an electric car because i didn't understand where exactly the charging stations would be. i decided i don't want to complicate my vacation. explaining why perhaps some people are selling. jonathan: clearly you are not alone. annmarie: inevitably -- in italy this summer, i rented an electric car and there are apps that set up charging stations and italy has put a ton of money into the south of the country. you need the charging stations in order for this to work. if you don't have it, it is quite anxious. jonathan: it is not that we are rethinking the end -- rethinking the destination, this is about the pace, the speed we get there. lisa: the problem is if you conflate the two, you end up with real mixed messages which

really comes from things like pumping 13 million barrels of oil a day and then talking about the evils of fossil fuel creation and emission. how do you have clarity of message wildness -- while recognizing the this city of a longer period of transition? jonathan: let's get you up to speed on some of the headlines. let's say good morning to dani burger. dani: elon musk is set to visit auschwitz and attend a panel on online anti-semitism is part of a trip organized by the european jewish association. they organized the visit to address a worldwide surge of anti-jewish rhetoric that followed israel's invasion of gaza after hamas's deadly attack on october 7. elon musk kostin uproar after endorsing an anti-jewish conspiracy theory on ask. states as far south as texas and florida feeling the freeze. subzero conditions and dangerous driving conditions claimed 72

lives nationally after significant snowstorms through through eastern states. freezing temperatures are expected to ease up in the coming days. the kansas city chiefs advanced to their sixth straight afc championship with a win over the buffalo bills on sunday night. the chiefs ended the season in three of the past for playoffs and now the chiefs move on to baltimore to face the top-seeded ravens. that is your bloomberg brief. jonathan: impressed that we got through that without mentioning a certain name. annmarie: taylor swift. she was in attendance. rooting for new york. i would rather that buffalo wins. jonathan: i appreciate the insight. up next, the fed dialing back. rate cut expectations. >> we don't want to loosen policy too quickly only to find that inflation gets stuck at way above target. that would be a mess. jonathan: that's coming up next. you are watching bloomberg

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jonathan: live from new york city, good morning. s&p 500 higher by a third of 1%. equity features in positive territory. yields lower by two paces -- by two basis points. the fed dialing back rate cut expectations. >> we don't want to loosen policy too quickly, only to find that inflation gets stuck at above target. that would be a miss, a very scarring miss. you don't want to try to get to two so quickly, like overnight, just to get that squeezed out and we end up having this big run up.

jonathan: that was the san francisco fed president speaking at the san diego county economic roundtable. we heard a lot of that last week. lisa: this sort of perfect balance, but how do you get there? how do you know when you are actually at that perfect balance given the fact that the hard data looks pretty good? patrick parker came out with an essay that i thought was fascinating. he said we will be guided equally by the soft and hard data writing quote, as important as the hard data are, they do not tell the complete story. soft data help not only better explain what i may be seeing in the economic updates but can also give me insights of emerging issues that may not show up in the numbers until further down the road. this to me is one of the key questions. what are the tea leaves the policymakers are looking to, to know when to make a move? jonathan: anecdotes. we sat down with him and we talked about exactly this. what businesses were telling him

on the ground. lisa: he said that was a better indicator we saw the turn of inflation, saw the turn of things going up, than a lot of the hard data. what is the soft data they are looking at? people and businesses telling him that they are not looking very good? people are optimistic. where is dissonance here? jonathan: great to catch up. what is guiding you? what is on your dashboard, the economic data you are looking at? seven: the hard data is backward looking. anyone who has taken a survey recently after having a particular service will know what we are talking about because they are fed up with them. i'm not sure about the quality of the soft data and the forward-looking data. for me, what matters more than anything else is the distance between today's policy rate and the longer run.

it's about 3%. i'm not that interested on the dates and the amounts of the first rate cut which seems to be where most people are. the next move is down. you see it is unchanged or down. it is not up. that binary outlook for rates makes it much easier to justify a long position in bonds than it did three to six months ago. lisa: at the same time, if they don't cut rates until december, that'll surprise the market to the downside. how do you justify being bullish now, when we are already seeing a lot of it being priced in and people getting ahead of themselves? steven: we've got a neutral call for this month and i tell my colleagues if it is obvious we are going sideways for six months and then the yields are going to go down in the second half of the year, what are we waiting for? you have the carry and the coupon in the meantime. in the biggest period, the

biggest bear market was 1961-1980. the annualized return was still about 4% per year. that kind of thing happened last year, you ended up with plus 4% on the year. that is how bonds work. i get the idea that if they don't cut in 2024 for whatever reason, than the two year yield should be nearer to five and that could push the tens nearer to 4.5%. they might cut an awful lot too. you have to balance those two scenarios. lisa: at the same time we are getting treasury options this year, this week. window we start to worry about supply, especially as quantitative tightening continues? steven: you know that we get that question quite a lot and the supply side is just one

angle in the whole picture. the demand for bonds today is higher than it was three months ago and that is a paradox because yields of 5%, it seems were less attractive than yields at 4%. i hope i am making sense. there is more demand for bonds than there was back then, because you've got certainty around the outlook. rates are not going up. they will be unchanged or down. that is why 10 year yields are less. there is $5 trillion or so sitting in money markets. pre-pandemic it was $2.5 trillion? presumably some of that money is shifting into bonds or soon will be because there will be a huge regret if it stays in money markets and the fed is cutting. jonathan: does supply matter?

we need to talk about supply relative to the cycle. how rare is it to see a deficit this large, to see issuance that lisa just went through with unemployment still south of 4%? steven: i had a mia culp a last year. i understand shy underestimated the surgeons. the increasing coupon issuance for the august to november period happened when the curve was deeply inverted, between money markets and bonds. the u.s. had just been downgraded the beginning of august and the gdp holding up. the complements of those events made it difficult to justify buying tens. today you've got different circumstances. we are chucking you along, but we are closer to the recession. you haven't got such a great in version. it seems to me that the supply is coming into a much more

willing demand environment. you can look at it from the money markets, you can look at it from the level of equity prices, you can look at what overseas investors have been doing. ultimately we are going to be talking about the demand for bonds, not just the supply. what i find interesting is how all the questions seem to be angled at just one factor, the fact that there is some fairly big supply coming up. it does not matter, there is plenty of demand. jonathan: let's talk about both. has the playbook changed? i hear that you don't think it has, that they are willing to finance this deficit when the tax receipts fall. steven: we've had a couple of episodes that have made us worry. pointed one out last year, in particular there was one that happened -- there was what happened in the u.k. one year before that. a u.k. fiscal experiment.

you see these things happen occasionally. taper tantrum was something similar. ultimately these are short-term events. they don't determine the long-term value of a bond. a bond's valuation is mainly driven by the short read and its expected path. people are stacking a load of premium onto their projections which is all very well but the majority of the bonds value is explained by the shorter end. jonathan: frustrated by the question that he is asked repeatedly about supply. in the heat of dubai, steve major of hsbc. good to catch up. the playbook is not changed for the team at hsbc. lisa: bonds are going to go lower and that seems to be the conviction that continues. jonathan: coming up, bob diamond, ceo of -- alongside

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>> the market is being aggressive on rate cuts and i believe that the fed is going to take it's time. >> by the end of the year, they will start cutting. >> our core team has four cuts. >> six rate cuts. that's a pipe dream if we have a soft landing. >> the market is now calling for 175 basis point cuts i the fed. how about this? no way. no way at all. >> this is bloomberg

surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: travis kelce and taylor swift, this show is going to kill me. for our audience worldwide, this is bloomberg surveillance. i am jonathan ferro. financial markets positive by a third of 1% on the s&p 500. the last week, things have been decent. jobless claims were lower. consumer confidence is picking up. lisa: it all sounds so good. in day of -- in davos, everyone was so optimistic. we don't think this has much further to go. jonathan: the president hopes it does. annmarie: when the university of michigan came out in the confidence report, i got a lot of messages from people in the white house saying they need those news stories, saying people are starting to feel better about the economy.

