>> i think it is a very tight rope that the fed is walking. what we expect them to do is to lay the ground for why a march cut makes sense. >> i don't think they will cut in march. >> march seems a little premature. >> do they go in march? probably not but they will likely ease in the second quarter to get ahead of weakness. >> the fed is a tricky spot. announcer: this is "bloomberg surveillance" with jonathan

ferro, lisa abramowicz and annmarie hordern. jonathan: i am jonathan ferro. the s&p 500 negative by 0.5%. this is fed decision day. remember the middle of december when the chairman study were talking about rate cut. which one is it today? lisa: everyone has gotten carried away with rate cut's and probably just press conference will remove the bias. we will be parsing through the irregularities this and at the press conference. unlikely that they will make a move but they will probably lay the groundwork to make that move may be march, maybe in may and maybe after that. jonathan: when did talk about tech earnings. high expectations. before we start talking about disappointment, let's talk about the last 12 months. alphabet was up 60%. microsoft was up 65%. you have to bear that in mind

before you look at the premarket price action and consider the numbers of yesterday. annmarie: i cannot agree more. the bar was incredibly high. we were asking yesterday is the bar high. the answer is absolutely. people want more. these earnings were not bad. microsoft's net income rose to the strongest quarterly expansion going back two years. google talking about real expansion in advertising revenues. but it was not enough and it came in slightly disappointing on the google site. the same story terms of projections for some of the ai outlook and chips related to that. this is about high expectations and unrealistic expectations not being met. jonathan: you mentioned microsoft. the strongest revenue cut since 2022. services sales gaining 30%. that is decent growth. annmarie: this is on the hopes and dreams of artificial intelligence. here's the key question. how quickly do investors need to see the ai monetized?

right now it is driving a lot of demand with the excitations for how much money that we drive to these companies. clearly off script of reality. jonathan: microsoft lower by 1%. alphabet a lot lower than that. we haven't talked about the politics as well. a new poll from bloomberg. not a reading for the president of the united states. annmarie: in this latest iteration we see trump continuing to gain ground on the most critical states, the seven battleground states. what i find very fascinating is the fact that their economy remains the top energy -- the economy remains the top issue. the gap is starting to narrow with those who say immigration is the top issue. the economy and immigration arnett and neck. jonathan: coming up little bit later on the program, look out for that. equity futures all the s&p 500 pulling back by 0.5%.

a muted couple of days of the equity market. the bond market and yields unchanged. the fx market, the-year-old 0.2%. -- the euro -0.2%. the guidance is based on politics based on the we have heard over the last couple of weeks. lisa: she got a lot of criticism with her response for trump. her response, doubling down. that is what we hear time and time again. the question is what is she trying to account was in her role as the head of the european central bank when she is talking about u.s. politics? jonathan: kind of inappropriate but let's frame it as follows. you have central bankers in europe talking about politicians in europe talking about central bankers in washington. democrats seem to have something to say to chairman powell. annmarie: they are all saying that you need to cut rates. our analyst told us this, this is political grandstanding.

they are saying this now because the fed will have a decision today but they have been saying it for months that they want to cut rates. the issue is this kibbutz chair powell in a tricky place when he -- this could put chair powell in a tricky place when he visits congress. when you head into an election, it is tricky. lisa: do you think anyone really thinks that the fed will say, if chair powell asked us to rates, we have to? what is the message from democrats in terms of the reason for inflation? it is evident that restrictive monetary policy is no longer the right tool for combating inflation. are they going to try to give the blame to the federal reserve for the lack of sentiment? it is not reflecting the economic data coming out. jonathan: it is political grandstanding. it was inappropriate when the trump administration did it. it is inappropriate now. it is stupid about now and we should use that word.

we are about to cut interest rates anyway. what are you doing? annmarie: just hold tight. this is about how they are trying to craft the messes around inflation and it has been pretty muddy. jonathan: coming up, peter oppenheimer of goldman sachs following disappointment from tech. the latest bloomberg poll shows donald trump expanding his lead in swing states. bruce cashman of jp morgan head of the fed decision. peter oppenheimer of goldman sachs expecting the run to be tempered. "while they are upside risks to profit growth it is still likely to remain modest as lower inflation dampens nominal gdp and revenues." peter oppenheimer , chief operating officer at goldman sachs. structural changes and super cycles in markets. great to catch up with you. congratulate us on the book. what a fantastic title. will talk about in just a

moment. how would you frame the numbers overnight? peter: as lisa said, these are good numbers but the expectations were huge and there is a real issue of traveling and arriving. the markets have been rallying strongly not just in mega-caps tech but broadly speaking since october, equities are almost 20%, one of the strongest rises we have seen for a very long time as very positive expectations are priced in about soft landing and the speed and extent of interest rate declines. these are not bad numbers. these companies are generating fantastic revenue growth and they are in a strong position. the upside from a market perspective in the short-term was likely to be limited given the expectations that have been priced in. lisa: i like how you phrase this. even though equities have

entered the optimism phase, you think a lot of the good news has already been priced in. how vulnerable is the market to significant downdraft in the face of something negative, not just something that failed to meet expectations? peter: there are risks. it is interesting, the valuations in the u.s. equity market are in the 95th percentile relative to history. in implied volatility, the market is low. there is a lot of risk priced in. looking at equities compared to bonds, also pretty low. i think there is room for disappointment. it would not be surprising if we get a pullback given the scale of the rises we have seen. the biggest risk from here is not really on the speed of the falls in interest rates. rates will come down anyway, as jonathan said. the question is when they start. the bigger risk is if you start to see disappointment in terms of growth because as you mentioned earlier, profit growth in aggregate is not really

strong. as inflation comes down, revenues are likely to slow. any weakness in the economy will probably be the biggest downside risk for equities at this stage. lisa: we do see earnings declines across the board of profit margins really being squeezed when you aggregate some of the earnings so far. based on this idea that all of the good news has been priced in do you get to since the u.s. is more overpriced relative to europe and that there has not been as good news in europe on a risk reward kind of level for more opportunities? peter: yes. we can set this up for any time over the last decade. the u.s. equity market has been more expensive than others. that has been justified by much stronger profit growth in the u.s. than in europe or other parts of the world really for a decade or more since the financial crisis. having said that, it's important to emphasize the differences are narrowing from a fundamental profit growth perspective.

last year profits were flat. it was about the same as europe and other parts of the world. this year we are expecting about 5% profit growth in the u.s. relatively similar to what we are expecting in europe and japan for example. but the valuation gaps remain. if you look at europe, it trades pretty much around 12 or 13 times, the u.s. closer to 20 times. u.s. companies are more expensive in every sector compared to their european counterparts. the real secret here is to look at a more diversification geographically. that is not to say one should be negative on the u.s. but look for more opportunities outside of the u.s.. there are a selection of areas in europe, japan and parts of asia that can offer those attractive diversification opportunities. jonathan: let's talk about that. one a mind buying when i buy

europe? when i buy u.s., i am buying microsoft, nvidia. what am i buying when i buy europe? peter: great question. what is very well understood is the u.s. market is very highly concentrated. it is seven stocks, the tech stocks were talking about earlier, accounting for 30% of the index. what is less well understood is the huge concentration in the european equity market as well. what we have termed the granolas which happens to be made up of the starting letters of the 10 or 11 biggest companies in europe. they cut across technology, luxury, consumer staples and healthcare. these companies account for about 25% of the index. when i say the index, i say the index, i'm talking about the stoxx 600. think about that. 10 or 11 companies are a quarter of the value of the 600 biggest companies in europe. they are the ones driving the index. they are very global.

they have strong cash flow generation, high profit margins. they are reinvesting at a high rate. they are good compound or's. these should be among the global growth leaders that investors should be thinking about among other u.s. and other companies. jonathan: the book plug. let's do it. any happy returns? structural changes in super cycles in markets. what's to know? peter: with my last book, it was about cycles. what drives cycles and turning points in markets. this is really about long-term structural trends within which those cycles evolve. and we have had a very positive secular trend in the last 30 years driven by disinflation, globalization, liberalization of financial markets, lower global risks and so on. we are entering a challenging period where the cost of capital

is higher, we are getting more regionalization and less globalization, higher costs in labor and energy. lower returns. it is also very much focused, this book, on the two major development that will shape the next decade despite those headwinds. that is the combined effect of ai on the one hand and the carbonization on the other -- and de-carbonization on the other. they will provide significant opportunities for investors as well. jonathan: looking forward to it arriving on my desk soon. good to hear from you. good to see you. thank you. peter oppenheimer of goldman sachs. what are we buying when we buy europe? lisa: fashion and skinning this. -- skinniness, in the u.s. we have the fang. in europe, we have the granolas. jonathan: it is a goldman

acronym. granola. it just sounds slightly boring. lisa: just breakfast you get if you don't want to cook. jonathan: precisely. with some yogurt which makes you feel slightly creative. not that there is anything wrong with that. let's get an update on stories elsewhere. here is your bloomberg breeze. >> elon musk's $55 billion pay package at tesla has been voided by a judge after a shareholder challenged it is excessive. the ruling takes a giant bite out of his wealth and could put the fate of his companies in question. it is his first major loss in court and tesla's board will have to come up with an alternative. the ruling is expected to be appealed. comcast sky is planning to cut 1000 jobs. the financial times reported the restructure has been supported

by more customers switching to satellite delivery -- from satellite delivery to digital only streaming. novo nordisk became the second ever european company to pass half $1 million in market value. the drugmaker expects a 26% jump in revenue and 29% increase in operating profits due to demand for its obesity and diabetes drugs wegovy and ozempic. the ceo says the company is well-positioned to grow its base. >> we have access to some 50 million patients in the u.s. and we are only serving a small fraction of that so there is ample opportunity for competition and this is about growing the market and serving more patients than a matter of market share. >> that is your bloomberg brief. jonathan: coming, falling short of ai expectations. >> you move from talking about ai to apply ai at scale. jonathan: that is coming up

next. live from new york city, this is bloomberg. ♪

jonathan: stocks are softer this morning. good morning. three names in the market down hard. looking at amd. google, microsoft, alphabet down by 5%. from new york city, fully -- falling short of ai expectations. >> it was a record quarter driven by the continued strength of microsoft cloud which announced 32 billion dollars in revenue up 24%. by infusing ai across every layer, we are winning new customers and driving new benefits in productivity gains.

jonathan: microsoft posting its strongest revenue growth since 2022, rising 18% to $62. alphabet disappointing with fourth quarter revenue falling short of analyst estimates. microsoft, google, amd all lower in premarket trading over an instant ai boom. joining us now is the global head of software research. great to catch up with you. just a witness on the outside for alphabet. can we get into that? stefan: google's numbers were noisy. we expected them to be noisy. search was in line growing a healthy 13%. youtube growing a healthy 13%. total writings were a little bit weak because of networks. the interesting thing is the outlook. google is hedging themselves a little bit by staying on the

advertising side. some investors may be looking at that as a signal that they are talking about a slowdown to come in advertising especially as co ps get harder on the back half of the year. lisa: do you get the sense that google has set itself up to compete but also with the lackluster cloud business because they do not have the market share? stefan: i think what google is doing now is spreading ai across all of their services and products. they are trying to send a signal that they are no longer just a one trick advertising pony. they have renamed their google other business. they are calling it the subscriptions platform and devices business. this is $40 billion of revenue growing at 20%. with google cloud, the

enterprise business that did beat expectations and is almost at a 10% margin, you have 25% of sales coming from these two other businesses growing at above 20%. we are about to enter a transition phase for google where we start to look at ai across all of these different businesses and not just the advertising business. lisa: what struck me after the earnings yesterday, they were really good. in any vacuum, you take a look at the growth and the resurgence, these are strong businesses. the fact that shares are falling highlights just how much hopes and dreams have been baked into the share prices. how much does that really limit how much higher these shares can go simply because it is going to take time to monetize ai to a degree that people were expecting? stefan: you are right. when you look at microsoft and google, the results were fine. it is like the market is looking for a reason to pull back. that's understandable given the run they recently had. we think this is a gap year for ai.

