♪ >> the fed is telling us that inflation is still a problem. it will be less rate because relative to what the market was expecting. >> i think the fed has been clear they are locking in progress on inflation. >> the market is not fully praising in a cut in july. >> taking no action right now was probably the best course of action for them instead of making a mistake. >> gets giving the market what it wants in terms of policy to the downside. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: live from new york city this morning, good morning,

good morning for our audience worldwide, this is bloomberg surveillance. your equity market is facing a little bit of trouble in the last couple of days. the bond market selloff continues. the 10 year yield is close to 420 three days into q2 and we are looking at 440. lisa: and stocks are suddenly waking up to this. we were down 0.7% which is the worst loss going back a few weeks and it highlights how few losses we have had at a time when everything seems to melt up. jonathan: chairman powell is addressing the economy and the market later this afternoon. with precious metals, gold is pulling back from all-time highs, silver had a five day streak up 0.7%. the question is the commitment to get inflation back to 2%. annmarie: the fed has never cut rates when the economy is this good never mind inflation and you look at commodities and you

see inflation uptick across the board. bank of america this morning up to their calls on brent w ti. and when everyone says the fed will cut in june, they also say crude oil will be $95 per barrel this summer. jonathan: the latest oil reserve refill plan has been released. lisa: what more will they do? it will not going to the free market and add to the demand they've had in the crude market to produce -- to reduce prices. are we going to end up with further releases on depleted stocks of the strategic petroleum reserve into an election season? the bigger question might become a will that matter for gasoline prices because refineries. annmarie: months but potentially they could put pressure on opec-plus which is meeting today. what happens in the next few

months if we do this uptick in prices? the conversations i've been having in the oil market is whether this is temporary or this is truly dislocation of supply and demand. jonathan: this check out a single name, tsmc. the biggest earthquake to hit taiwan in 25 years and that stock is down 4.5%. lisa: because we just don't know how long the operations will be taking off. this is a concern because so many chips are produced in taiwan and what kind of supply disruption will there be? this is one quotes -- some of the high end chips need 24/7 seamless operations for a few weeks. the northern industrial areas could have production that is spoiled. how disruptive a temporary supply shock could be but how difficult is it to produce these chips? annmarie: they are already moving staff around.

u.s. tech companies are so exposed to taiwan. this is just an earthquake but everyone talks about the geopolitical risk and we are still waiting on what the impact is of these high precision semiconductors. one single vibration can destroy an entire batch. jonathan: assessing the fallout from that particular earthquake. we will get more on that later in the program. equity futures are pulling back by 0.2% on the s&p 500. yields are higher in the bond market by a basis or two with new highs on a 10 year maturity and a 30 year as well. lisa: people are wondering how high they can go. i guess we will see whether we get tested. let's get the auction started again, will we care than in our people starting to perk up to the idea of longer-term inflation and say let's go in how does jay powell respond?

jonathan: they say that supply dynamic will reassert themselves. let's talk about inflation in europe. why are they cutting interest rates already? the inflation dynamics are different in europe compared to the united states but the growth backdrop in your compared to america is absolutely dreadful and has been for a long time. lisa: you said earlier they are conditioned by the mistakes of the past and the fact they didn't get inflation right and didn't act as aggressively as they should have. a lot of people have been talking about this. the predominant thought was that europe would cut first but are they in a cutting cycle that the u.s. cannot be? let's see if the weakness comes to the four? jonathan: the euro right now against the dollar is $1.07. fading bets for june rate cut. tesla disappoints. new comments by chairman powell

today and higher bond yields wangle markets. all spring says this -- margie joins us now. you look at fixed income, do you think we are questioning the commitment of the fed back down to 2%? >> i think the ability to get to 2% frankly is out of the fed's control. it seems as we see the economy continued to be very strong, it doesn't need rate cuts to continue at these levels. there are signs that inflation has come down and other parts of the inflation picture look as if it's stabilizing above 2% so the fed doesn't have much of a case right now to cut rates. jonathan: is that a reason for

bond yields to remain elevated? we got to figure out the relationship between bonds and equities. what is the relationship as yields start to disrupt equities a bit in the last few days? >> it's hard to see how the yield on the 10 year at 4.3 or 4.5 or higher can have much effect on the real economy and you have inflation chugging along at 3.5%. it has not affected economic growth so far when we've had periods when it takes up a little bit. i hate to say it looks irrelevant but it is. we had short rates in the economy has moved along with only one negative quarter. lisa: are you rejecting the idea of long and variable lags? >> they are so long and so variable, they are meaningless for an investor to make a position out of it lisa: it

raises the question of whether people are tired of -- are tying the idea bond yields to stocks. yesterday talks -- stocks fell intended with bonds. >> i think the tech sector got off to such a huge start, it needs to take a little rest here and maybe have a bit of a correction. there is always trading money that's looking toward the fed cutting 1, 2 or three times so it's more noise. economic growth was strong and the signals in the first quarter , it looks strong. it looks like we will have another good market this year. lisa: traditionally, you made your name in the bond market and recently, you been going to stocks not exclusively but definitely more so than into bones. are you continuing on that path? do you feel that's the trade of the next 5-10 years because rates cannot come down much more