lisa: but enough? that is the question. do oil prices stay low enough to keep the confidence going? how much is that survey connected to gas prices in the united states? annmarie: exxon, shell, that is huge. that needs to be the price of gasoline next september, october and november. jonathan: the white house wants to talk about consumer confidence, not 13 million barrels a day produced in this country, with the exception of one man. he said it was necessary, secretary kerry. lisa: i asked him if this was a policy success or a failure and he said it was a policy necessity because of you get higher oil prices you get riots and social disruption. how do you dovetail a message of sustainability over the long-term with the reality in the short term which is people are moving a lot less quickly than what people expected? jonathan: brent crude just south

of $80. a little bit of a lift on the s&p 500. drifting high on equity futures. down about three, to 4.09%. lisa: we've seen a pretty big selloff in bonds and what i find fascinating is we have reached all-time highs in nvidia that has driven the rest of the index while bonds have sold off. this is a huge question. can this continue given that people are optimistic? jonathan: coming up, that two week winning streak, taking stocks back to all-time highs. goldman, morgan stanley, microsoft and apple still to come. lisa: those to me are going to be the real determinants of whether we. see this rally continue. the ai hike, can it translate into actual profits? are they making headway or simple he defending themselves from interrupters who are going to change the way we do everything, change the way we are employed? jonathan: just going to start

their. the republican primary narrowing down to just two candidates. nikki haley versus donald trump. annmarie: i spoke to the desantis camp and they said there is no path forward. he tried to establish himself as someone like trump but without the baggage. that doesn't work when you basically have an incumbent in your primary field. lisa: i've just been wondering who is going to be vice president? nikki haley is going to drop out and if this is going to be at donald trump-joe biden matchup. what is the turn not going to look for this thing that excited about? jonathan: i will was terrible but that was the temperature. annmarie: it was cold. lisa: there is not a lot of enthusiasm for this. a lot of people in private conversations, executives and beyond saying this is what we've got? these individuals? jonathan: the final headline later in the show, the united states struggling to contain houthi attacks in the red sea. the president acknowledging that

the strikes are not working but then basically explaining they will continue. lisa: this is a tricky moment. how do you prevent escalation at a time when you have to fortify the ability to trade in the sea? the independence and the safety of the sea? this is going to be a quagmire that goes on for a long time. people shrug it off. it is avoiding escalation. when does that trip some kind of livewire? jonathan: we will pick up on that story later. we begin with our top story, stocks trading at record highs. bob diamond, ceo of atlas merger capital, warning the following. the fed is like me to proceed with caution. a rate cut or even two this year could occur but the economy is like you to continue to demonstrate that it can handle the current level of interest rates. bob diamond joins us now. bob: good morning. jonathan: fantastic to see you. retail sales are solid, optimism is picking up. what evidence is there that we

are sufficiently restrictive at the fed? bob: i think consensus in my mind is about what percent growth -- 1% growth this year. i thing it might be higher than that. as a look out at the year, if the fed were to be aggressive in rate cuts, first-quarter or second-quarter, they run the risk of the economy accelerating a bit, therefore inflation accelerating a bit. that is just a position the fed is not going to put themselves in. my sense is the right way to look at this, rather than the markets, if you look at the fed fund futures, 150 basis points this year is kind of front anded -- front ended. rate cuts closer to the end of the year but i believe the fed is going to remain cautious for very good reason.

they pretty much played blinders because they recognize that inflation was spiraling out of control not that long ago. we are in a very good position now and for the fed to act too quickly would put them in a difficult position. our sense is the market is well ahead of themselves in terms of rate cuts. lisa: when you say bond markets, how many people are saying this is a bond market problem? it is not a stockmarket problem because if the economy is better than good, that is positive for risk assets. bob: it raises another issue, which is we were for so long at zero interest rates or 1% interest rates. we all remember here, the world before 2008. from 2008 until very recently, the fed funds averaged about 1%. before that for decades and decades, fed funds averaged around 4% or a little above 4%.

where we are today is not abnormal and our sense is that the economy is adjusted presumably well. we see that in the commonness of the bond market and the equity market. there is not a panic by the fed to lower interest rates. lisa: you are at barclays weeding the charge for quite a time. credit suisse. you've been in the banking business for quite some time. interest rates are higher, but also there is a whole host of regulation that is cramping lending activities. where is the opportunity at a time where it seems like lending could be profitable if there weren't so many constraints? bob: .1 would be if you look at the u.s. banks and if you look at what we typically report as earnings, we tend to report the big banks, and the big four, the big six of the u.s. continue to get larger, more concentrated

than they were prior to 2008 and that concentration does weigh on me a bit. do we really think that fewer banks, larger banks, more concentrated banks is better for the u.s. economy? i don't think so. one of the things that has been the lifeblood of our economy, and the reason that the u.s. reacts so quickly to negative news and negative periods, particularly relative to europe and other sectors around the world, is because of the diversification of the financial services industry. i do worry about that. i think earnings have been good, but the larger interconnected banks are becoming much more like utilities. the push back on higher capital, i actually think it is going to be an effective for just that reason, because the banks are becoming more concentrated and they are becoming larger. lisa: what do you think of this

impact of the new capital requirements? they potentially face an even tougher road ahead. bob: a lot of that capital is for the larger interconnected banks, what people used to refer to as too big to fail. that is where the biggest impact will be and i can kind of understand both sides of that argument. on the one hand, the banks are saying higher capital levels are no longer safe right now, which they are, it is going to lower our way into reduced lending but if you are a regulator and you are worried about ever being in a position where there is systemic risk or too big to fail, even to the banks are doing great, and they are safe today, the risk if there was a failure is greater. my view, and this does fit my book, we love to invest in regional banks and i want to claim that that is kind of our bias but there are 4000 or so

regional specialist banks today. there is no country that has that kind of financial services industry and that kind of a reach. the benefit those banks have for small family owned businesses, which again, the lifeblood of the u.s. economy, is really important. there will be consolidation. i do think those banks are reacting well to higher interest rates now, versus the immediate impact of higher interest rates. we think there is going to be terrific opportunities in regional banks. we love that as a space to invest in but we think it is incredibly important that we provide opportunities for those institutions to continue to grow and serve smaller and medium enterprise businesses. in terms of regional banks, for sure. i think there are a couple of things. every bank, large, small, medium had to adjust their portfolio to higher rates.

when rates go from 1% to 5%, it is going to impact -- you can't have a positive impact of that. you have to weather that and it has been managed. pretty well. the second thing is there has been a lot of worry about the low portfolios, particularly commercial real estate. for many of these regional and more specialist banks, their focus on commercial real estate is more in small cities around the country as opposed to new york or l.a. the markets are getting more comfortable that the crisis is behind us, but i do think there is an opportunity for consolidation. the impact of regulatory capital, the impact of regulatory intrusion, is increasing costs. i think the higher interest rates for a while increased costs. some of the very small regional and specialist banks, although very sound are going to struggle

to get things to appropriate levels. jonathan: language matters, investing versus buying. would you be interested in taking over a regional bank in the united states? bob: as an investor? what i love that as opposed to an operator? we do think of ourselves not just as investors but as operators. if we make a significant investment in a regional bank, staying as nonexecutive, we can still have a positive impact on the growth and that is how i look at it. what i like to get involved with a couple of regional banks? absolutely jonathan: have you identified one? bob: i can't say that. jonathan: we are trying to tease this out. bob: a very good question though. jonathan: you have a couple minutes to chew over because you are going to be with us.

bob diamond potentially looking at a regional bank in the u.s. let's catch up with dani burger. dani: good morning. florida governor ron desantis has dropped out of the 2024 presidential race. he is now endorsing donald trump. desantis's exit is just two days before the new hampshire primaries. former u.n. ambassador nikki haley is now the second place candidate. the latest polling showing trump leading new hampshire with 50%, haley with 35%. china's imports of chipmaking machines jumped last year. imports of machinery used to make computer chips rose 14% in 2023 to almost $40 billion. blackrock is looking to sell in office complex in shanghai. it would be at about a 30% discount to its purchase price. the asset manager wants to speed up the sale of shanghai towers. other investors have been

offloading offices as a weak economy and oversupply weigh on the chinese economy sector. that is your bloomberg brief. jonathan: up next, stocks at all-time highs. >> if the fed is not cutting rates because the economy remains strong, i think the u.s. equity market will be pretty much fine with that. if the fed is cutting rates because the economy is very weak, that's a whole other story. jonathan: that's next on the program. you're watching bloomberg surveillance. ♪

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jonathan: live from new york city, good morning. price action looks like this on the s&p 500. closing friday at all-time highs. this event is this morning. equities at record highs. >> if the fed is not cutting rates because the economy remains strong, i think the u.s. equity market will be pre-much fine with that. if the fed is cutting rates because the economy is very weak, that's a whole other story. if the economy delivers, earnings deliver, markets can move higher. jonathan: oppenheimer, the most bullish on the street, calling

for 5200 by year-end. lisa: mike wilson over the weekend was talking about why he doesn't have the same kind of conviction. he talked about the fiction of the broadening out. he wrote so far in 2024, the laggards of turning 23 are back to lighting and the winners are back to winning. when in doubt, it pays to go with the highest mobility winner. in this case, it's high-quality growth. pushing back against this idea that equal weighing is somehow going to gain precedents. it's all about ai. jonathan: with us or on the table, head of u.s. trading stood a g at citi, alongside the brilliant bob diamond. you talked about this for a long time. is the new still good? stuart: i think the news is still good. still sitting here in january 2023, it would be very different. i think there are a few more blemishes on the data than we

have seen and that has gotten people more cautious about it but i generally agree with that view which is 2023 is the perfect test case for that logic, which is you had basis points of cuts priced and and those cuts got priced out and equities did just fine. that is your playbook at is higher than last year. lisa: what do you think of the pushback, the idea that equal weight can outperform, that some of the beaten up stocks can shine again? do you buy into that? stuart: we do. we haven't started earnings either. the -- the view on broadening out is that it is not necessarily a price action story and the idea is that you have broader earnings that allows broader participation of the markets. i think we want to get through earnings before we pull the plug that we do believe in broadening out. lisa: this is some permit is going to be key when people wonder what is goldilocks or not.