we had the excitement of 2023. we will really get the monetization noticeable in 2025. the big question is will the market be patient and wait for that to come through. the one area we are seeing monetization is in cloud computing. six percentage points came from ai. the google cloud also accelerated and beat expectations. that is where we think we see the ai monetization first. what will be fascinating to see is whether or not amazon web services can keep pace when they report on thursday. they do not have the same ai partnerships that google and microsoft have. microsoft is openai and google has their own linkage models. that is where we see maybe some risk is more share loss for amazon,. jonathan: goldman had an interesting take on where this is coming from. "the reaction is muted as investors are weighing the strength of genai.

outsize contribution driving 6% of growth against the slowing call." is that good news or bad news? what is your read on that? stefan: what we are seeing, microsoft azure is taking 6% of growth coming from ai. where there was some disappointment was the lack of detail around copilot. they basically said what service said last week with their genai product which we are seeing lots of interest but we are only a couple of months into it so no data around actually usage just yet. the other thing people are concerned about today is capx. when you look at microsoft and alphabet, capex was up year-over-year between the two of them. they both said that capex grow from here will be material. we are trying to get increasing concern about what those returns will look like on capex.

they are still reasonable arguably when you include stock com. free cash flow yields, that is what investors will be looking at. when will we get the returns and make those cash full yields look more attractive. jonathan: are you satisfied with alphabet? stefan: our theme is the year of efficiency turns into years of efficiency. we have seen that. we saw alphabet with a $1.2 billion charge in q4 for restructuring. obviously microsoft taking up activision headcount. these companies will be growing revenues this year in double digits basically without growing headcount. we think that's one of the most exciting and underappreciated

stories with genai. it is what it does for softer companies on the margin as they use softer development copilots to improve productivity and efficiency and also as it helps sales and marketing. that is where i think the excitement will come. jonathan: interesting final point. great to catch up. here is the price market action. alphabet, microsoft, amd, microsoft down more than 1%. alphabet down by 6%. microsoft was up 65% over the last 12 months. alphabet was up 60%. amd was of 80% or something like that since the end of october. that gives you a picture of where things have been. lisa: and how much of the hopes and dreams have been baked into amd. that perfect example. he talked about this accelerator chip that can compete with

nvidia. they are expecting it to be more than $3.5 billion in sales this year. it sounds great. wall street was expecting $8 billion. jonathan: the year of efficiency will be years of efficiency, what do you make of that? lisa: it's important to sit on that given what we have heard about layoffs at ubs, paypal, amazon, sports illustrated, the names keep piling in. not just that but we heard from microsoft yesterday. they want an ai-first workforce rather than hiring large numbers of new people to focus on technology. just throwing it out there. what does that mean? jonathan: i think we know what that means. s&p futures negative about 0.5%. coming up next, the latest bloomberg poll. from new york, this is bloomberg. ♪

jonathan: equities down this morning. good morning. you did price action. on the nasdaq 100 down by more than 1%. the russell, the small caps up 31% this morning. two-year, 10 year, two-year closing, the day of the last fed meeting, the tenure just north of 4%. look now, of the tenure just

north of 4%. for -- we have not done much between these two meetings. lisa: are we going to hear victory from the federal reserve? we are getting to sort of soft landing disinflation. people will parse through the outlook. i think the big takeaway is most likely they are preparing for a cut. jonathan: every note i've read is something noncommittal. maybe that's what it is. i just a member last time the one to punch, we are not really talking about it. asking the same question today are we talking about it or not. lisa: if they are what are some of their parameters. jonathan: what's the german chancellor got to say? lisa: i'm just wondering if lagarde will weigh in on u.s. politics. jonathan: it just feels so odd, inappropriate to weigh in on

u.s. politics given our position at the top of the ecb. lisa: how do you ignite growth further on if you are looking at a manufacturing sector that's leveraged to china and energy sector leveraged to russia and more to qatar. this is an existential question. this is me giving the benefit of the doubt. jonathan: i'm not sure why you would say them publicly and repeatedly. i think you do it once, maybe say you got carried away on tv interviews. to that lots of times. every time you have an interview -- lisa: it was multiple times -- annmarie: it was multiple times with francine lacqua and now it's with cnn. she goes back to these three issues. >> the euro right now negative by 0.06%. this is the distraction we are talking about. the inflation numbers out of the euro zone.

lisa: which have been good. we saw french inflation coming down more than two years. german inflation, the cpi print at 8:00 a.m. eastern time. this overshadowed yesterday. everyone on the governing council agrees the next move is a cut. it's with the market is baking in prayed we will hear some more language from the federal reserve given the inflation data. >> let's get to the latest this morning. america cap tech earnings disappointing. microsoft reporting revenue growth of the fastest pace since 2022 yet investors want clarity on the future of ai. google reporting concerns over how much it could continue to keep up with ai competition. the chipmaker sliding in after weaker than expected revenue forecast as it struggles to keep up with nvidia and intel. we've done this a few times already. this is a name that was up

something like 80% since the end of october. >> we are talking about a couple of tech investors who said it should be the magnificent eight. and is in there because they are developing some of these highfalutin ships. people are ordering them, they just aren't expecting to monetize as quickly. this is the hopes and dreams getting ahead of the reality. >> i'm astonished by how much the market is taking off. the fact that it's -- the high expectations almost too high. it's a most healthy but not robust enough. >> let's turn to the next story. investors expecting the fed to hold rates steady hoping they will get some guidance for chair jay powell. markets pushing that -- pushing back with a 40% chance of cuts in march. fed facing stronger-than-expected data it will clear a path towards 2% inflation after numbers last

week. our final story. former president trump in key swing states ahead of novembers presidential election. the latest bloomberg morning console pole showing trump leading in all seven swing states. concerns about immigration gaining ground on the economist. namely six and 10 swing state voters a president biden bears responsibility for surging migrants at the u.s. mexico border. >> this shows for the first time that more voters than previous surveys we've conducted along with morning consult, that immigration is their top issue. you ask who's to blame for immigration it's president joe biden as well as democrats in congress. one thing to note, a lot of what the survey shows is voters also understand the root causes of immigration. they talk about the fact they know this is due to famine or chaos in the countries they are bringing. this will be a massive issue. it's what you see trump harping

and campaigning on it and telling republican lawmakers in congress not to give joe biden a border deal. >> weighing in on trump's influence on this prayed members of both parties are stunned by donald trump's audacity calling the shots on capitol hill and the frail mitch mcconnell in the senate. trump may single-handedly block an immigration bill voted on just now. is that your base case for this year for the year ahead? >> there is an outside chance we could revive an immigration bill but i wouldn't put it much more than 20%. it's a long shot. >> when you look at what's going on in congress, please help us contextualize this. >> the houses on the path to an peace secretary mayorkas. the same individual who is negotiating with senate republicans to trying get a border deal done. is this appropriate?

how does this make sense? >> to me it signals the house does not want a bill as we've been talking above the last couple of weeks that donald trump once to keep this for himself. it looks like he's got it. i have to say after looking at the polling numbers, as of now trump is the front runner. if the election were held tonight i think trump would win fairly comfortably. annmarie: the vulnerability of trump if he is convicted he's facing four of those indictments, back to the border. if there is such a strong deal that comes out of the senate. and the house decides to vote it down. will voters blame those house republicans a potentially vote them out? >> they could. i think it will float back to the democrats and ironically the senate will flip back to the republicans. it may have some impact. people may see how cynical a

move this has been by the president but i don't think he can count on that as an attitude in the public. >> we look forward to november. when do you start to look more carefully and say this is predictive of a potential outcome? >> certainly by the end of august. it's been a time traditionally where you have to look carefully at the polls. there still is time for the public to feel the economy is getting better. there is still an outside shot for an immigration deal. there's a lot of potholes including a nasty dustup between the u.s. and iran. >> we did hear from the president he is decided on some sort of action. do you have insight into what that could be or the advantage in signaling we've made our decision, now we just wait and try to identify what it is. >> if the rate was a long one

they could be critical of -- there are a couple of interesting issues. what the white house seek permission from congress probably would not. number two with the strikes by the u.s. on a rainy and soil or in the persian gulf just how far into iran could we get. if it is i think the iranians will retaliate pretty aggressively. >> starting on the border issue if the former president wants this as an issue to run on and will hold back republicans in congress coming to any kind of agreement with democrats in the senate or house for that matter do you think the president has any power whatsoever, any executive power to do something about the southern border. >> i think john one of the problems over the last few months has been the white house hasn't had a plan but there is an opportunity where they could

just unilaterally shut down the border. biden could do something dramatic but on this issue at least it hasn't been -- we have not seen it. >> the president is saying he needs congressional approval to do that. >> i think trump wanted to keep the issue alive. as long as he keeps this alive it usually works to trump's favor. annmarie: wouldn't this be just a slew of -- this would be held up in courts. wouldn't there be a number of legal issues of the president of the united states came out and shut down the border. >> yes. i think it would hurt commerce. i think biden is stuck. we are at a point now where there's not enough time to get a sweeping proposal done. there's a deal there. there is a deal but this would be totally unacceptable to most

democrats. >> great to get your view. mh on the offshoots for the president. >> this white house is not going to shut down the border without getting that emergency authority from congress. the former president said he would shut down the border. the only time we saw that is when he used title 42. this president is starting to sound like the old president saying i will shut down the border but he's asking for that congressional approval. >> consumer confidence trying to pick up. and now all of a sudden immigration is catching up and the southern border is a mess. >> the white house wants you to read what happened with the conference board, of the michigan sentiment. that's also why maybe people are starting to say the economy is no longer the biggest issue. inflation is coming down. so now i'm more concerned. we should also note there is data support this depending on what newspapers you read or what television stations you watch,

immigration is much more important on conservative media outlets than others. people are being imparted with this as well. >> i wonder if anyone will blink an eye at the fact, not pass a deal simply because it was politically inexpedient. i wonder how that will play in the polls. it's a new level of cynicism. annmarie: what is insane is they've been arguing about an immigration deal. this could be a generational deal. they may blow it because an election is coming up. >> here's your bloomberg brief. >> saudi arabia considering plans to revive an offering in aramco as soon as next month. the multibillion dollar is likely to rank amongst the biggest share cells in recent years according to bloomberg sources. the kingdom raise $30 billion in its aramco ipo.

shares in fast fashion retailer h&m are lower after the company missed fourth-quarter profit estimates. and surprise the street with a new ceo. the company veteran will take over who saw the company lose a fifth of its value during her four-year tenure. for has been with the company for a decade and for the last four years was responsible for the h&m brand. nelson peltz has plans to fix disney's profitability with streaming and involves bundles. the firm will recommend the company seek to bundle its espn plus service with a larger player interested in sports such as netflix. they are seeking two seats on disney's board. that's your bloomberg brief. >> how any times have we said this, dr. the bond order. >> what is the successful model look like. field model before all this stuff. >> it drives me nuts sprayed up

next on the program. just around the corner. >> he is going to be data-dependent. i still don't think they will be cutting. they not in a rush. >> live from new york city that conversation up next. ♪