you point out that a notable slowing in u.s. labor data is the trigger for you. what does that mean? what is the trigger? stuart: it is payrolls, claims and credit card spending. if you were to think, soft landing, hard landing, your soft landing is payroll stay -- a hard landing would be negative payrolls and a get -- and you get the un-up limit rate above 4.5%. frankly, if we start predicting some 100 k jobs, the market is going to increase the pub of that downside. jonathan: how frustrating is this for you, trying to work out of good news is good news? bob: you phrased it perfectly and stuart, this fits what you are saying. if we go back a year from today, fed funds are about 4% and every analyst coming out here is saying we are going to have a recession. and actually rates went up

another 150 basis points and the economy is stronger. this year, everyone is saying we are going to have cut after cut and i think we are back to that same position which is i think the consensus has got it wrong going into the first half of this year. expecting multiple interest rate cuts, what our view similar to stuart's is the economy has some momentum. we're looking at continued growth this year. if we get an economy in the first half of the year greater than 1%, which is the consensus, and the fed has goosed that a bit, i think they are going to be in a difficult position. jonathan: stuart? stuart: i think that's right. i think our view on this would generally be that the market is taking away from the fed and the fed is going to say they're not coming next and they are pricing a probably stick outcome.

the market might expect two with what if we have to get eight because the economy is weak? the amount of cuts priced in does look too aggressive but it is the markets saying you are done hiking. the next move is a cut and now we are just sort of mobility adjusting. the market is going to have to i just that -- adjustment. -- have to adjust that. lisa: this idea that a lot of the beaten up stocks including regionals can really shine this year. stuart: if i think back to last march, our view on regionals was until private capital invest in these things we are going to remain pretty cautious. if he is putting money and without a government backstop, then i'm all in. we do believe in the broadening out. regionals and small-cap, you're going all the way to the edge. our view on regionals would be, if you get insurance cuts,

regionals are going to absolutely rip because that means you've got strong growth which the regionals want and need, and you're are getting relief on the rates side. if you thread that needle, regionals quite right into that. we are a little more cautious now. we are staying with equal weight s&p and we have seen this pushback. small-cap has a little bit more of that recession, cyclical risk and a little more rates risk. we feel like there was a big enough opportunity that you don't need to take that additional step, but if we get insurance cuts, -- lisa: i do have to say, you've been behind some pretty bold calls, bob. also eu over u.s. banks which is sacrilege. why is this year going to make sense? bob: since 2008, when the u.s. -- and europe and the u.k. decided that biblical justice to

destroy the banks was there mode, the u.s. banks have just ripped and the european banks have really struggled. i think for the first time, if i could say it differently, i am less bearish on european banks relative to u.s. banks for the first time, but if you look at ubs and two banks as an example, i'm not saying across the industry, they have return on equity, return on tangible equity above 15%. they are looking. a lot more like u.s. banks. they have very strong leadership. they have strong wealth platforms. they have investment banks that are quite profitable. not trying to beat u.s. banks but very similar to the way we built it at barclays with barclays capital. if you look at ups -- ubs, they are going to perform quite well compared to u.s. banks. part of that is the valuation spread. part of that is they are performing a lot more like u.s. banks. stuart, you'll recognize this i

think. rates are going to stay higher longer in europe than in the u.s. because the u.s. economy, we are pretty positive on. we don't have that feeling on europe at the european banks capture that interest rate differential. at a better level than the u.s. banks for all kinds of structural reasons. i'm very much less bearish. jonathan: good to see you, stuart kaiser of citi alongside bob diamond. bob diamond sticking with us. coming up, more with the ceo of -- atlas merchan capital. good morning. ♪

jonathan: two weeks of gains coming into monday. s&p 500 closing at all times highs. on the nasdaq 100, up by .25%. if we turn our attention towards big cap tech over the next couple of weeks. abigail: can the broadening out continue? people talk about where the profits are going to come from. if you look at the profitability of the mag seven, they are expecting 40% increase in profits year-over-year. something inside. can they lead as everything a slides behind? jonathan: even with these levels

achieved in the bond market, we had last week on a two-year, 24 bases point move higher. equity performance wasn't decent in the face of a treasury market selloff off the back of data out of america last week. lisa: that is what everyone keeps saying. it matters why rates are going up. if they are going up because it is a controlled increase, it is not whipping around by 20 basis points every couple of hours, a lot of people can lead into risk. there has to be a breakpoint where people have to reprice some evaluations if fields get materially higher. jonathan: let's finish on foreign-exchange and take a sneak peek of what is happening in affects with euro against the dollar. unchanged at 1.09. we joked about how any times we have heard from christine lagarde. the pushback we saw politically from a central bank president

last week against what was happening politically, not in europe, but in america over the next 10 months, 11 months. lisa: talking about how it is going to be really negative for the euro region of donald trump becomes the u.s. president again. there is this question of how much of this is a policy issue that has to do with investing in europe and rightsizing technological investments, etc. it does raise a question -- how she is going to frame this in a press conference. inevitably, someone is going to ask her aside from rate cuts, what are you looking at and how do you respond to a potential policy uncertainty in the u.s.? jonathan: she is going to say it is about monetary policy today. i think it is going to be difficult. i want to go how we started in the world economic forum. we started talking about how broken the european model was, the dependence on energy from russia, growth on china and defense from the united states. we saw a lot of leaders come out, the dutch prime minister us in switzerland saying that

former president trump was right. on nato, we heard from emmanuel macron. we need a sovereign europe -- i would say they are on board with the idea, things are broken and we need to do things about it. lisa: they are looking internally at the sovereign market. >> he is ratcheting up that concern when you are looking at potentially trump in the white house and christine lagarde for one week talked about trump with francine lacqua when francine asked, i'm going to need coffee to talk about this and she ended saying, it is time for europe to go on the protect -- on the attack to prepare for a second trump term. jonathan: let's get to top stories. under surveillance, the race for the republican nomination down to. florida governor ron desantis ending his campaign for president and endorsing donald trump. trump now set to go head-to-head with nikki haley. it is the last remaining gop candidate. annmarie: this was supposed to be the place nikki haley could

potentially break out. this cnn poll yesterday that dropped, he is at 50% new hampshire. the question becomes, if she does not come close to that or when new hampshire, windows nikki haley dropout? lisa: why does the market care? i keep wondering hi -- why people price this out. we heard from a whole host of executives was, we know what we are going to get from joe biden. the uncertainty is we do not know from donald trump. a lot of their trade policies are similar and there is a question about whether it would be the same on policies that are most important markets. jonathan: paul diamond -- what are you looking or were to most? you have seen a few of these electoral cycles. how different is this one for you? >> i think it is not that different when you step back and look at how this election is playing out from an international perspective. kind of apropos from what you are saying about christine lagarde or macron or the number

of people you would have seen in davos last week. i think there is a surprise. are these really the two candidates? is there no more change in this? i think that has been fairly consistent over the last number of elections, where it has been the standardbearers coming out. i do think there is a disappointment, as not that that is the most important thing, but i do think that there is a negative surprise internationally to these two candidates. jonathan: you mentioned europe versus the united states before the commercial break. how relevant is it now? bob: the more you research the impact of elections on the markets, the more you realize there is not one. and, it is not very relevant, jonathan. i have been trained in that way by larry cantor, our strategist and other people. you go back through the records -- what is happening in the

election does not have a big impact on the markets. what i would like to believe is the markets are just discounting this before we start to consider it. from our investment strategy, there is very little impact on what is happening in the election. jonathan: that is the domestic story. let's talk about the international one. white house wanting houthi attacks to stop immediately. in the latest efforts to stop the rebel attacks, president biden's deputy national security advisor telling abc they will take time to play out and they will "have more to say about it soon." can you try and make sense of the communication on this very issue from the administration over the last weekend? annmarie: you said it best when biden was saying the quite apart out loud. the who these will continue strikes. the strikes are going after their material to strike the red sea. they are not going after leadership or something that could potentially put an end to

this. they are trying to degrade the who the's -- houthi's action without spreading wider conflict. lisa: i do not know how this is priced into corporate earnings. this idea that the freedom of the sea is being challenged in a material way, that they are going to have to take longer roots. that is going to pack in longer times for delivery, as well as more gas. this seems like it should be hitting things much more directly. mike worth of chevron pointing out he is surprised oil prices have not responded more to this and going forward, he is expecting if there is some kind of increased altercation, prices to go back to $100 a barrel. jonathan: the prospect of goods inflation returning, we will catch up with set from morgan stanley in the next hour to talk about some of these issues. macy's rejecting a 5.8 billion other take over from investors, claiming the offer lack compelling value. the offer representing a roughly 19% premium to macy's last closing price, but the retailer

saying the investors fail to concern -- to address concerns over their ability to finance the transaction. lisa: this highlights if you get lower rates, do you get more m and a? take a step back, it is basically you can make high proposals. where are you going to get the capital, especially given where prices are right now? if you do not have viability, why should you accept that takeover if it can drag you through the mud? jonathan: which one was it? was it the viability of the capital or the price they were offering? lisa: right. at a certain point, it is probably the price because it always comes down to price. if they are offering a price that can't come through on it, then it is a wholesale disaster. whether it is wanting to let go and not cannibalize the real estate portfolio is another debate. jonathan: can we talk about capital availability? we have seen issues in the capital market market backed up by demand. how available is capital currently? bob: as always, what i am going

to say is what you would expect for the right idea. there is capital. we go back to the credit markets, i think the expectation -- not that there is cuts, necessarily, but at the fed is finished, has created a real opportunity for the issuance of credit. jonathan: issuance through the roof over the last month or so. lisa: it has been one of the busiest january or more than a decade as people try to come back and get their capital up-to-date. i do wonder, whether this is people who have been holding off who now have certainty that rates are going down and they have certainty of their businesses, or if this is people holding out for as long as they can and now they have to refinance. i wonder if you get more of that down the line with companies with let's -- with less secure business models, do you have less reconstruction because spreads are in?

jonathan: we talked about that last week. the hope is that ultimately, rates come down. i guess we will see. lisa: i'm wondering how many zombies are going to come out of the woodwork. tom with his zombie rollup, there is this question of there are companies that were sustained by zero rate policies. you had 5% high-yield bond yields all in yields, now you are looking at 10%. is it viable for a lot of these companies? the answer is no. maybe they will be a lot lower. survival until 25 continued to this day. jonathan: i love that phrase, survive until 25. let's get you some headlines from stories elsewhere this morning. dani: the republican presidential primary is now down to two candidates. florida governor ron desantis dropped out on sunday, giving -- leaving nikki haley and donald trump to battle in new hampshire tomorrow.

desantis endorsed the former president. macy's walking away from a $5.8 billion takeover bid. a deal was offered that represents a 19% premium to the close on friday. macy's board declined to provide due diligence. arc house says it is highly motivated to make a deal. shares of boeing dropped as parts of another 737 model produced by the manufacturer. the regulator recommended inspecting the same type of plugs that failed on alaska air flight earlier in the month. boeing shares have fallen almost 14% since the midair blowout of the 737 max nine. that is your bloomberg brief. jonathan: thank you. next, the fed remains patient. >> when the time is right to begin lowering rates, i believe it can and should be lowered methodically and carefully. jonathan: that is next on the program. you are were urging -- you are

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thanks, bro! you've got more options than you know. book now. [laughter] jonathan: live from new york city this morning. here is the price action on the s&p 500 index. we add some weight to it is morning. positive by 0.4%. under surveillance this morning, the fed remains patient. [video clip] >> when the time is right to begin rates, i believe it can and should be lowered methodically and carefully with economic activity and labor markets in good shape and inflation coming down gradually to 2%, i see no reason to move as quickly or as rapidly as in the past. jonathan: that is the latest from fed governor christopher wallace speaking to the brookings institute last week. i did not hear the month of march from any fed official over the last week. lisa: they all tried to push

back and this whole idea this time is going to look at front just because inflation is structurally higher, there is no need to cut rates to medically. you are seeing a dip, the dip being the bond market selling off. the head of macro strategy at morgan stanley, this is the dip we have been looking to buy. we see downside risks to u.s. activity delivered in february. blame the weather, blame the fact you have perhaps less fiscal support, but maybe the data is going to turn according to him. jonathan: fixed income portfolio manager at j.p. morgan asset management, good morning. we are closing that gap with market coming up to the fed, or do you see the fed coming down to the market soon? >> we are closing that gap, but i do not view the gap as that white. waller was may be pushing back on the timing, but i think he was mainly pushing back on this idea of very aggressive cuts.

if you remember on the way up, we were hiking 75 basis points a clip. but he was trying to push back on was on the way down, this is going to be much more gradual and methodical. do not expect us to be cutting as fast as we were hiking because we are not in an emergency environment. we are in an environment where the labor market is still healthy, inflation is coming down. the justifies cuts pretty much everyone on the fomc if you look back at the dot plot only to show the fed funds rate unchanged by the end of the year. everyone is in consensus there. it is about the speed. i do not see a huge gap between the market and what the fed ultimately wants to do. lisa: so you the fate cut is still plausible. jonathan: it is still plausible. kelsey: it is still plausible. as you push back on march, that is one less meeting that can be achieved. i look at the path of the fed funds rate not just over the

calendar year of 2024 because we get obsessed with these calendar years and i look at where is the fed funds rate frothing at. it is dropping at 3.3%, the bottom in which the market is pricing the fed funds rate to get to. that is a reasonable easing cycle. it is an easing cycle that is still consistent with soft landing pricing. lisa: what i am struggling with is the inconsistency with this idea of rate cuts, aggressive or not, gradual, sure, but rate cuts that with an economy moving as robustly as we keep hearing. is that dissident for you, or does that make sense? kelsey: so, i think the economy does need to moderate for the fed to continue to have confidence that inflation is going to be sustainably at 2%. this is not supposed to be a situation where inflation touches down to 2% and takes back off. this needs to be an extended stay at 2%. the way they get confidence and that is that the labor market cools enough. i think under the surface, the

labor market is cooling. if you look at private payrolls and strip out government hiring, which tends to accelerate in the late cycle which is something we have seen time and time again and you take out education and health care, we are grinding down to nearly zero on private payrolls growth when you exclude those categories. i think things are softening. we need to be cognizant of that. the fact the fed is considering rate cuts does introduce a new tail risk we were not thinking about in 2023, which is the re-acceleration risk. we are caught in the mist of that. jonathan: what are claims doing falling if things are slowing and getting weaker? kelsey: right. there is two different pieces of the labor market puzzle, right? you have layoffs, which are still low. but, you have hiring, which is slowing. it makes sense. companies, how do they behave when demand is moderating? they do not immediately fire everyone. they first start by looking to

cut back people's hours, what you have seen. also, maybe they do not need to raise wages as much as they did. firing, they are going to be more hesitant to do that particularly based on how hard it was to find those people in the first place. yes, there is dissonance there. there are a lot of data points that are sporadic right now, which i think is indicative of an inflection point. i think you see more data pointing in different directions when you are at a turning point in the economy. baseline, you need the economy took cool to get the fed to cut. that is our expectation. jonathan: this is a question for business operators, the decision they have to make ultimately to hold talent. do think this labor market, this cycle is going to be different to what we have seen in cycles gone by? bob: over the last couple of years, i think hiring talent has been more challenging then it

has normally been. people are not going to forget that immediately. i would not have thought hoarding talent would be the way, but i do think cutting talented people would be very, very challenging. i do not think the environment is calling for it yet, neither does kelsey. i think people will recall that we have been through probably the most challenging market for hiring talent since covid began that i have seen in my career. lisa: i am wondering what you think of what kelsey was talking about, given the fact you see only two rate cuts this year maximum and think the does not have room cut rates aggressively. where do you diverge from what kelsey is saying? bob: i think we are both saying the fed be data-dependent still and that they have not made their decision. i think where we would agree, kelsey is at we have seen the peak. i would bring up two things in terms of why i am probably a little bit more cautious, but

originally, we are kind of the same. one, while monetary policy has been tight, fiscal policy is getting loose again. we have $2 trillion coming up in spending for infrastructure. i have not heard anyone talk about that. i think that is one thing. two, i believe strongly that the fed has to be very, very conscience of getting ahead of this. if they cut rates once or twice and there is an acceleration in inflation and they have to reverse course, i think that is the worst position for the fed. on the other hand, if the economy begins flowing -- slowing because they have not cut rates and they cut because the economy is slowing, that is the plan they want. i think they are going to be extremely cautious. last thing i would say, i am a bit of a historian. i mentioned the work i do with our operating partner, larry cantor, earlier. if you go back through history of the fed, the bar for

reversing course is very, very high. there is no question there is a pause. there is no question their intention is to not raise rates anymore. but, the actual bar for reversal because of the signal with reversal, is very high. i think they are going to be really cautious and my sense is it is going to be second-half. lisa: i want to focus on the fiscal for a minute. 162 billion dollars of auctions this week alone. tomorrow, 5-year note's wednesday. 41 billion dollars of seven your notes on thursday. kelsey, when do people start to care about the deficit again? are we one bad option away from this premium baked into valuations? kelsey: i do not think this is the week. [laughter] maybe famous last words. we are in an environment where there is demand meeting the supply. we have had a two minutes few weeks in investment-grade credit. to speak to the amount, the way

that sentiment has shifted the last 12 months, think about regional banks and the issuance they have done the past week. these are banks that would not have been able to issue last spring. you would not have been able to sell the paper even if you tried. now, they're issuing with little concession. multiple times oversubscribed on the books. it has been a large sentiment shift. i do not expect that to change anytime soon. getting back to this idea of where this risk the fed may be more cautious and more gradual, i think that is not a bad environment for fixed income investors because while we are waiting for them to decide when the first cut is going to come, you can collect that carrie. in the event the economy does slow down more, the fed has more policy space than they have had in a long time. think about how much they cut during covid, they cut 200 basis points because that is the only space they had.