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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. jonathan: text talk struggling just a little bit. were back on the s&p 500 by something of one half of 1%. in the bond market we see that change. 4.0 298% per yield are going nowhere. the fed decision just around the corner. >> he is going to be data-dependent. two more inflation prints before

the march meeting. i still don't think they will be cutting in march. they are not in a rush. data had been good. they have been talking about talking about this and that will probably cut off in june. jonathan: bank of america and goldman expecting morgan stanley, looking for june. the chief economist and head of global economic research joins us now for more. the fed decision today with expectations high we get some kind of guidance about a march rate cut. the same time on friday looking for payraise growth still close to 200 k. how do you reconcile those things. >> i think what the fed is going to do is open the door but tell us it hasn't decided if it's got a walk through it. there is a story about inflation coming down that is encouraging them but also about the economy looking strong here which is raising questions about how restrictive the 5.5% policy

stance is. they will grapple with that for a while. i think the data will tell the tale. we have the two cpi reports before the meeting. we are looking for a strong report on friday. i think most likely the strength of the growth and some firming goods price inflation we are expecting will slow the fed down in march. >> let's talk about this a little bit more. the median estimate at the moment is 185. unemployment is below 4%. you've raise the right question. what evidence is there that we are sufficiently restrictive given what we've seen the labor market. >> i think it's an interesting question. i thing they will use that language in a statement today sufficiently restrictive. many members have been emphasizing the policies and a restrictive stance and should start to come down. the economy did well at the end

of the next year. its continuing strength into the start of the year. the labor market is showing some reduction in churning. some reduction in labor demand. there's the demand starting to pick up in some sectors of the economy. job growth will stay strong. it will stay below 4%. so they have a tough balancing act. how they talk to us about that balancing act between the inflation progress, strength of growth and how they interpret, becomes the color we will get today in terms of thinking about where they stand. >> i find this labor market confusing and would love your help to understand it. you see it as stronger than the average person on wall street. we've heard of a slew of layoffs. yesterday we got the job openings data and you look beneath the hood you can see the level of people actually quitting fall to the lowest, the rate going back to 2020 at what point are we seeing real-time

weakening that just isn't making its way into the overall headline data. >> i think we have to distinguish between a normalization and weakening. the labor market was unusual over 2021 through early 2023 as we were really normalizing that after a covert shock that was quite profound. what we are seeing now is the pace of job growth slow. we are seeing less people leave jobs. we are seeing wage inflation, high levels but we are seeing in the high frequency data a sense that things are starting to stabilize at a reasonably strong base consistent with the fact the unemployed rate is below 4% and the fact the economy is growing a 3% pace here. i think we have to be careful not to get carried away by momentum that's reflecting the normalization on outsize strength in the labor market over the last two years. >> how do we know we've really killed the potential for a wage price spiral and we see this

ongoing strength underpinning yields albeit some kind of peripheral layoffs but otherwise as you say strong labor market. >> i think the term wage price spiral is too extreme in terms of what the debate is. we've seen the shocks that pushed wage inflation up many of them have gone from the scene and we are not sitting with a threat that inflation will be 4% or 5%. we are debating within the range of is inflation settling back to what the fed has targeted to her we getting stuck somewhere around three and there's a story there we are seeing wage inflation which looks like it's still running about 4% and you're asking how well his productivity doing, how much pricing power to companies have. whether the drops and goods prices is a bit of a temporary phenomenon and how much further progress will we see on shelter cost service price inflation and these are all questions which haven't been answered yet but we are debating the point about inflation coming all the way back to the low twos or getting

stuck somewhere around three and neither of those is a wage price spiral. that is not really the dynamic of this economy. 3% inflation is too high for the fed and will slow them down if not stop them. if that's what the data starts to show. jonathan: i wonder how relevant the federal reserve is to this conversation. we talked with them so much, it's interesting how rates sensitive this economy is. how relevant is the fed. >> that's a really important question. i would say two things. last year we had a very significant drag from higher interest rates on housing, other durable spending. monetary policy did do damage but it was offset by fiscal stimulus and sharp falls and by still benefits of covid normalization. now we are in an interesting possession because monetary positions are still tight, bank

lending standards have tightened. financial conditions have eased a lot. that juxtaposition of tight monetary policy conditions is really unprecedented and how it plays out in economic performance. in that regard and your question is spot on. this is a tough economy to get your hands around in terms of what the fed's transmission is doing as we look to 2024. >> introducing another dynamic as well. this conversation about higher real interest rates and keeps nominal rates steady. versus the offset by better real incomes than america? >> i think it's wrong to say there is a mechanical link between inflation and real interest rates. that depends on how people think about the forward path of inflation, how interest rate markets are feeding through the financial conditions, but i do think the point you're making is an important one.

the rise and fall in inflation is a reduction of set of supply shocks. as that's happening and we can see the consumer respond to that. income is also being generated by the corporate sector. it's not a move away as a generating strong demand overall. as we are generating the activity outcomes, we are looking at that in the productivity for tomorrow which will be pretty impressive. >> economics tries to be agnostic when it comes to politics and tries to look at these very specific issues in calibrations of labor markets but it's hard to avoid the politics. a lot of people saying the fed will try to get an earlier start to avoid cutting rates more aggressively right into the election. we are hearing from congress members the latest in the senate saying at first the federal reserve to cut rates, how difficult does that make the

situation for the fed, how does that factor into your considerations? >> we should not consider the fed is having a explicit political lens. but it's operating in a political environment and i think there is a sensitivity that the fed was slow in lowering rates and the economy did falter as we moved into the election campaign season. i think there's a bit of a bias here that they probably started earlier. that does weigh on our thinking. it hasn't pushed us to think they will go all the way in march but i think that is a consideration we should have in our minds. >> great to catch up and get your thoughts. when you look at the back half looking at more than 100 basis points of rate cuts in the back half of 2024 it does raise the question you think we went until june and then 100 basis points into the november election, that's a bit of a head

scratcher. >> what should they do from a purely economic level and what will they do. economics cannot be divorced from politics at the end of the day because there are a lot of considerations especially if to bruce's point they are becoming politically vulnerable. if they make some sort of traumatic action. >> imagine with the other side will start saying. if i was at the federal reserve i would be so frustrated that they were even sending those letters into chairman powell. >> i would agree. i imagine that frustration is long simmering. always uses a pushing -- punching bag. how do you talk about the real rate and the neutral rate and cutting rates down to that versus the overall inflation. it's not an easy political message. jonathan: coming up for the next hour, george ferguson a bloomberg intelligence idaho law

more from new york city this morning. off session lows we are down by zero .5%. ♪

>> this is the super bowl for investors this week not only with tech earnings, a flurry of macro data as well. >> they are delivering on the promise. these are the companies that are growing far beyond the market. >> i think the risk is growth can be better than people think rather than the opposite. >> good news is good news.

we are done with that. >> it's a winner takes all economy. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. >> live from new york city this morning, good morning for our worldwide this is bloomberg surveillance alongside lisa abramowicz together with annmarie hordern. your equity market s&p 500 negative. we can talk about big tech later. a federal decision just around the corner. will they or won't they talk about rate cuts? >> it's not really a question of if they will cut rates, it's a question of when even though we have an incredibly strong economic data and the u.s. economy that seems to be firing on all senator -- all cylinders. jonathan: sherrod brown would also like to talk about rate cuts. democrat swaying in. increasingly bizarre. >> it's not new.

we've heard this from the senators before and obviously is before the big decision day. you have to separate the fact sherrod brown is up against huge elections. they are grandstanding. the issue this becomes is this is an election year. >> they've been job owned on both sides. every single president seems to try and push them in one direction or another to try and help them economically. the key question is how much does this influence the fed to get ahead of that three month stretch before the elections and start cutting earlier despite the fact the labor market look strong. inflation is coming down but a lot of positivity. >> this just makes it harder. in the last hour we say it's worth repeating it's inappropriate under the trump administration. it's inappropriate now. they are about to cut interest rates anyway. do you think about where the economy is, unemployment set at

4%. the inflation trends improving. the federal reserve is in position now and can consider pulling back on interest rates. this makes it so much more harder than it needs to be. that's white's just even more inappropriate this time around. >> it makes me wonder why and makes me realize it so difficult to communicate the strength in the face of a lot of dissatisfaction among consumers but that starting to shift and a number of analysts are saying just wait read in a couple of months they get used to the increase in cpi. >> if the fed waits closer to the election it's going to get political. remember when biden said the fed should not hike anymore and how much blowback he got just for that comment about basically seeing what everyone else was seeing this is likely the end of the rate hike cycle. imagine he cuts a month or two before november. >> here's the price action this morning just to get you up to speed. equity futures back by half of 1%.

equities on the nasdaq. it's hard to call them disappointing. it's disappointing relative to high expectations following a monster rally across these now. >> that's what we learned is the expectations are incredibly high and they are priced to perfection type of feel and markets. the question is how high is this threshold for some of these names to keep driving gains given that they have been the dominant players with respect to delivering s&p returns and nasdaq returns over the past 12 months. >> down by more than 1%. giving you a snapshot of or treasuries are at the moment. the 10 year in america showing up as follows. looks a little something like this. yields are lower by not even a basis point. coming up on the program moving towards the fed decision. microsoft and google in the premarket trade we will catch up with mandeep singh and we will catch up with george ferguson

later on this morning. we begin with our top story, counting down the fed decision at 2:00 p.m. eastern time. wall street is divided. >> i think june is where the market has gravitated to. >> we would not rule out march. >> march is the inflation deadline. >> our base case is for a rate cut in the second half of 2024. >> i think the fed is thinking june at the earliest. >> by the end of the year they will start cutting. >> cutting interest rates around the middle of this year. >> our baseline is june. >> rate cuts in the first quarter seems unjustified. >> march just seems a little premature. >> i still don't think they will be cutting in march. jonathan: investors will head to jay powell's conference for clues. sebastian saying his base case for the u.s. economy is a soft landing and it's important to

stay invested and diversified. goalkeepers twice as likely to save a penalty if they stand in the middle of the goal rather than diving to one side or the other. sebastian joins us. lovely analogy. >> it was for you. at least 286 top league penalty kicks, a goalkeeper stays in the middle only 2% of the time but they are quite -- twice as likely. we are neutral between stocks and bonds. jonathan: does that apply to chairman powell as well? >> you are looking at a coin flip for march in terms of rate cuts. i don't think he wants to surprise the market on either side. historically the fed likes to surprise with cuts not with hikes. so you can say historical pattern if they are going to air on one side will be on the others. this is equities at an all-time high. wage growth with rates trackers