now, they have a lot of policy space. they have a lot of ammunition to help the economy if things do slow. jonathan: you talked about the potential of going back to 3.30 on fed funds. what do you think about the longer end of the curve? what i'm hearing from you is investment risk whether you are looking at t-bills, maturing and reinvest in that capital, you do not want to miss out on the smooth further out the curve if you were at or percent now, you risk them dropping to what? 3%? 3.5%? kelsey: ultimately must volatility in the yield curve is driven by the front end. it is the story over longer period some time is that as the fed is cutting rates, you see the curve. as the fed is hiking rates, you see the curve flattening. as the fed is cutting rates, you see the curve steepening. we are entering a period where the fed is on pause. the next move is going to be a cut. in that environment, the curve

is going to be steeper. in the short term as march is being priced out in terms of the market probability, you could see tactical flattening. that is very much on the margin. in general, over cycles if the fed is cutting rates, you are seeing the curve steepen. jonathan: are you more bullish right now on treasuries than corporate credit? kelsey: i would say we are actually feeling very good about corporate credit, as well. as particularly investment-grade and high-quality, because that risk reward we see is very favorable. technicals are a big part of that market and we are seeing quite a lot of demand come in. i think there were a lot of people concerned in november and december that they missed the rally. if you look at how much the u.s. aggregate was up in november and december, it was 8%, which is massive. there were a lot of people asking the question, did they miss it? the point is, any of these backups is an opportunity for

those people to get invested, lock in yields you have not been able to achieve in high quality fixed income portfolio in multiple decades. jonathan: kelsey barrow of jp morgan and bob diamond. lock it in. i have heard that so much over the last six months. lisa: if you are locking it in right now, we are looking at spreads on investment-grade credit are the lowest going back to february 2022. i do not know if you have missed it, but the idea of selling it off -- this is a confusing market. this is not what we normally expect with credit spreads. jonathan: we talked about this a lot, the demand at or is greater than the demand that existed at five. that is the way markets work. lisa: when something is on sale, you do not want it. when it is really expensive, you go all in. jonathan: the psychology of things. good to see you. coming up, alicia levine and seth carpenter. we catch up with kailey leinz on

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>> we are very pleased with what is happening with automotive. we are now working with virtually every car company p the innovation, that is what will drive us forward.

>> we have better jobs, better economic and we are ready for a turbulent world. >> entertainment is doing very well. wellness products are doing very well. >> you are going to see the banks do really, really well and they are going to be a wonderful, performing outset -- asset in 2024. >> this is "bloomberg surveillance" with jonathan ferro, lisa bramo it's and annmarie hordern. jonathan: this is "bloomberg surveillance" alongside lisa abramowicz together with anne-marie porter and -- horde rn. your equity market this morning adding weight to that rally, positive by 0.4%. lisa said last week the difference between doers and thinkers in dubose, switzerland. lisa: you just heard that in all of the interviews that we did in terms of this optimism and you talk to the thinkers, they say about -- what about the middle east, the election cycle and the potential for some slowdown?

why are you guys so optimistic? i understand the anchors but the words are giving a different story right now. jonathan: the president of the united states, hoping the former and the latter are wrong. annmarie: because the risks right now are concerning for them, given the fact that when you look at what people care about, it is the economy. people are starting to feel better about it. good inflation is coming down. could something like what is going on in the red sea up and that especially when it comes to inflation? jonathan: what is your northstar? what is guiding you? if you had to pick one the last 12 months, it might be jobless claims. jobless claims dropping last week, not retail sales. 187,000. lisa: we talked to the biggest staffing firm globally. they are saying the same thing, people are able to get hired. if the labor market is good and we are talking to store kaiser, that is lone star what is going

to cause things to turn the other way? the kicker is, if that is the case, why should the fed cut so aggressively and has that fully been priced into the market? jonathan: good news is good news. based on the communication from the federal reserve in the last week, must be reinforced by the economic data. let's get to the price action posited by zero poor -- 0.4% on the s&p 500. in the bond market, yields down three basis points. call it 4.1% on a 10 year. lisa: the big test is on friday, we get core pce, that he inflation metric the fed looks at. if you see it comes in as aggressively as people are expecting, then do you get the leading into this goldilocks everyone has been playing into and it starts to broaden out to nvidia? jonathan: coming up, 90 minutes away until the opening bell with stocks sitting at all-time highs. we talked lots about financials the past few weeks. wall street is done. we talk about big tech.

microsoft and apple in early february. president biden getting his wish, consumer confidence beginning to bounce. did nikki haley get her wish over the weekend? annmarie: it depends on where this 5% that is santa's was polling in new hampshire go. do they go to trump or nikki haley? i think he did her a favor by dropping out before because it gives her the opportunity to get some desantis votes. if you look at polling over the weekend, it is trump's toluse. he is at 50%. lisa: i am sick of talking about this election that is starting. jonathan: it is january. lisa: bob diamond said there is disappointment in general that these are the two candidates and that maybe that is the risk people are leaning into right now. jonathan: a lot of people have said, could we have done better than this? lisa: i know. it is the election americans do not want. annmarie: they do not want this rematch, but it is the election that they are going to get. jonathan: given there is

basically no enthusiasm to win over these two candidates? annmarie: especially the groups the biden administration is going for him. that is going to be a huge place like in wisconsin. jonathan: kailey leinz, we need to talk about rejecting a $5.8 billion takeover. macy's is pushing back and pushing back hard. lisa: is it because of valuation at 19% premium or be because of questions around financing? the issue with macy's is, it has hope it can regenerate as some sort of juggernaut of the shopping retail experience. other people are saying it is a real estate shop that they need to sell their businesses. at what point they have questions about their potential valuation versus their existing valuation? jonathan: is it about the evaluation or the availability and capital? sounds like the latter. lisa: i was about to say, i have a feeling i know where you stand on that. jonathan: no.

why would you bring up the availability of the capitol if you work unhappy with the price? you wouldn't talk about it how would you? lisa: right, although if you want to discredit them in a more significant way while opening the door for other bids, we are not not for sale, we want a better sale from someone who is a little better. jonathan: and to mike have the actual money to -- and who might have the ability to follow through. stocks sitting at all-time highs. fbi -- the equity market struggles in a first-half against stronger into year end, consistent with the business cycle of possible slowdown in the first half and a typical cycle in an election year where it is hard to have a recession. alicia levine joins us for more. going to get to the election piece of that, why is it hard to have a recession in an election year? alicia: the administration in a reelection year has tools in its

tool case to steady the economy if there is any slowdown. biden is going after the consumer, the tax credit to consumers, the financial modeling and gap in taking some of those tax cuts bringing back 100% expensing. what we see is $100 billion coming out of the gate in this goal that is going to steady the corporate sector and the household sector. 2024 is the year that $2 trillion of stimulus passed in the last couple of years for the ira, the chips act and the infrastructure bill, is going to come on board. you are starting to see the money pumping from washington again, even though we thought it was all over. it is not all over. lisa: this begs the question in the bonds side of thingss, isn't this going to low up the bond market if fiscal support accelerates, not declines? alicia: that is an interesting question.

what is also going to happen this year is you are going to have better tax receipts because of the stock market and because of the corporate profitability last year. come april and come the quarterly tax season, you are going to see greater receipts then last year. ok? which is going to steady the deficit. once that happens, that will steady the bond market. that risk, yes, overall -- why are we doing more fiscal? fiscal has already been spent. but, we are getting more tax receipts. that is going to help steady the issuance. lisa: we heard about this concern about fiscal deficits. annmarie: he is saying that it is not going to be an issue for the market this year, but next year. at what point do people get concerned about the u.s. financial health? alicia: people will start getting concerned about it after the election year. the -- neither the challenger nor incumbent cares about the fiscal health of the u.s. while they are running, because in the

end, politicians are put on earth to give away things, not take them away. if you go back to the in and of the berlin wall, every administration whether democrat or republican cut taxes and did fiscal spend. so, the opposite which you would expect to happen, is really painful. nobody whimpers what it is like to have austerity and neither of them is running on it. if it is going to happen, it has to be the bond market saying it. it is going to be the other side of election, so in 2025, you could have a conversation. jonathan: the bond market whispered it in october and took it back quickly. we are talking exclusively about the united states. europe is struggling. the data out of china is dreadful. are we firing out of one engine out of the global economy? alicia: it looks that way and it looks it could be going that way, what is going on in the red sea

is more of a risk to europe than the u.s. oil and gas prices and the proximity creates an inflation risk for europe in a way that does not, we are not levered to that problem. china as we know sibley can't get out of its own way. it is the third year that the market is terrible. the sentiment is so bad, i would have to expect there is an opportunity somewhere. we pulled our clients out of china, because we think it is not a place as a fishy eric you can put client capital. jonathan: do you think it is on investable? alicia: yes. in the end, you do not own shares of corporate china. in the end, the political party is sitting at the top of the corporate structure of every large company and small company in china. very hard to invest that way. if you are a fiduciary, that is not something we can model or risk out. but, we like emerging markets.

jonathan: can you strike out from china? what does that look like? alicia: you could. if you look at who gains if china fails, well, you have got vietnam and mexico. you have india. you can -- in fact, china has lost those countries gains. lisa: at this point, already betting on some ongoing economic malaise that could have a trigger? or, you can't invest their because you do not know what the rules are going to be? is there a distinction? alicia: am i worried about the fundamentals of china or an investor class that we are not protected their? it is both, but the fundamentals do not great. when you think about gdp growth in china since the wto, it was extort neri. think about compounding gdp growth in china. yet, you made zero investing in china. when china slows down, why do you think you are going to make money in china if you could not make money in china when it was growing 7%? you are not going to make money

in china if you are growing 5%. it is extraordinary looking at the charts. you have made no money in china since the wto. jonathan: we are conditioned to think stocks do one thing, they go up and go to the right. japan, hong kong, the explosion in china has been dreadful in equity markets. lisa: it has not necessarily come because of growth. it has come because a result of certain policies and a lack of predict ability. at this point, how do you gain out the global, economic consequence of a slower china that does not have the levers to pull to attract that foreign investment in the same way? i do not know the answer. jonathan: alicia levine of bny mellon. let's get you headlines from stories elsewhere. good morning to dani burger. dani: florida governor ron desantis dropped out of the presidential race and has endorsed the former president. the gop nomination is downed to candidates with donald trump front running and nikki haley.

voters head to the pole tomorrow for the new hampshire primary. adm playing ceo on leave and cutting its earning outlook pending an investigation into the agricultural trading giants accounting practices. the probe is in response to a voluntary document request by the sec. shares of adm dropping in the premarket trade. shares of boeing extending declines in the premarket trade as the faa tells airlines to check parts of another 737 model. the regulator recommended inspecting the door plugs that failed on an alaskan airlines flight earlier this month. boeing shares fallen over -- almost 14% since the midair blowout. that is your bloomberg brief. jonathan: thanks for the update. next on the program, the gop field is narrowing. [video clip] >> i am today suspending my campaign. i am proud to have delivered on 100% of my promises. i will not stop now. jonathan: that conversation is coming up next. from new york this morning, good morning.

you are watching "bloomberg surveillance." ♪

how am i going to find a doctor when i'm hallucinating? what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun! thanks, bro! you've got more options than you know. book now. j.p. morgan wealth management knows it's easy to get lost in investment research. get help with j.p morgan personal advisors. hey, david! ready to get started? work with advisors who create a plan with you, and help you find the right investments. so great getting to know you, let's take a look

at your new investment plan. ok, great! this should have you moving in the right direction. thanks jen. get ongoing advice; and manage your investments in the chase mobile app. jonathan: 60 minutes until the opening bell on wall street. on the s&p 500, wait to the all-time high we saw on the close on friday. up by .4% on the s&p.

under surveillance this morning, desantis is out. the gop field is narrowing. [video clip] >> i am today suspending my campaign. i am proud to have delivered on 100% of my promises. i will not stop now. it is clear to me a majority of republican primary candidate voters want to give donald trump a chance. i signed a pledge to support the republican nominee. i will honor that pledge. he has my endorsement because we can't go back to the old republican guard of yesteryear. jonathan: ron desantis throwing his support behind donald trump days ahead of the new hampshire primary where latest polls show the former president widening his lead over nikki haley. trump welcoming the endorsement from the florida governor saying, i look forward to working with ron. there is a change of tone in the last 24 hours. lisa: he also said he is going to be retiring his nicknames for the governor of florida. especially since he has been calling him ron desanctimonious.

annmarie: a scathing opinion piece from politico, they way in saying perhaps trump's vast lead cannot be overcome and this was the wrong cycle for desantis to run. perhaps for someone so uncomfortable with people -- jonathan: that is true. annmarie: that is no excuse for missing spending over 130 million dollars and running the worst presidential campaign in history. read the whole piece. this is some of the least scathing bit of this piece from politico. absolutely dumping on desantis' campaign and how it was run. jonathan: it did not start well, did it? lisa: talking about this idea with twitter or x -- annmarie: they thought it was going to be edgy. lisa: it just failed. he talked about how they broke the internet and they said, no, it just failed. it highlighted the underpinnings of the campaign. big question about where that support goes. does that help nikki haley? this is what nikki haley has wanted all along. is it enough? jonathan: let's talk about that

with bloomberg's kailey leinz live from new hampshire. walk us through how different new hampshire will be versus iowa a week ago. kailey: new hampshire will not be drastically different for desantis not in the race. his departure may help perhaps trump on the margin, but it is largely a two-person race that nikki haley was painting a picture of as we emerged from iowa. in terms of how new hampshire is different than iowa, demographics are a huge part. iowa has a strong, conservative base, a lot of evangelicals in the first of the nation caucus state. nikki haley struggled to get those voters. what she is going to try to do in new hampshire is capture the independent, more moderate republicans that she is trying to cater to. that is what new hampshire is known for. polling is suggesting that might not be enough. in the latest polling that came

out this morning, she is behind trump by 19 points. the enthusiasm gap between these two candidates is very wide just as it was in iowa. lisa: she has the support of the governor there, who is very popular for a republican in this state. i think about what his father used to say, i will pick, new hampshire picks presidents. if you look at the polls, he backs the wrong person to be the next potential president. kailey: governor chris sununu is popular in new hampshire. he is standing by nikki haley as a candidate. he is not a trump republican, even though he has said he will support him if trump does become the republican nominee. he things nikki haley could have a chance. he and nikki haley are starting to set the bar lower for her as we approach primary day tomorrow. he is suggesting a strong second-place showing, something better than iowa will be enough to carry her forward in the race toward south carolina, which is where she served as governor.

she is polling farther below him there then she is in new hampshire. he stressed to joe mathieu and i that new hampshire is not a must win state. it is until super tuesday that she has to start winning in some of those states come early. march he talked about the economy. i asked, we have a stock market at a record high. unemployment is still below 4%. inflation is down. is this not something any future president, perhaps a future president haley would want to emulate when he was criticizing the bride and administration? this is what he told me in response. [video clip] >> let's look at national credit card debt. let's look at what everybody owes. the spending that has gone on not just with the government but with personal spending and the fact inflation is crushing folks. this idea that the fed is coming out and going to lower rates? the piper has to be paid at some point. i think we are in store for an economic downturn. kailey: we know just as in iowa,

the economy is top of mind for voters but so too is immigration. the issue of the border. nikki haley is suggesting she would be able to do what president trump could not during his first term which is secure the border wall. the governor told us the difference between her and trump is not on policy but the ability to execute on that policy. annmarie: where does the dissent's folks go? does she pick any of them up? you have to think it is only 5%, so, it is a longshot for her if you look at the polls. kailey: exactly. he was not a significant factor in new hampshire, nor was vivek ramaswamy who also dropped out and endorsed trump after iowa. by and large, more desantis votes would go to the former president then nikki haley. the gap she is currently facing of polling is correct is so large that even those marginal desantis boats are not going to make a difference. it becomes a question of what haley and the campaign defined

as a strong second ad. if you are down double digits, is that a mandate to continue the campaign forward to south carolina? yes, the haley campaign has resources. she is back from the americans for -- desantis, it seems a lot more individuals including those running against trump in this campaign are following in line behind him. i was at an event last night with many republican strategist involved in primary campaigns in past cycles. all of them distressing -- all of them distressing there is an inevitability that trump is going to be the nominee. jonathan: more from kaylee throughout the next one for hours in the ground in new hampshire. alicia levine of bny mellon, let's fish in -- let's finish on politics. we talked last week that candidate trump comes with a lot of volatility.