5%. it's a strange moment to try and deliver dovish surprise and i don't think the political pressures. >> this is really important. markets in real-time high sounds expensive. sounds cheap. how do you view this market, what's the best way of framing things. >> framing really matters. >> if you look at the magnificent seven up 80% in 2022 you'll say stocks are really expensive all-time high. if you look at the msci world index which has small caps in there. 80's -- its price-to-earnings ratio on the bloomberg terminal is 19.5. that's the 30 year average. so markets are fully priced but not outrageously expensive. it depends on which lens you look at. >> how much is the future path of returns on this broad index depend on what the fed does or

are they out of the picture and it comes down to the earnings? >> i think the earnings matter a great deal. saying the fed -- markets really follow the fed we are looking at rate cuts, i think the risk is to the upside of inflation. would be that inflation -- i think this is where most of the risk is an that flows through fed policy holding back a little bit on cuts. >> if the fed doesn't deliver six rate cuts are five rate cuts but goes for two or three. >> you were talking about expectations, a really wise person told me the secret to happiness in life is low expectations and you were just saying expectations are really high. i think the 10-year could go up

as a discount rate of fact and those stocks and bonds could go down. i'm not that pessimistic. were looking at rate cuts. >> the problem goes back to valuation. let's talk about framing a little bit more. look at the equity risk premium sprayed you take the ratio in stocks. near 20 on the s&p 500. it's a 5% earnings yield. that's the same yield you get on cash. you compare stocks and bonds and the fact bonds have gotten cheaper, you are in a situation where the equity risk premium is most compressed it's been since 2007. i've got more constructive of the economy with everyone else and the consumer. with wages growing at 45%, real wages are coming up. at the same time all of this is priced. the vix is at 13. tom is not here but would tell us that.

this complacency we are looking at rate cuts, looking at 10%, 11% earnings growth everything feels good. there's a hot war in the middle east. that's were flowing back to the inflation is a commodity. >> we've all been surprised by how subdued and how calm things have been. maybe not on equities, things are basically unmoved by all of this. how concerned are you? >> i am with you. i watch the show every day. i am with you, i do not think oil prices are reflecting the risk of supply disruption, i am not a geopolitical analyst. when i talk to them they are telling me any kind of supply disruption could be substantial especially where you get 21% of the oil flow, oil transport going through the straight. the risks there are real.

the trend is not our friend. wings are escalating they are not de-escalating. ian bremmer is a friend of the show. ian bremmer put something out saying expect an aggressive intervention on the iranian military options installations in the next day or so. i'm not the geopolitical expert. you can see all of the risks pile up. the cost of shipping a 40 foot container from shanghai to new york for weeks ago was about $3000. >> how do you hedge that? do you buy energy stocks and stay aggressively neutral and hope for the best? >> we like technology. we try not to have a bias but we are following technology closely and really good growth investing strategies. right now our research platform is long energy and as an asset

allocator i look at this and this is a real signal. in our asset allocation portfolios we are overweight to a real asset equity strategy which is basically combining energy stocks with real estate precious metals. it's maybe not in fashion right now because inflation is coming down so it's more of a tail risk hedge but i think it has its place in the portfolio. >> we saw the attack yesterday on a vessel the u.s. military was able to strike down. we see that oil is not moving. it needs to hit supply but aren't these vessels going to go around africa to make sure supply is safe. >> that ultimately creates inflation pressures. on supply, we have weak demand i think is what's going on here and we are talking about the 13 million barrels of supply from the u.s. and this is like an all-time high. but i think it's very fragile.

any disruption, the risk is just not symmetrical. could oil go back to 50 or up to 100. i think the risk is skewed to the upside. >> crude is down again by 1%. brent crude right now 8192. this give you an update on stories elsewhere prayed here to bloomberg brief. >> the pga tour is set to confirm approval of a $3 billion investment on u.s. strategic sports group. the investment group is led by liverpool football club and boston red sox owner john henry through his sports group. the agreement is set to include an equity participation for the players and values the new entity at roughly $12 billion according to the report. republicans are moving towards impeaching homeland security alejandra mayorkas. the gop panel approving two articles of impeachment setting the vote to the house floor. the effort is likely to die in

the senate. my your kisses and the hot seat as security of the u.s. mexico border remains a hot button issue. the media mogul byron allen has made a $14.3 billion offer for all of the outstanding shares. they are offering to pay a 50% premium according to people familiar with the terms. including existing debt the total value of the deal tops about 30 billion dollars. in a statement to bloomberg news, the media group says this is the best solution for all paramount global shareholders and event should be taken seriously that pursue. that's her bloomberg brief. >> coming up next, tech falling short of ai fuel expectations. >> we continue to invest responsibly in our data centers and computer support this new way of growth in services for us and for our customers. jonathan: that conversation coming up next.

good morning. you're watching bloomberg tv. ♪

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jonathan: equities on the s&p 500 pulling back by 0.5 first -- by 0.5%. 4.02% on the 10 year. tech falling short of ai fueled expectations. >> supported by the state-of-the-art computer infrastructure. responsibly in our data centers and continue to support this new way of growth in ai public services for us and our customers. jonathan: alphabet shares falling in the premarket after revenue caused search business

to fall short of estimates. google's plans for generative ai and increased competition from microsoft. mandeep singh joins us around the table. let's go through these numbers together. they are not terrible. strongest revenue growth of microsoft since 2022. cloud services sales gaining. is this the bar being too high? mandeep: they told us 6% revenue from generative ai workloads. that was 3% last quarter so what that means is 2 billion to 4 billion in a quarter. if you try to model where those gpu's are going and that to inferencing. training those right now. microsoft has a stack where they are actually deploying this and this is inferencing revenue. falling short of expectations, that did drive upside in that

productivity segment. this is a reflection. the trend will continue. >> how helpful is this? >> it did not translate into revenue because people are still trying to figure out how to integrate it in the workflow. this can help you do longform searches. it is still new but where they are finding traction is companies looking to use their own data within enterprise and building agents, that's what they mean by inferencing. the openai microsoft stack is resonating in the market whereas others are still developing. google, i think amazon numbers will be key because to me microsoft is clearly didn't share in the cloud from amazon. lisa: amazon doesn't necessarily have the artificial intelligence capabilities at microsoft and google have. how do you gauge the fact these

numbers are completely solid and yet people are responding badly to them. does it mean the market basics expectations are unrealistic or that they've been brought forward a year or two and things will meander along in the meantime. >> look at what happened with nvidia last year. trading at the premium multiple and they kept beating expectations so in this case i think microsoft is trading at over 30 times its rich historically but if they keep delivering on the number it's not 5% of their revenue. if that keeps growing at this pace i think they can maintain that multiple. >> there was also a question of layoffs and how they will make their business more efficient. this from the cfo of microsoft, talking about the company pivoting from a workforce rather than large numbers to focus on the technology. is this going to be ai, person

at microsoft. >> they have to manage the margins. one of the biggest risks going into the print was the gross margins will get further because they are buying this gpu capacity. there is the capex test they raise their capex so this is huge. a digital transformation drove 15 to 20% growth in cap acts, now we are talking about 40% from ai. all of that is going to increase the cost of revenue and they have to manage the market which they say will grow 1% to 2%. that's what the street wanted to hear. jonathan: i'm just happy you threw a person in there. lisa: i figure it's auto operated, auto operated. that sort of the image. jonathan: do you think it's too soon? one thing we could get and this is a big change, you could get real growth here as some of these companies and they don't

have to have the headcount grow it all based on the changes at how important is that to you? sebastien: expectations are high for how much efficiency ai is going to deliver and i believe in the efficiency, mckinsey is putting out numbers of 3 trillion efficiency gains, this is the size of the u.k. gdp. there are high expectations. these are great companies, they print cash flows, right now we are neutral between growth and value. we are starting to lean towards value a little bit more not because we don't like ai and the efficiency gains and the productivity gains but because we like to lean against this and the value stocks relative to the growth stocks are starting to look good. jonathan: everyone else seems to be on the same side of the moment. that's been the feeling for the last 12 months per you said 10 years before we see these big changes. where does that come from?

mandeep: looking at how ai is getting deployed. right now the focus is on infrastructure. everyone's investing in infrastructure to feed the data, all of this is going to translate into software that's going to be one step at a time and then you'll talk about someone who can take the job or automate that. it's going to happen in steps. enterprise changes happen slowly than people expect. i think this is a real trend and that's what you will find out from these companies pivoting to ai. >> what do you think the biggest surprise will be when we get the results after meta, apple and amazon tomorrow. who are you expecting to set a new tone other than good results, solid. >> look at the advertising side. we are going through a big change on the advertising side because these companies cannot use third-party data anymore.

cookies will be deprecated. they are trying to pivot to ai agents to mind more data. on that side you'll see changes. youtube i think will blow through the numbers simply because streaming and connected tv is a real trend. you will see a nice acceleration on that front. you are seeing that ad revenue shift over to streaming with these ai agents over time and that will be a big change. >> reporting after the close tomorrow. what's happened with the smartphone business and the companies associated with it. have we met that saturated point? we've been worried about for a while. >> part of it in this case is china. i think that we have -- we have not seen significant innovation in that space in a little while. the phones are sorting to look and feel the same and you reach saturation.

i think we are getting there but we are talking about a company that has a lot of innovation in the pipeline. >> good to catch up and great to get your thoughts. thank you. coming up the bloomberg intelligent senior aerospace and defense analyst joining us to break down earnings. the max 9s crisis. all of that and more. bowing in a tough spot. >> i love the idea this isn't good enough. that's what we keep hearing. we want something that isn't planted in our brains. >> no we don't. it sort of what can you do for us now. >> are you been away in on that? >> you want them on your phone, that's the next thing. then it's going to happen. >> waiting for it. not the brain implant.

anyway, that's a story for another time. equities on the s&p 500. into the bond market as follows. treasury yields coming down by a single basis point on the 10 year 4.041 percent on the 10-year this morning. the euro slightly negative. 10830 four. waiting for the white house response to the deadly attack over the weekend with crude lower by more than 1%. 77 on wti.

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jonathan: it is fed decision day. here is the state of play. the scores fear. on the s&p 500, equity futures -5.5%. underperformance from tech dragging the nasdaq down by more than 1%. get more from technology tomorrow after the close with amazon and apple. the small caps, doing ok. in the bond market, chevy -- shipping up as follows. two year yield is lower by a single basis point.

4.32 on a two-year. just a final read of things for you. the euro against the dollar, 1.0834. counting down to the fed rate decision at 2:00 p.m. eastern time. the clues on the timeline for rate cuts. traders pricing in a 40% chance the interbank lowers rates in march. most people suggesting we won't get that guidance later on this afternoon. lisa: unless we do. lessie is like, at a certain point the big surprises going to come from the press conference. because otherwise when it comes from the issue from the federal reserve, it's going to be pretty vanilla except for maybe taking out some of the hiking bias they had previously. jonathan: show we talk about a single name? shall we do bowling? not good when you see this headline, suspending forecasts for 2024 right red across

bloomberg terminal this morning. lisa: the ceo, now was not the time to share financial objectives. it is a time to be reflecting on what is going on with 737 production and safety and all of that. basically talking about the production rate is now at five per month. but really so many questions here. even beating fourth-quarter free cash foreknowledge that, the suspension is going to be what hangs in most people's minds. jonathan: production numbers and 737 production rate, 37 per month. if you are hoping for a ramp from here, lisa, i think that is a difficult part of this. people hope maybe there will be able to ramp up production in the year to come based on the difficulties of the last few months. maybe not likely. lisa: this is a tough earnings, and it is going to be a tougher one for the regulators. are they going to wait for an airbus for three years or get a

bowling plane, albeit with concerns around the edges? -- a bowling -- bowling plane -- boeing plane? jonathan: the headline crossing moments ago, suspending the forecast for 22 94. now was not the time to share financial objectives, the message from dave calhoun. that stock is positive by almost .5%. george ferguson joins us now for more. we were waiting for the numbers. we've got them. your first thoughts off the back of that? george: this earnings call -- right way to say it is really going to be all about the future. we knew what deliveries were. we had a decent understanding of what revenues were going to be, and profits. i haven't had a chance to date through all of it, but the

forward discussion is going to be a what is most important about this call. i think it is going to be his 38 the current rate for the max production? if that is the case and this the faa cap on their manufacturing numbers is not going to affect them for at least six months i would hope they could get pretty well through with the faa review of their manufacturing by then. and it would not impact the year. i think largely would keep the consensus view in place. but i think the fact that they suspended guidance means there is concern about that. there is concern it is going to affect their manufacturing cadence. lisa: zooming out, can we get a sense of how big a difference in profitability it would be for boeing if their production rate were cut significantly? let's say it goes down to 35.

what would it go down to under a potential faa cap, and how much would that potentially at the bottom line? george: i don't think the faa is talking about cutting. i think they're talking about restrictions on letting boeing increase. i do not see them cutting it. an adjustment of 10% or so like you mentioned is not going to affect production -- sorry, profitability -- dramatically. but i think the real -- what we are all looking for from this company is to see production rates in the 50's and 60's. they need that increased rate to go through their supplier base, because their supplier base has been working and efficiently, because they are working at low rates, not making any money. that is stressing them financially. their supplier base is out there hiring people, getting ready to ramp to higher rates. to pause that would put financial stress on them. a slowdown in their ability to

ramp up cascades through boeing and the entire base, so what we are really looking for is to minimize this cap, have it not be an effect on their break to higher rates. lisa: meanwhile the boeing ceo saying, increased scrutiny will make us better in a memo to employees today. also noting that the backlog for planes includes more than 5600 commercial airplanes. due to safety issues of boeing really matter in terms of the potential orders given the fact it is a duopoly? that it is between boeing and airbus and they cannot seem to develop planes fast enough? george: i think it matters less into you have these problems continue for so long that customers start to look other places. so the fact that united is already talking to airbus about eight ones is concerning. -- a321's is concerning.

it is hard to go to airbus and get in the queue, because i think you are waiting five or six years. that keeps people coming to boeing, but what we have heard from bloomberg news over the last couple of days is that airbus has gone to some customers and asked them, do you really need these planes in these years? we are trying to free up some capacity to go conquest to customer, which is united. that is somewhat concerning if you start knocking away these big core customers like southwest, ryanair, alaska. then i am even more concerned. i would say right now it has not happened. united, a little bit concerning if this continues and they start losing core customers. jonathan: as you mention, certainly not what we are hearing from ryanair. ryanair have said, if you do not want your boeings, we will have them. george: at the right price. lisa: at a good price, because

that is what ryanair does. at a certain point you have to wonder if they are safe and of some of the hype has been overblown. you just tighten the screws, but make sure to put them in, and you are going to be ok. why not see people picking this up on the others? jonathan: lisa has talked about this. brooke sutherland has as well. the culture of boeing, led by dave calhoun. dave is saying all of the right things over the last few weeks. there was that passionate address to employees we saw a few weeks ago george, what is going on with the culture inside the company? as tom keene would say, what changed that bone? -- at boeing? george: the culture used to be one of a very good engineering firm. i think that the playbook they used prior to the pandemic does not work anymore. and that may have been of less oversight and training, because they had very seasoned people on the line. the pandemic, and frankly the

max grounding prior to that, has led to a large change in their workforce, and dave calhoun is going to have to put his money where his mouth is and spend more money on supervision and training. go out and cooperate with suppliers. make sure that there -- make sure that they are training, that they are supervising so he can ensure the product he delivers is a quality product. it is great to go out and talk to everybody and tell them how much you care. but then you have to put your money where your mouth is. it means the margins are not going to look as good. cash flow may not be as good while you reconstitute the core of this company. lisa: boeing said it is pausing 737 production for one day. is that sufficient? george: one day is not going to make a difference. this is about spending the money over the long run to train people well and supervise those lines. you cannot count on really seasoned workers anymore. they have jonathan: conference

call later today. questions for the leadership. what are they right now? george: i would want to know what they are doing to improve that supervision. of them and there's a priors -- and their suppliers. we know of other problems at spirit and we have washed problems spirit has had with their suppliers. we are going to want to know how he is going to get down there and supervise, manage, oversee all of those suppliers, and we are going to know what he is doing on his lines to make sure he has good supervision and good training. jonathan: george, thank you. george ferguson of bloomberg intelligence. boeing in a hot right now, under the spotlight. early tough times for that company. here is the latest. the forecast -- there isn't one. they have suspended their forecasts for 2024. fourth-quarter revenue, hardly talked about it. it is ok.

the production rate for two planes, pausing the 737 production for one day to refocus on quality. the production rate had 38 per month. for the 787 the program production rate is now at five per month. based on what you have heard so far, lisa, questions on the conference call later? lisa: do you think that one day is sufficient to refocus on quality? what kind of message does that send? and, what do you think you personally got wrong that you personally would like to change, considering this has been an ongoing issue? jonathan: that stock is positive by .7%. elsewhere this morning, -- this morning. >> donald trump has expanded his lead of the in key swing states. the latest bloomberg morning console poll shows trump leading in all seven battleground states. the poll does show more than

half of voters in those states would not vote for trump if he were convicted of a crime. shares of saudi aramco fell as much as 2.2% on news of a revival of a follow-on offering as soon as next month. bloomberg reports the kingdom is working with a group of advisers to raise at least $10 billion. this comes after saudi arabia raised $30 million in its ipo four years ago, which was the world's largest stock sale. novo nordisk became -- half $1 billion in market value. the danish drugmaker expects a 26% jump in revenue and 29% increase in operating profits. the ceo says the company is well-positioned to grow its patient base. >> we have access to some 50 million patients in the u.s. and we are only serving a small fraction of that.

that is ample opportunity for competition, and this is about growing the market, serving more patients than it is a matter of market share. yahaira: that is your bloomberg brief. jonathan: up next, investors betting big on ai. >> ai, ai, ai. cannot say it enough. these are companies that are best in their industry, they have their financial metrics, but they are pushing up against valuations. jonathan: that conversation coming up very shortly. live from new york city this morning, good morning. equities pulling back just a touch. this is bloomberg. ♪ ♪ p back. i made that. with your very own online store. i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy. how am i going to find a doctor when i'm hallucinating?

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♪ jonathan: equities pulling back on the s&p 500 by .5%. a bit of weakness out there. yields just about unchanged.

under surveillance this morning, investors betting big on one thing. >> ai, ai, ai. productivity is going to be one of the keys to growth, and these are companies that are best in their industry. you look at earnings growth, and flat is the new up. tech revisions are up modestly but -- while the west -- the rest of the s&p 500 is moderating. jonathan: microsoft and google falling in the premarket after struggling to meet ai-fueled expectations tomorrow. tech earnings resume with apple and amazon. blackrock saying this. excitement over ai's. a rally in tech stocks in 2023. we upgrade u.s. stocks to overweight. wei li, a little bit more constructive on equities in the united states. is that ai or other things as well? wei: up until now it has been

all ai. i say that about market performance, but also an investment view. up until now our overweight in ai have been offset by a underweight growth equity markets in the u.s., and then if we look at performance, you know, you look at equal weight, the s&p was up the past five months. so, he very concentrated market warranting a concert headed until now. but now we actually think that rally can broaden now. not specifically about ai. there is a piece about ai, of course, but more broadly that this week is the fed meeting. but a big meeting of the fed took place in december, where the essentially greenlight risk assets to embrace the immaculate

disinflation narrative. we think that momentum can run, because inflation is falling first before it starts to rebound later this year in the beginning of next year. when that is the backdrop, this immaculate disinflation narrative can support broad equity momentum, which is why we upgraded u.s. equity markets to not just be all about the aip's, but the broad market as well as we consider ai. jonathan: what is interesting about your call is this tactical call in the short-term, and where you see things going further out with inflation picking up again. could you walk us through your thoughts around that? you seem to believe there is this window open to engage with the market, but further down the road we are going to have some problems. where did those problems come from? wei: when i was in davos i took the route -- i took away this concept of new normal, which is something christine lagarde was

talking about. so, normalization is the journey, and new normal is the destination. because markets can only focus on one thing at a time right now it is focusing on the journey, and it is a journey where inflation falls down to 2%. it is a journey where policy rates start to go down. but where problems can come from further down the line -- i'm talking about later this year, the beginning of this year -- is when goods deflation stops bringing down inflation and persistent weight starts pushing up inflation. you actually expect inflation to fall all the way to target of 2%, but settle around 3%. so, this roller coaster of a journey is something that markets are currently not focusing on, because you can only focus on one thing at a time, but later this year that roller coaster pattern is going to come into view as tight labor market continues to lead to

tight and persistent wage pressure. that happens i think there will be a more fundamental reset. for now, momentum is also boosted by reasonable earnings growth. so, we still have the ai preference and the magnificent seven is expected to grow their earnings by 21% this year, one third of the index level. and tech-related themes are carrying more than 50% of earnings growth this year. we still like that, but with the momentum and this immaculate disinflation narrative supporting growth markets a could also support a bit of a broadening out of the rally we have seen so far that has been so concentrated up until now. lisa: so much to unpack. i want to talk about the journey and the destination. the journey that looks good and a destination that looks more inflationary. where does that leave credit at a time where people have been piling into top rated credit at an accelerating pace? have seen spreads come in to the

tightest in years. you have seen companies flood the market with supply. this appeal like that area looks a little more dicey at this point? wei: we actually prefer duration over credit at this point, precisely because of the valuation and tight spreads. we think spreads can whiten out incrementally a little bit. maybe 20 basis points, maybe 50 basis points. high yield in the roller coaster type of scenario, which is our base case. currently the narrative is not a bad one, because the focus is on the journey. whilst we don't love credit, we are not expecting credit -- credit to blot in a risk-off type of environment. we just think that the ration looks more attractive than credit, and also, frankly, if

you want to take more risk equities look more attractive as well. so, thinking about duration and equity, given how tight credit is. we think this bread can whiten out, but it is nowhere close to the episodes we experienced during global financial crisis. we are still talking about a controlled, contained environment where cost of funding increases, but not blowing out. just on a valuation basis, not as attractive, which is why we don't love it, but we are not forecasting terrible things either. lisa: when we talk about a 3% inflation destination, what does that do for a mix of portfolio? does that mean equities will have a better place going forward than the traditional 60/40? wei: a 3% inflation environment is not a terrible environment,

especially in the context of earnings being quarterly nominal. not inflation run away, i think that can be constructed for equity to be constructed for equity to reset to this new environment. it can be volatile, but once we get there it doesn't have to be negative for equities. on a related note, as inflation stabilizes around 3% instead of 2%, i think we are also looking at a higher neutral rate as well, which in our assessment is about 1% higher than pre-pandemic levels. and when we look at that kind of environment, back to your earlier point about credit, private credit looks quite attractive. 650 basis points above the public equivalent, and investors wanting to lock in and turn out some of the allocations. so, private credit infrastructure, those types of