this market at one point in late the 16 overnight when results were coming through started to focus on the policy and not the man. when did we start focusing on that? alicia: it happens around august, august-september is when you start seeing a very clear bifurcation in different sectors over the polling of who could win. that is when you are going to see it. health care is the sector you would see at most. if biden looks like he can pull it out and you expect weaker health care, if it is trump, less of an issue for health care. it is not the favorite. the pharma goal -- the pharmaceutical industry is not the favorite of either party. tech probably does better under the republicans because i would bet the fdc challenge goes away. the republicans just are not good at regulating. their hearts are not in it. i would say there is less of a regulatory problem for large-cap

tech under republicans than democrats. i say energy is pretty clear. look how poorly the energy sector did under the first trump administration compared to every other sector. lisa: you travel around the world talking to clients. international clients. what are they asking about how you are going to respond to the presidential election? does it come up in conversations? alicia: they seem to care more than we do. what investors in america understand is that investing based on your politics is a loser. if you look out 1, 2, 3, 5 years, whatever your political stance, whoever is in office, the stock market as you said is up and to the right. six out of seven years. the europeans worry more. they condemn us more. ultimately, the american investor base knows that this is the place where capital is treated the best. we are here to invest. we are doers, not think.

we think, but then we do. annmarie: the inflation reduction act was not welcomed in europe. i had european say to make, it is better bedside manner. a lot of policies were the same, whether trump or biden. jonathan: a lot of people said capital being treated better here in the united states. that was great, good to see. -- good to see you. markdown, back in 2016 the challenge for investors to divorce your political bias from your economic analysis. for the next four years, everyone struggled to do that. seth carpenter or morgan stanley is going to join us next. live from new york city, this is bloomberg. ♪

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jonathan: 60 minutes away from the opening bell. as we close out friday, two weeks of gains at record highs. more weight to those all-time highs up by 0.4% on the s&p. on the nasdaq, up by 0.7%. in the bond market, two year, 10 year, two year up by 20 basis points. the data supportive of high yields. clean sweep, retail sales, jobless claims, consumer confidence across the board

strong. lisa: this idea of a soft landing, i do not think it was consumer confidence. you saw the expectation of inflation coming down. there is this idea the fed can land this and it is great for its forecast. jonathan: south of 109 -- 1.09. amazing to hear from alicia levying -- living -- levine. in europe, they are more concerned about the politics in the united states then united states investors should be because capital worldwide, capitals treated better in america than anywhere else. she is bullish u.s. equities versus everything else. lisa: she was talking about all of her conversations internationally and she kept saying, the noise can come down to markets go up and that is what they are betting on. jonathan: we heard this again and again in davos, switzerland.

investors, ceos joined us to weigh in. [video clip] >> everyone is focusing on donald trump. everyone is talking behind the scenes. it is the elephant in the room. >> everything changes if trump wins. mostly in ways. >> if trump wins new hampshire, is that a time where you are going to say, i am ready to endorse him? >> it depends on what happens. if that happens, if somebody else wins. i do not want to speculate on that. >> i will put a bid on president biden because the stakes could not be higher for our country, for the world. >> the economy is the number one issue when it comes to american voters. >> we still see a recession going. even though our base case is a mild recession. >> everyone is believing the fed is going to cut rates. >> fed rate cuts, that is a pipedream if we have a soft landing. >> the market is calling for 175 base cut by the fed.

really? how about this. no way! no way at all! >> one of the risks are is that the market is pricing in some aggressive rate cuts. the real risk is probably geopolitical. >> can you tell me what it is like now, what has changed for you as the governor? >> it is going to be very cautious, very moderate. it is vital we send a clear and unequivocal message. the behavior is on acceptable. >> that is an important part of the world supply. traditionally, when risks elevate in the middle east see it were elected in markets. we have not seen that yet. >> ukraine is not in the first -- in the front page anymore, particularly after the tragic events in early october. >> president zelenskyy is trying to rally the west into 2024 and get the money they need to help continue fighting russia. >> the defense spending from the united states and the money

allocated to ukraine, it is to say the least, a little part of the overall defense spending. >> since 2014, allies have increased defense spending substantially. after the invasion in 2022, it started even more. >> this is the main issue, we are not spending enough. >> micron said the five is going to be about how europe can be more sovereign, whether ai or investment. what proportion of these ai companies and initiatives do you think are going to come to fruition and be valuable? >> the technology has a ways to come. it will be just as revolutionary as the internet was. >> it will be a shame to throw away the most powerful tool we have for producing a product in these emergency -- emerging markets. >> they used to get up at 4:00 a.m. to write the report. now, they can get up at 5:00 because they have got a first draft courtesy of ai. >> bank ceos have been optimistic of what is ahead.

>> here we are floor shane. my job is to keep going. jonathan: that is some of the best from the world economic forum. part of that story, investors pairing that rate cut bets for 2024. seth carpenter writing this, we look for fed discussions and upcoming meetings resulting in the june start to taper. earlier than previous expectation. the market narrative at the end of qt has been overdone. earlier start will be bad with a slower taper. seth carpenter joins us for more. let's get straight into it. the federal reserve likes queen -- clean sequencing. that is why they waited before started hiking interest rates. can you walk us through the qt rate cut sequencing and the timing of that, as well? seth: they do prefer clean sequencing, but when it comes to rate cuts right now, they have been clear they want interest rates to be their primary tool for policy. in that regard, they will take

the data as they come and react. they prefer clean sequencing, but i am not sure that it is going to be the end of the story. they are looking at different things going on in the economy. inflation is coming down decisively. the economy is slowing, but in our view, not falling off a cliff. they are going to be taking a read on that macro outlook to figure out when the cut rates. our baseline is june. the market in my view is over its skis, looking at less probability, less than a half for arch but how i probably their -- for march but high probably their. a different part of the conversation is about their balance sheets. they have said for well over a year that at some point, they will slow things down and the indications they have given us is the key to slowing down the balance sheet unwind is -- once that has been drained down to zero, they are going to look for a slower pace of things. they are going to have to do a

bit of walking and chewing them at the same time, but they have been planning this for long enough i think they can do it. lisa: this is going to the heart of some of the quantitative tightening going on. you think they are going to have to taper potentially before they adjust their rate cutting. have you been surprised by how zillion things have been? are you concerned more now than three weeks ago about a reacceleration of inflation? seth: i am not, really. we have had since the first quarter of the 22 a soft landing call. mike u.s. economist and their whole team have been doing lots of great work. the labor market this cycle is different than other cycles because we came out of covid. we came out of a pandemic. firms are still playing catch-up. they are finally back to the staffing levels they need. hiring levels are coming down but firing is not picking up. in that regard, we feel good we are not going into a recession. if you do any smoothing to the data, things are slowing over a

six-month month, one year, 18 month time horizon. we are on this glide path. i do not think we have been swayed to much in one direction or the other i recent data. lisa: after coming back from switzerland, everyone was talking about how artificial intelligence will make all of our jobs happier, better and or productive and this is the reason why they are optimistic. only talking about the doers, not the thinkers. how much are you modeling this into your soft landing thesis? how much of it is driven by this idea that technology is going to allow greater efficiency and greater productivity? seth: i am a buyer of the story that there are productivity gains to be had. the question is one of timing. i think so far, my view is the soft landing thesis is somewhat independent of the ai/productivity gains. i think it is going to take another year, maybe another year and a half before we start to see those come online. it can't hurt.

we will be disinflationary. we will be supportive of growth. over the long run, it is going to be supportive of real wage gains for labor, as well. the challenge is going to be how that transition is managed because it will be in the short run winners and losers. jonathan: can you draw a distinction between correlation and causation? rates have come up and i understand inflation has slowed down, but how connected are the two?/ seth: there is some connection but nowhere near as much as maybe there would have been in previous cycles. remember, this cycle, inflation took off not because of the standard macroeconomic impulses. there was clearly some of that. the economy has been running hot. the labor market has been tight. goods inflation took off because supply chains were disrupted because consumer spending pattern shifted away towards goods and that drove up goods

inflation. that part of inflation has been going away on its own. housing inflation shot up because of covid. people wanted to live differently than they had been before. we saw and in level shift in demand for housing and that inflation went up. it is starting to come down on its own. there is a lot of inflationary pressures that we saw that are going away independently of the monetary policy side of things. but, to make sure it gets to 2% and from the fed's perspective to make sure inflation stays at 2%, they have to tighten things to slow the economy down to a sustainable growth rate. what we are seeing now is a little bit of the inflation coming down from monetary policy. prospectively, that is where monetary policy is important. jonathan: how much of the slowdown that we have seen is due to the federal reserve? when i look at claims at 187,000, unemployment south of 4%, shouldn't we be asking whether the fed is sufficiently restrictive? seth: i think that is a valid

question we should always be asking. look at the housing market. housing activity has come off dramatically. new home sales are doing fine because there is no supply of existing home sales because people do not want to give up their low mortgages. we are seeing slowing their. we are seeing pressure in terms of hiring. look how much nonfarm payrolls have come down from six months ago from a year ago to 18 month ceeo. i think we are seeing some slowing in the economy. the economy has been insulated. the housing market story goes in the opposite direction in the sense people have low mortgages. businesses have turned out a lot of their debt. that fact is undeniable. for us, it is in parcel to the soft landing story. the fed is not causing the economy to crash. lisa: i am curious how much you are watching what is going on in the middle east, but also the red sea to understand whether that could cause inflationary pressures if there are longer