exposures looks quite interesting in this context. jonathan: before you go, chairman powell later today, no change expected in terms of the actual decision. you looking for from the chairman at the news conference? wei: well, the big meeting is actually the december meeting. we are paying attention at this particular juncture. if he would push back against still-quite aggressive brexit -- expectations for rate cuts. thank rates will be cap this year, but maybe three instead of the 5, 6 markets are hoping for. we are looking for if he would push back. even that the prepayment backdrop is still inflation falling, if markets get nervous from the pushback, if we get that later today, that would be a moment for us to lean into the risk environment a bit more, because the prevailing narrative for now, next six months and

beyond, is falling inflation. if they pushback we would want to be more constructive and lean into that. jonathan: wei li from blackrock. always good to hear from you. much more constructive on the equity market. keep in mind this is a tactical six to 12 months and then they expect inflation to pick up again. lisa: we heard about this possibility from bruce cashman at j.p. morgan. once disinflation works its way into the comparison figures you start to look at the strength and wonder if we do start to see a little bit more left in prices to the 3%. jonathan: chairman powell seemed to pushback in that december meeting. lisa: right now it doesn't seem like they have any incentive to pushback against this, because inflation has kept coming in. i'm curious to see the job numbers on friday. to me that is going to be even more important than what the fed talks about today. jonathan: 2:00 p.m. eastern, and

then payrolls friday. let's check out shares of boeing briefly. boeing is positive, firmer by .5 percent. the numbers were not terrible for the fourth quarter, but you do not get an outlook, suspending the forecast for 2024. lisa, is now not the time to share financial guidance? lisa: no, we will focus on every airplane while following the lead of our regulator and ensuring the highest standard of safety and quality in all we do. that is going to be the appetizer to whatever we get in the earnings call. jonathan: i imagine this is going to be a different call. there is going to be none of that great quarter stuff. lisa: it's going to be serious questions about how they plan to avoid this ever happening again. jonathan: the third hour is shaping up as follows. michael shaoul, claudia sahm, and ira jersey, all of them on a whole lot more in the next hour. from new york city this morning, good morning.

equities pulling back as tech disappoints very high expectations. this is bloomberg tv. ♪ (upbeat music) there's more to business than the business you're in. if you use data, that's the privacy business. manufacturing on demand? you're talking cloud business. got a few million hyper-connected customers? digital experience business. that was fast. that's where deloitte comes in. with the right combination of talent and technology to help advance and connect all that it takes to excel in business ... to the business i'm in. deloitte.

>> i think it is a very tight

rope that the fed is walking. what we expect them to do is lay the ground for why a march rate cap makes sense. >> i still don't think they are going to be cutting in march. >> march seems a little premature. >> do they go in march? a bubbly not, but they likely ease in the second quarter. >> i think the fed is in a tricky spot. >> this is announcer: --"bloomberg surveillance." jonathan: it is fed decision day. live from new york city this morning, good morning, good morning. this is "bloomberg surveillance." i'm jonathan ferro. your equity market trying to balance. later today chairman powell, 2:00 p.m. eastern time. looking for clues for a march rate cap. lisa: the press conference might be fiery or not. they are looking at their core

pce inflator being below 2% on a six-month annualized basis. they going to hold that up and say, we've got it? have a green light to go? jonathan: new york fed president john williams. we are not really talking about rate cuts. you think they are talking about rate cuts? lisa: 100%. if they try to back away from that people will laugh. that is just not possible, because everybody is expecting them to probably remove some of the hiking bias from their language. the key question to me is, what is the metric? what is the key determining future for them to cut? jonathan: colleagues in washington, d.c. would like them to cut rates right now. senator warren and three democratic colleagues, together with sharad brown, in a letter to chairman powell. saying, let's go. annmarie: while more must be done to address the fact that costs remain high, it is evident

that restrictive monetary policy is no longer the right to a. so they are edging on powell to cut. they know he is going to cut at some point, so why are they almost goading the republicans to come out and make this an election issue? jonathan: it is bizarre. mentioned that the calendar might be on the president's side. that perhaps on the economic side of things things improve. then we introduce a new topic. immigration. her latest poll at bloomberg, not great for the president whatsoever. the economy is one issue. immigration, another one altogether. annmarie: but we found is that the economy still remains number one, but more people are starting to say immigration is number one. so, more people feeling better about the economy. the next issue they care about, immigration. those swing state voters, it is a tie between the economy and immigration. jonathan: all seven swing states, the president behind the former president donald trump. lisa: we heard that from greg

valley area. this is not something on the front burner because we have nine months of an election season that is going to be the longest ever. so we have a long way to go, and a lot can happen, but it is interesting to gauge where people's minds are at. jonathan: feels like we are year-and -- year-end already, doesn't it? lisa: how many debates we going to see? probably not that many. jonathan: i think there is a good chance we will not get one. annmarie: there is a good chance that neither of these men show up for debate. lisa: so how does the narrative change? it is going to be event-driven. annmarie: absolutely, but when you come back to the economy i'm so keen to learn about what the employment rate is going to be on friday. if it is under 3% -- under 4%, that is two years under four

percent. this is something about an administration is going to take to swing states. jonathan: do you want a sneak peek of our survey? 3.8%. payrolls, 216,000 last time around. the estimate, 185,000. the focus for the bears and some economists looking beneath the surface is the breath of those payrolls gains. just industry groups driving things at a top level. lisa: construction, for example. i am also watching wages. how much are wages continuing to accelerate or decelerate? jonathan: let's turned -- turn to the price action. opening bell in about 85 minutes time. we are down by .4%. yields are going nowhere on a 10 year. phenomenal just to see crude lower again by 1.3%. $76.79. michael shaoul of marketfield asset management, michael mckee breaking down data, and the

treasury funding announcement. and claudia sahm on why she thinks the fed should cut sooner rather than later. we begin with our top story, counting down to the fed rate decision. michael shaoul same december's data shows considerable progress in the fight against inflation, it also warnings about the potential for a bottoming in the fed's preferred gauge. michael joins us around the table. let's start with chairman powell. what are you looking for in the news conference later? michael: i think he will try to keep his options open. this is not a live meeting as far as cutting rates is concerned. it is under pressure to make a big decision in march, and i think he will do his best to keep his options open and talked both sides of his book. jonathan: it is a big decision. is it an easy one given what we have seen in inflation? michael: i don't think they need

to cut rates, but they have talked themselves into the position that the market has put a lot of pressure on them to cut rates. i feel that that december meeting, they moved a lot further than they had to. in november they were still talking about financial conditions being tightened by the 10 year yield at 5%, coming into december with ten-year yields at 4%, and he is like, ok, it is about financial conditions. i think the fed created a wind at its back. the fed can say it feels like it is winning the fight and does not want to quite say it has won. but they are under some pressure. lisa: but does it matter? i know you are one of those people that is concerned about inflation re-accelerating this year. is that a concern regardless of what the fed does? michael: i don't think it 25 basis point cut in march really makes any difference to the underlying economy, but if you are worried about asset inflation i think it does encourage a little bit more speculation.

and, you know, what they don't want to be is a yo-yo fed. they don't want to be a fed that hikes and cuts and hikes and cuts. they want to be a fed head of an economic cycle, which is taking interest rates down when they have to, keeping them where they should be when you have to. it is an almost impossible task, but they do not want to be a yariel. lisa: -- a yo-yo. lisa: i wonder if there was a lesson from google and microsoft yesterday. is this asset inflation or fundamental hopes and dreams that are born out or not by the actual earnings? michael: i think they are both the same thing, right? one's hopes are inflated by things like interest rates. in other words, the market has a chance to look at good news and bad news and sometimes it really emphasizes the good and sometimes it really emphasizes the bad. there is no doubt that in the fourth quarter last year you really doubt up the enthusiasm level. you see it in metrics such as

consumer confidence. to us consumer confidence is an extension of belief in the equity market as much as the underlying economy. and you can see that consumers never really embraced this incredible bull market since covid. and really get nervous in 2022, but it took until december, november of 2023 for that enthusiasm level to be turned up again. annmarie: consumers are feeling better, but when you think about how alan greenspan used to think about price stability, that prices would not impact daily decisions of everyday americans, i'm not seeing that in stories i'm reading about how people feel about the economy. michael: i think people got a big shock in 2021 and 2022. and although the inflation numbers feel better, people don't really feel better. remember what things cost three or four years ago, and although they are not going up in price very quickly, they are a lot more expensive than they were in recent memory. the aftershock of the big hike

in prices in covid still remains. it is only gasoline which is back to where people were expected to be. jonathan: we have seen in so many times, in cumulative inflation, the stocks are still running deep. stocks up 2% in the last two years sounds cheap. markets at all-time highs sounds expensive. i would you frame things in the stock market now? michael: i think it is, again, it is technology and everything else. i don't think attack looks cheap and it is not up 2%. we did not have $3 billion -- sorry, $3 trillion companies two years ago, and we do today. the concentration of ownership in that portion of the market is much higher than it was two years ago. the s&p is equal rate, or the cyclical stuff is not expensive and this so far has been a pretty good earnings season for

general economic activity. jonathan: michael shaoul is going to stick with us. some of those tech names this morning, very lofty expectations. those stocks pulling back in the premarket. equity futures negative on the s&p 500. let's get you an update on other stories this morning. he was your bloomberg brief. yahaira: boeing has expanded finance -- has suspended financial guidance as it signals to investors a renewed focus on safety. the aircraft maker's earnings took a backseat to boeing's latest crisis, where in near-catastrophic panel blot on an alaska airlines flight triggered groundings and the faa to step up scrutiny of the company. fourth-quarter profit and cash flow surpassed analyst's estimates. shares in saudi aramco fell as much is 2.2% on use of a revival of a follow-on offering as soon as next month. bloomberg reports the kingdom is

working with advisors to raise at least $10 billion from the sale. his comes after saudi arabia raised $30 billion in its ipo four years ago, which was the world's largest stock sale. media mogul byron allen has made a $14.3 billion offer for all of paramount's outstanding shares. alan is offering to pay a 50% premium, according to people familiar with his terms. the total value of the deal, including existing debt, tops about $30 billion. in a statement to bloomberg news allen midea group says this offer is the best solution for all of the paramount global shareholders, and the bid should be taken seriously and pursued. that is your bloomberg brief. jonathan: thank you. coming up next, it is the appetizer to friday's payrolls report. >> much cooling do we need to see in the labor market and can we continue to destroy job openings without destroying jobs?

if we can do that than the path to 2% should be smooth. jonathan: the adp report is coming up next. michael mckee is going to break that down. equity futures on the s&p 500 trying to bounce here. -5.4%. into the bond market, your teen year yield basically unchanged going into the fed later this afternoon. -- your 10 year yield basically unchanged going into the fed later this afternoon. ♪ 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. was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com (grunting) at morgan stanley,

old school hard work meets bold new thinking. ( ♪♪ ) partnering to unlock new ideas, to create new legacies, to transform a company, industry, economy, generation. because grit and vision working in lockstep puts you on the path to your full potential. old school grit. new world ideas. morgan stanley. jonathan: going to do this. it is a monthly event. something we say we don't care about, and depending on what the number looks like the market decides whether it cares about it. futures looking like this. -5.4%. tech earnings disappoint. we are down .9% on the nasdaq. with the adp report, here is mike mckee.

mike:. it is a disappointing adp report. let 107,000 jobs, according to adp. that is significantly lower than the 151,000 economists thought adp would find. most of the employment is in the service-providing sector. 77,000 of the chops there. 30,000 in goods producing. 2000 of in manufacturing. was tibet's in construction. 22,000 there. it looks like the categories of jobs that have been looking for help have been the ones that basically absorb the new workers. small establishments, 25,000 jobs. 61,000 in large establishments. in terms of their pay numbers, job stayers got a 5.2 percent

increase. changes, 7.2%. we are still ahead of them placed -- ahead of inflation, but not getting the kind of jobs a lot of people think we are going to get for the payrolls report on friday. lisa: not a lot of drama in markets as they parse through that. i am curious what your take away is for friday, for nonfarm payrolls. i feel like we are on a broken record. we ask you this every time adp comes out. what predictive features does adp have for nonfarm payrolls? mike: it doesn't really have much of a predictive factor. adp is only private payrolls. it doesn't include government. the number is not going to match the headline number, but the problem with adp is, it is a methodology that is different than the government's. so, they go out of their way to say we are not a predictive. the problem for the markets this time is some of the numbers that go into the calculation of what people think we will get on friday have not been released

yet because of the calendar. like the ism numbers, and terms of employment for service providing in manufacturing. we have had pretty much only the jobless rate numbers. so, this may affect people's thinking, but given the big jump in the jobs plentiful to get yesterday in the conference board, i think most people are leaning toward a stronger job number -- job number friday. jonathan: before you go, eight: 30, treasury refunding, what are you focused on, given what we have heard in the last 48 hours or so? mike: the decline in the amount the treasury has to borrow has markets backing off a little bit from the idea of a major move on these data that come out, but basically they are looking to see if treasury is indeed increasing the auction size, as

they said they would last time. and whether or not there are going to be any buybacks announced. treasuries said they are going to start buying off the run treasuries. the question is when they start doing that. and then mix of bills and notes and bonds is going to be important to the markets, whether the treasury is going to rely heavily on bills to make up much of their funding. jonathan: mike mckee, thank you. let's go back to that data. 107,000, the estimate. 150 thousand going into payrolls tomorrow. 185,000 is our survey for friday payrolls. a downside surprise on adp. here is the reaction to it. we were already there, equities down by .4%. we do see a subtle move is at the front end of the yield curve. the two-year is down about four

basis points. down a single basis point on a 10 year maturity. we will be talking about treasuries a lot more in about 11 minutes time. just to finish on foreign exchange, just a touch of dollar weakness. the euro positive by about .01% for a heartbeat. brammo, 1.0845. lisa: especially given the fact that adp is not a predictive feature. we heard from mike there was 5% in terms of job-stayers. it is not getting back to wage inflation that could give the fed true comfort. it is not really going to move the needle. jonathan: michael shaoul still with us. let's talk about the economic data. a much is payrolls friday going to move the needle for you? michael: i think if it is anywhere between 150,000 and 200,000 it is not really going to matter.

there will be a little bit of excitement around her. you may get something big in the household survey. last month we had this very week number of people employed in the household survey, coupled with week participation rate. i think maybe we get the opposite this time, because that survey does bop around. we get more people added to the workforce and a better participation rate. i think the labor market is basically chugging along. it is tight. we are not adding a lot of new jobs. i do think, as you said, people are going to be looking at the different sectors. the jobs report suggests that openings are sort of broadening in some of the sectors. no piece of data is showing any significant layoffs in the core economic sectors of the economy. so, we remain in a full employment environment with plenty of wage gains running ahead of inflation. it is not a wage price spiral,

that is not week. jonathan: lisa ways -- raised this question. how relevant is the jobs report? michael: i think it is a reminder that things are not getting worse. what we see, we could have a long argument about how strong the economy is, but you can have a short argument about how weak it is. there is nothing out there that suggests this economy is pre-recession. lisa: how much are contrarian at this point? it is a strong economy, the fed is going to cut rates. that is basically baked into evaluations. michael: i think the risk of an acceleration is higher than the market. i think what we have been through is an economy that was distorted by covid. when we remove this distortion it looks like the beginning of economic weakening. all of that transitory weakening is going to fall out and we are going to find non-covert distorted economy is running

hotter than people expect. lisa: which raises questions about when we are going to see this in data. whaley was talking about, the destination looks different. what is the pivot point? michael: ism getting back above 50. that would be the beginning of a change. i think that would feed through to all of the durable goods inflation, which is what has pulled pce down. and if service sector inflation sort of remains between that 3% and 4% level across the board, which is what we are seeing, then mathematically core cpi are going to be very sticky. lisa: on the flipside in europe you do see the disinflation and weakness as well. the german cpi came out. are you leaning into europe and away from the u.s. because of that or do you see the u.s. as the only game in town? michael: i don't think europe is giving you any reasons to be

there. japan is the exciting global market. the nikkei since i was a kid, the idea at 39,000 was a mythological target, you know? i think i'm going to see it now. jonathan: are you looking for a hike from the boj anytime soon? michael: i think they're going to be very patient. jonathan: do we need a hike to make that japanese equity work? michael: i think banks probably do, but it looks like japan is having a bit of a consumption -led cycle for the first time in many decades. you talk about a country in which consumer sentiment has been lousy for, i mean, the majority of people's lives. that may be changing over there. jonathan: what else is working out of -- outside of u.s. tech and japanese equities? michael: the s&p equal weight is not bad. it is not far off its all-time high. this has been more than a tech-driven rally. it is just tech is overvalued.

you do see there were some industrial stocks at all-time highs. you know, there is even portions of energy at all-time highs. you can look around, and the global equity market has plenty of individual names, but if you are looking for institutional and retail flows into an index the s&p and nasdaq still dominate everything else. until that changes i think the returns will show the same thing. jonathan: thank you. michael shaoul of marketfield asset management. just to touch base with the premarket price action. those names that reported yesterday. microsoft numbers were decent. we are down .2%. alphabet is where the question is. we are down more than 5%. i think people easily spooked around the search business, given the threat coming from elsewhere and ai. lisa: i think that as well said. everyone has been talking about google search and the disappointment for ad revenue.

let's put a number on that. it was $48 billion. that was the revenue. it missed projections by the entirety, $48.51 billion. it is a matter of expectations. jonathan: doesn't take much to spook people around google search at the moment. the threat of being and ai and chatgpt. lisa: i buy into it. i know you don't, but i've been thinking -- let's be honest, i don't like bing a lot, but sometimes i will try and see. jonathan: make it sound like a bad habit. coming up next, the quarterly treasury refunding announcement and the market reaction with mike mckee and ira jersey. that is up next. from new york, this is bloomberg. ♪ to get lost in investment research. get help with j.p morgan personal advisors. hey, david! ready to get started?

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jonathan: 60 minutes away from the opening bell. your stock market looks like this. down 0.4% on the s&p. small caps doing ok. the rustle up by .3%. lots to talk about in the bond market. mike mckee and ira jersey are going to break this down for you. we will give mike mckee some time to chew over it. yields lower by two basis points.

on a two-year, down about six. if you are looking at the fx market, the euro looks like this. 1.08 45, totally unchanged. some inflation data out of the euro zone a little bit earlier. does that move the dark for you? lisa: it is pretty consistent with france and germany coming in below expectations. cpi in germany coming in at 3.2%. honestly the disinflation trend is strong there and they have the weakness the u.s. doesn't have, so all of the prognostications, could the ecb cut rates before the fed? jonathan: the going absolutely nowhere. i promised you that update on tech. mega cap tech, disappointing. microsoft reporting revenue growth at its fastest pace since 2020 yet investors wanted clarity on the future growth from ai. google reporting weakness in its core search business. amazon, apple, meta all

reporting after the bell tomorrow. apple up 30% over the past year. meta at 168% over the last year. lisa: i would argue thursday is going to be more interesting for some of these tech earnings, especially with questions around out -- run amazon using cloud share. and then are we really getting bored of our phones? are people not upgrading? what about china? some of the questions around a number of the antitrust issues. these are some of the things i think you're going to make for a more interesting reading. annmarie: the headlines in -- the headwinds in china are fascinating. we have seen issues there when it comes to the iphone. this analyst last night puts out this report about the semi conductor components. this analyst shows is that shipments of the iphone 16 will decline 10% to 15% in china. jonathan: we haven't talked about this yet.

delaware striking a blow to elon musk's fortune. the $55 billion package avoided after a shareholder challenged as excessive. musk reacting on x, writing, never incorporate your company in delaware. i recommend incorporating in nevada or texas if you prefer shareholders to decide matters. lisa, your thoughts? lisa: i go back to what i said before. i think elon musk is realizing it is a lot more fun to run a tech company than it is to run a car company and a lot more fun to run something private than public. when it is public he is not happy with the scrutiny. that is all i can say about this because honestly at a certain point he wants 25% of the company, he wants to change it to a tech company. it is a car company and people are buying cars. where is his stewardship of that? annmarie: when it comes to ditching delaware more than 45% of fortune 500 companies are in delaware. they are there for a reason,

given their unique laws, given how they deal with tax policy in those courts. he did say to his followers that they should weigh in, so maybe he will go inc. texas if his followers say move it. jonathan: that is what is going to guide things? lisa: vote here, yeah, you should move. it seems like a little bit high school. jonathan: high school? lisa: you know what i'm saying? jonathan: over $50 billion pay packages? [laughter] slight difference. lisa: it is just sort of, respond to me, like this video. jonathan: you should buy a sports team. lisa: you think so? take a page from somebody else we know? jonathan: dave ribbon, not buying. if he is willing to spend on players i will take anybody right now. dave rubenstein leading a consortium of investors to buy major league baseball baltimore orioles for $1.7 billion. the group agreeing to buy a 40%

stake from current owner peter angelos before acquiring the remaining stake when he dies. the 94-year-old bought the team for $173 million back in 1993. lisa: david rubenstein is from baltimore. next time we have him on we will have to ask. jonathan: we have talked about whether he would be interested in doing it. lisa: this is his first investment in a sports team. i wonder how much this is about the profitability and how much it is about nostalgia. it is kind of like the steve cohen investment in the mats -- mets. jonathan: if i had the money i would do the same thing. i would buy ac milan. even though football is not what it was in the 1990's. lisa: your first change? jonathan: my first change? i would bring maldini back to help me run the club. number one decision.

the treasury refunding announcement just crossing moments ago. mike mckee has the details. mike: we also have the employment cost index. between treasury refunding and employment cost index we have had a big market move. something in there is really affecting the treasury markets. the employment cost index comes in .9% and wages and salaries up .9 percent. strong gains. in terms of treasury refunding, basically it comes in as calculated expected by a lot of people in the treasury market after the borrowing needs. $121 billion offered. refunding, 105 point $1 billion in maturing bills, facing 15.9 billion dollars in maturing cash. auction next week, $54 billion. 10 year note, $42 billion.