wait times. if that does create supply chain issues once again. seth: crucial question. i think it is in the news for a very important reason. a lot of global trade goes through that region. so far, we have seen shipping rates go up. i think unquestionably, the direction of the effects on inflation is there. it is clearly going to be a negative for mobile supply chains. this is important -- we have seen a lot of trade diversion, as well. even though we are seeing some higher cost of shipping, once we put it through our measure of global supply chain index it shows a tick u but nothing like a reversal of the huge gains we have made so far. we think for now as long as things do not get dramatically worse, as long as we do not get an entire regional conflict, it is going to have modest effects on inflation for consumer goods. lisa: just because i am looking for some kind of holes in this goldilocks theory that everyone is talking about, i am wondering internationally how much the

u.s. can remain the loan engine when you have china that seems to be falling off a cliff, sagging in terms of economic growth. is the u.s. that immune to the slowdown we are seeing in europe and in china? seth: not immune. we are looking for a slowdown, but not saying the u.s. economy is going to be ripping. we are optimistic. when it comes to china, no question china is at risk. we have been saying for a long time, china is at risk for a multi-year slowdown. for the u.s., our exports to china are heavily weighted towards agriculture. there is a lot there for the consumer to buy. i am much less worried about china as a downside risk for the u.s. economic outcome than i am about some blow in financial markets. jonathan: seth, great insight as always. seth carpenter of morgan stanley. one to pick up on your point, lisa about shipping and the prospect of goods inflation picking up again.

normally 200 ships travel through the canal every week. that number has declined 100. it is not just the suez canal, the panama kamal because of water levels. water traffic has declined to 45 ships. asking the question about upward pressure on goods inflation in months to come. lisa: this is the unspoken truth. it has a greater effect on europe then does the u.s. is the u.s. going to have the emphasis on ending some houthi involvement because the u.s. is not going to suffer as much as certain goods to europe? we have seen certain manufacturers, tesla in particular, shift manufacturing away from europe because of some of these issues. jonathan: you saw what the president said over the weekend. is it working, no -- can we carry on, yes. is this about ability or willingness to contain this issue in the red sea? annmarie: i think. it is about willingness this is why they are struggling

in the region. it is why they would like to see an end to this war and are putting a ton of pressure on benjamin netanyahu who is saying he does not disagree with what the u.s. wants, which is a pathway to a two state solution. dani: macy's is walking away from a $5.8 billion takeover bid. investors had offered a deal that represented 19% premium to macy's closing on friday. macy's board had declined to provide diligence to investors. they say they are highly motivated to make a deal. billionaires chris hoehn and kim griffin leading hedge funds to one of their best years. together, they raked in $21 billion last year. the industry as a whole produced $218 billion after fees according to lch investments. there report shows the funds are dominating the likes of citadel,

millennium and de shaw. the sec is investigating be riley's financial deals with a client linked to security fraud and the use of his assets to help the bank of tim alone from europe. bloomberg learned the agency has conducted interviews about the firm and its relationship with brian khan. con is involved in a doj criminal case related to a hedge fund followed -- hedge fund fraud. that is your bloomberg brief. jonathan: thanks for that. coming up, equity markets facing some questionable earnings. [video clip] >> earnings has been a puzzlement thus far. obviously, you have had mixed results. it looks like this is shaping up to be not so great a quarter. jonathan: attention turning from big banks on wall street towards big tech on the west coast. that conversation, coming up next. ♪

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jonathan: live from new york city, equity markets shaping up on the s&p 500 positive by .3% going into the opening bell in 42 minutes time. under surveillance this morning, markets facing questionable earnings. [video clip] >> earnings has been a puzzlement thus far. obviously, you have mixed results. it looks like this is shaping up to be a not so great a quarter. but, what is really important is as much as the last year, how these stocks react towards the earnings numbers. it is not at all clear, given the run we have, that there is much more outside even if you get the beat suspected. jonathan: that was julian emanuel, leaving behind some big bank earnings looking ahead to the financials or rather, big tech in the weeks to come. lisa: they basically are

financials given how much cash they are investing off and getting that sweet, 5% return. what i am focusing on is how much earnings growth they are expecting in some of these behemoths, magnificent seven kicking off with netflix and tesla intel this week. the so-called magnificent seven are expected to deliver combined profit growth of 46% according to bloomberg intelligence. nonetheless, it highlights why people are hiding out in some of these names. you can see a huge divergence. ai, nvidia up 20% year-to-date. tesla down 14.6%. netflix down .8%. this divergence stemming from who is throwing off cash and how much that is going to determine the markets. jonathan: we have drawn comparisons to this period and the dotcom boone and the like --.com boom. when they came out in their corridor, raise the outlook and

you saw the monetization of this theme was real and present and it was happening right now. lisa: that is the key. people can pooh-pooh the rally we have seen, but that is where the earnings have been and they are monetizing it. with nvidia, how much is an outperformance baked in? if they do not bake in some crazy outperformance, a crazy increase forecast, people will be disappointed. jonathan: gina martin adams, the chief equity strategist of bloomberg intelligence. any reason to believe the leadership changes anytime soon? gina: it should change as the year progresses, but not anytime soon. any time soon being within the next quarter very unlikely because the lust of the s&p 500 outside of this magnificent seven is still struggling to post earnings growth as far as the first quarter. we could see transition into better language from these companies, confirmation change will shift in the first quarter earnings season. i think it is likely not to come

until the second quarter earnings season. it seems almost inevitable that we will start to see growth out of the 4.93 in 2024, and that rotation trade has yet to exhibit itself. lisa: we should coin the magnificent seven and the less magnificent or hundred 93. i am curious -- how high the bar is for some of these companies. gina: first, let's look at what has happened during earnings season. as much as financials may have created some confusion because they did have big one-time charges to support the fdic facility where the banks failed a year ago, when you exclude those one-time charges and look at operating earnings, financials are beating hugely in the fourth quarter. financials are on pace to pose 2% earnings growth. the consensus was anticipating a 2% decline. they set a positive tone. we got those unfortunate reminders of svb's failures,

financials are facing these charges and that created confusion. to have 85% of companies meeting expectations, it does tell you even for financials expectations are relatively low. four that, expectations have improved a little bit over the last week, but that is only because tsm state came out. tech expectations were coming down along with the rest of the market through the fourth quarter. tsmc came out in the middle of the week last week and created some a flip, but very little uplift and expert patients. the bar is quite low for semiconductors. if tmc can beat revenue growth and guide higher, almost every case since 2015 in which they have done that has resulted in a massive beat for the 10 largest's in my conductors. lisa: broadening out in leadership, what are you looking at in all of the earnings to understand whether we can start seeing that sooner, or what will trigger that shift in some of the positioning.

gina: importantly, watch what is happening in the u.s. industrials sector. this is the area i think investors tend to overlook. tech is starting to grow and broaden their. this is going to be a bigger, broader tech recovery. it does appear likely. we know financials is likely -- has likely passed its earnings trough. those sectors seem to be in a relatively solid position. most analysts are not anticipating anything out of the consumer space. that is a red herring. you do not need to necessarily watch consumer. what you need to four u.s. industrials. this has been an area of economic stress in the data. if u.s. industrials can continue to show much stronger earnings growth than the economic data when applied, that is an area of divergence that could create a great deal of optimism. if we could get transports recovering again, some of the leading indicators of some more interest rate sensitive sectors improving, that would be a

strong surprise to consensus expectations. jonathan: i will. throw in another piece of this the relationship between stocks, the data and the bond market. last week, yields up, data good. last week, equities up, data good. is there any tension there? cannot stick? gina: i think it can because equities and bonds are anticipating slower growth and slower inflation this year. the upside surprise to growth good very much fuel equity prices because broadly, the equity bond market consistently are saying we are going to have slower growth and slower inflation. if you get the upside surprise coming from growth, the equity market should rise materially. the upside surprise from potential inflation is the bigger risk. that could create bigger disruptions in the bond and equity market. that seems unlikely in the short run. we could start to get upside surprises to inflation over the year but it seems unlikely now. jonathan: that would be a major game changer. lisa: it would. i am curious for the bond stock

correlation, whether we are going back to 60/40 or whether this is a breach point before we have a more significant move. the moves have been have it -- have been tepid. jonathan: it is one week of price action. good to see you. gina martin adams a bloomberg intelligence. coming up at 3:00 p.m. eastern time, bill gross of pimco on this bond market performance. lisa: does he still lean in or lien out of bonds? it is predicated on this idea over the longer-term the fed is going to cut rates, the u.s. economy is going to slow. it raises a question for stocks. jonathan: counting you down to the opening bell, as well around the corner. your equity market on the s&p 500 is positive. live from new york city this morning, good morning. this was "bloomberg surveillance." ♪

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jonathan: from new york -- manus: from new york city, it's taken us two years to put in new records and $10 trillion in value. is it too rich for your blood? 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. manus: coming up this monday, futures point to more record highs on the street.