you note that they are all increased as treasury promised at the last refunding. they are raising at this particular auction, and they are going to be raising the quarterly size of auctions for most of the 10 years, except for the 20 year going forward. treasury by the end of the quarter, up $9 billion. the two-year, rather. in terms of other news, this is the last quarter of increases to coupon auction sizes, they say. they are going to maintain bill sizes at about the same level into late march. by late march or early april they will start reducing the size of bill auctions. in april is when tax payment comes in. they are going to do some small value test buybacks in april. they said they are going to start doing the off the run buybacks, but not yet. they will do tests and then announce the first regular

buybacks schedule when we get to the may refunding numbers. it looks like at this point stronger economy, and treasuries -- treasury still has some debt issues to deal with. but one interesting note. i will throw this out because i know ira is coming on. the advisory committee, which gives the treasury department advice on what it should be doing notes that market concerns around large deficits, which were partially responsible for driving yields higher, appeared to have waned. so, less concerned about that in the markets then there had been. jonathan: initially there was a reaction. it has faded sense. we are down about two points on a 10 year. i'm not really sure what that excitement was about in the last five minutes or so in the bond market. lisa: i would supposed -- i would suspect it has something to do with the employee cost index. the treasury refunding announcement, pretty much in line with where there were in november, and basically where we

were guided to earlier this week. the employment cost index coming in materially lower than people expected speaks to this fact that even though we have strength in the economy disinflation continues to the degree that can give the fed some comfort to cut rates. jonathan: do you think we are overemphasizing materially lower? lisa: are you suggesting that i am? [laughter] jonathan: no, just throwing it out. lisa: versus the expectation of 1%? honestly it is a subtle downside surprise. jonathan: i'm just asking the question. lisa: just theoretically putting out there? [laughter] jonathan: exactly. the s&p 500 down about .5%. ira jersey with us from bloomberg intelligence. ira, your thoughts on what we heard in the last 10 minutes or so? ira: i have not looked at the employment cost index. i have been focusing keenly on me refunding announcement, which did have in the details a few

surprises. particular they for me that was the treasury department is going to be increasing note offerings, which will happen at the end of february more than we had expected. they are increasing two-year notes, $3 billion a month for the next three months. it is another $9 billion of two-year notes we are going to get up to 69 billion dollars every auction, which i'm pretty sure is a record. if memory serves, $67 billion was the old record. even though deficits are certainly moderating slightly compared to what they were in the second half of last year, and becoming much more seasonal and normal, there is still going to be this net issue once that the government has to do. the other was the announcement that they are going to be starting buybacks in the next quarter it sounds like. if they do that they will probably have to increase the on

the run coupon auction just a little bit more, and in order to conduct those programs. but keep in mind that that might help mark up liquidity, which has not been particularly good of late. lisa: what is the significance of increasing the two year and five year maturities in terms of what the market is prepared to absorb? i'm not seeing that much reaction in markets after this announcement came out. ira: i'm not sure why everyone decided to go by two-year notes when they are going to be a lot more supplied. that didn't quite make sense to me and i think that will get worked out over time, particularly when we see the options themselves. there are two things. one is an acknowledgment by the treasury department that they have been issuing a lot of t-bills and they do not want to have to issue quite as many as they have during past quarters. so, by increasing net short end twos, threes, and fives, that will allow them to issue less t-bills.

they guided to $350 billion, so you are talking about $50 billion less in t-bills than we had anticipated. i think that is the discussion. basically they are starting to term out the data little bit here, and as interest rates come down further the treasury department will look to term out the debt more and increase the average weighted maturity of all of the treasury's outstanding. because that shortens quite a lot as they issued a couple of trillions of dollars of people's over the past couple of years. lisa: stepping back, your view on what the treasury secretary has done with respect to some of these borrowings in terms of actually surprising to the downside how much we are going to be borrowing in the first quarter, then pushing that out in potentially medium-sized duration? all of these machinations to keep some sort of common markets. do you think it seems like it is savvy, or the bill that hits later in the year when we have to increase issuance that much

more? ira: keep in mind that the amount the treasury department raises has to do with what it thinks the deficit is going to be for that quarter. that is not a choice that janet yellen or anyone at the treasury department next that is a choice congress makes, and it happens to be that they are going to be about $56 billion less of the deficit and they have projected three months ago. by the way, i thought there would be a lower deficit then there was, so it definitely surprised the consensus, but it did not surprise everyone. the other thing is, and i think there is some people in the market that think that the treasury department is doing something in -- something unusual in issuing these t-bills. if you go back to the 1980's through now if the treasury department on most always increases the amount of t-bills as a share of their portfolio when interest rates are high, and then when interest rates are low it turns out that that -- terms out that that.

you could argue more when interest rates were zero, but at the same time this is a very typical cycle that the treasury department does. the difference now between those prior cycles is that you normally do not have growth as strong as it is, with deficits as high as they are. normally deficits are low when growth is as strong as we have seen at the last couple of years. i think that is a major difference between this cycle and others, is that you don't expect $760 billion of net borrowing when nominal gdp is running at 5%, right? that is not a normal environment, and i think that is a bit of a challenge for treasury, in trying to manage how much it is issuing of different debt and keeping the cost to the taxpayer in terms of interest rates low. that is hard to do when interest rates are at 5% for short-term debt and 4% for longer-term debt. jonathan: we appreciate the modesty. it is good to catch up.

it was a surprise to you, but it was not to me. lisa: i understand. all of these small little victories alike, i got it right. jonathan: i love how you are calling it a small little victory. annmarie: ira hung up. lisa: ira, thank you for your contribution. jonathan: let's get you an update. here is your bloomberg brief with you hire a. yahaira: a gop panel approved two articles of impeachment, sending the boat to the house floor. however, the effort is likely to die in the senate. may your cats is in the hot seat as security at the u.s. border remains a high button issue. activist investor nelson peltz has a plan to fix disney's profitability and streaming. it involves bundles. his firm will recommend the company seek to bundle its espn plus service with a larger

player interested in sports, such as netflix. he controls close to $3 billion in disney shares and is seeking two seats on disney's board. lamborghini has sold out of it supercars until 2026. it is an indication the world's wealthiest consumers are showing few signs of being affected by a broader global slowdown. the italian luxury car brand posted record sales of more than 10,000 vehicles last year. driven in part by the introduction of its first plug-in hybrid model. that is your bloomberg brief. jonathan: thank you. up next, looking ahead to a fed rate decision. >> what the fed is going to do today is open a door, but basically tell us it has not decided when it is going to walk through it. i think there is a story here about inflation coming down that is encouraging. jonathan: that is coming up next. live from new york city, you are watching bloomberg tv. ♪

jonathan: live from new york, counting down to the opening bell. equity futures on the s&p 500 negative here by almost .5%. under surveillance this morning, looking ahead to a fed rate decision. >> what the fed is going to do today is open a door but basically tell us it has not decided when it is going to walk through it. i think there is a story here about inflation coming down that is encouraging them, but there is also a story about the economy looking pretty strong here, which is using questions about how restrictive the 5.5% policy stances. jonathan: the fed expected to hold rates steady, but the timing and question. sharad brown saying this. elmore must be done to address the fact that costs remain too high, it is becoming increasingly evident that restrictive monetary policy is no longer the right tool for combating inflation.

claudia sahm, former federal reserve economist, and good friend of this program, joins us now. under full to catch up with you. you have to tackle the politics first. how unhelpful is it to hear from senators weighing in on fed policy ahead of the federal reserve, which is gearing up to cut interest rates anyway? claudia: it's not a good thing. everybody can express their views, and we have certainly herded on both sides of the. everyone has an opinion about what the fed should do. i do also. [laughter] the fed is going to have to try hard to not listen at all, but the fed is political. it is in d.c. not partisan, but they are in the crossfire. in an election year this is not helpful, but this is where we are. jonathan: you think they should go sooner rather than later. do you think the calendar influences that in any way, shape, or form, just in terms of the election being in november? if you have to go, let's get moving?

claudia: not so much with the timing. the biggest factor this year is the fed. they dragged their feet and that is clear that is where they are headed. it is more about the calendar. never you start cutting that is going to have to strain on how much you can cut for the year. in the politics are already going in full force. it was nothing about the calendar that is going to help them on that. lisa: let's talk about your opinion on the fed. after we got the eci data renaissance put out, doves have all they need. the fed cannot relax march, nor should they. do you think there has been a green light in the recent economic data for the fed to start cutting into march? claudia: i don't take in matters. they should be cutting this afternoon. frankly, the case is there, inflation is coming down, we are heading to dual mandate. nobody is asking for 300 basis points this afternoon. 25 basis points, get moving. and yet i see may has the

absolute earliest the fed is going to cut. it is not fed-like to get going. they are always behind the curve, and they are going to do it here now. it may not matter much. i worry about in credit markets, because that is where it would matter first. and yet, come on, it is the fed. neil is right, the case is there. lisa: what is the argument to start cutting sooner if you have credit markets that are wide open, you have financial conditions that have gotten really quite easy, you have people you get economic confidence picking back up, mastercard came out a bit ago, people still spending? what is the argument for the fed to make a move? claudia: the dual mandate. the time they get to 2% inflation, they should be out of the way. we can argue about what that restrictive, not restrictive interest rate is, but there is no way we are not above it. the fed says that too.

if they don't get going with the cutting and we see the inflation rate really coming down, they are going to miss it. they are not going to be out of the way when we get to 2%, and that is a big problem for them. jay powell said at the last meeting -- and this was so important that the fed does not think to get inflation down, they have to have slow growth. that was a big change for them. so, i should -- eyes should be on the prize here. jonathan: can we talk about the other side of the dual mandate and talk about employment? in the labor market when you look at the surface level stuff things still look ok. jobless claims in at around 200,000. you are far better than most when it comes to the labor market. what do you see right now? do you see signs of weakness emerging? claudia: there are signs. when you look under the hood there are places where they are showing some week is. i still look at the labor market and say, this is good, and it has a lot of strength. we are in this place where it looks like we rebalance.

the job pays is slower than a year -- pace is slower than a year or so ago. a lot of pieces look like before the pandemic, which is when we had a good economy. but as things are slowing it could be rebalancing. that is what i see. it could also be this slow grind down. once he gets going south it is hard to stop it. and we are going to see more on friday as to how much these are really flashing yellow or not. lisa: just to put a bow on that, you did coin the sahm roll. how close are we to triggering that? how much are you looking for this friday? claudia: we are nowhere near triggering the sahm rule.

if we manage that trigger on friday i will have passed out that or something. there is just no way we have those kind of moves. i'm not kidding. [laughter] i think the consensus is we see a little bit of a drift up in the employment rate. 3.8 percent. but we have the longest stretch now before look -- before 4% since the 1960's. this is really good. jonathan: pretty amazing. claudia, you are one of our favorites. thanks for being with us. former federal reserve economist claudia sahm there. just on the bloomberg moments ago, the doves should be fighting tooth and nail. it is over. i think claudia would agree with that as well. lisa: she basically said they should cut this afternoon. i love neil. doves have all they need, go. there is a question. it is the risk of not going now? is there a material risk of that downturn checkup we have heard that from absolutely very few people. i was going to say no one, but i

can point to a couple of people. otherwise we are not seeing signs of that, which is a reason people say it is not necessarily as balanced to goad them into rushing. jonathan: if you wanted a good roundtable, claudia sahm and neil data on one side, sebastian page and wei li. they think there is a indo here, but ultimately it is not over. lisa: that we are going on like light back. that even if we had the 2% target it is going to creep up higher. this is going to be the conversation later this year. a lot of people in the markets are going, we don't have to worry about that. jonathan: i need a moment to go through the promo for the fed show. the lineup is stacked. 1:30 eastern time, special surveillance special. we will be joined by priya ms., former fed vice chair richard clarida. robert tipped of pg i am. michael gave been of bank of america.

jeff rosenberg of blackrock. and a man called tk. all of that and more coming up later this afternoon. ♪ 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.

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the summer.

jonathan: the ego has taken a bruising. tech is bruised. count down to the open begins right now. >> everything you need to get set for the start of u.s. trading, this is bloomberg the open with jonathan ferro.