than what they are now? >> i don't know if i would go 5-10 years but for the next year or so, i think we will get better returns from equity on balance. even high-yield bonds which is the best part of the bond market in my opinion, yields are saying 6.5%-7.75% which is a signal to let bonds get better. when you look at total return, with the uncertainty, you're better off in equities this year. annmarie: what you think we will hear from jay powell today? will he shift toward the rafael bostick's of the fed or maybe mary daly? >> i think he has a real problem because they telegraph they were looking to cut rates and when you look at the economic conditions, it doesn't seem to be justified. it's almost as if like the rest of us, he's looking at the market for signals on what he

should be doing rather than having a game plan where he has a better plan than investors do. jonathan: until recently, the market said everything was awesome. you like high yields as the best part of fixed income so why is that? >> because i think the risk is low because the economy is growing and high-yield bonds are telegraphing that because yield spreads have actually compressed a bit saying don't worry about defaults. everything in the economy says commodities look as if the economy is strong and that's the best situation for high yields, not so much the fed making a half of point change in short rates. these are the fundamentals these companies use to cover their debt service. jonathan: you've seen tight spreads as a reflection of strength and not of complacency, why is that? >> because the facts say the economy is in good shape. what has people office we had

the fed raise short rates 500 basis points and we didn't have a recession. it seems as if the market is not right. we should have had a recession and then the fed cut rates and the market goes off. we haven't had that and we've had some pauses but the economy doesn't have any imbalances and i think we should grow surprisingly well this year to another year of economic surprises in equity markets. lisa: i expect we will hear about the balance of risk from jay powell today. i am curious whether you think the biggest risk is not tackling inflation enough and the idea of inflation becoming more entrenched and being higher for longer in a way people are not prepared for. >> i do think inflation is going to be higher, maybe smaller and for longer because of the build up had with interest rates and

deficit financing. that bakes into the cake and inflation level above that 2% for the foreseeable future. that doesn't mean we have a bad economy and it doesn't mean that corporate profits will go down. that's a signal they can maintain profit margins if you have some inflation. jonathan: wonderful to hear from you. spreads at multiyear tightness with a reflection of strength or a reflection of complacency is what we've heard. if we can stand up in the broader economy can stand up to interest rates north of 5% that's one thing but can pockets of the economy continue to get by? thinking of commercial real estate. this is the quotation from moody's -- vacancies are at a record 9.8%. if you see higher for longer, candles parts of the economy

stand up much longer? lisa: can does it matter? we talk about pockets of the economy that have been hit much harder than others and been left behind like commercial real estate and also segments of the income population that don't have the reserves to tackle some of these issues or people who don't own homes. it remains to be seen how much the fed will cater to some of these pockets of concern and cut rates without necessarily putting inflation first. i would love to hear that from jay powell. jonathan: are you willing to trade financial stability for price stability? is that the question? lisa: that could be one of them. are you willing to trade blowing out pockets of the population and reducing their chances for employment and wealth and prosperity in order to target a certain inflation target? i don't know the answer but this is a socially conscious issue and that is weighing on them at a time when it seems like things

are being pretty positive and we seem to be talking leaving the rates where they are. jonathan: equity futures are negative by 0.25% on the s&p 500. here is your bloomberg brief. >> inflation in europe is inching toward 2%, firming up prospects of a june rate cut at the ecb. consumer prices rising 2.4% in march, lower rate than analysts forecast and down from 2.6% in february. cpi also eased at a faster rate than expected. the ecb president christine lagarde has signaled a first rate cut in june with much of the central bank's governing council on board with that timeline. taiwan has been hit by the strongest earthquake in 25 years . at least seven people have been killed in more than 700 injured during the 7.4 magnitude quake on the east side of the island rescue workers are scrambling to find more than 70 people who

remain trapped after the earthquake leveled dozens of buildings. president biden and president trump added to their delegate count last night, former states held primaries tuesday and the presumptive nominees easily one. trump picked up 78-84 percent of the republican vote while biden took 83-91 .5% on the democratic side. that's your bloomberg brief. jonathan: up next, biden holding talks with xi. >> the teams have been working a lot since november and both presidents thought that a few months later, this was a good time to check in with one another and see how it's going and discuss the future. jonathan: discussing the future in china and treasury secretary janet yellen heading to china, saying china is the biggest threat to globalization. lisa: all of this is so rich. jonathan: that's up next.

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jonathan: counting down to payrolls friday. 200 13,000 is the target and that could shift but it's inching higher from about 200,000 in the last week. the previous number was 275.

s&p futures this wednesday morning are negative, down by 0.2%. this morning, biden holding talks with xi. >> the teams have been working a lot since november en fentanyl precursors, climate change, economic practices. and artificial intelligence. there has been a lot of staff level work in both presidents thought now a few months later, this was a good time to check in with one another and see how it's going and discuss the future. jonathan: president biden and china's g thinking talking by phone on their first one-on-one conversation since november. they called the conversation candid and constructive discussing tiktok to cooperation. this is ahead of janet yellen's trip to china later this week. it's her second trip in nine months.

based on how that call went, what's on the agenda for the treasury secretary? >> it seems industrial capacity is a theme emerging this week. that came out in the call between biden and xi and some analysts think there might be some u.s. action under that before the election. treasury secretary yellen will go to the heart of china's manufacturing industrial base and go to beijing. it's expected she will raise concerns. last week she went to a solar panel factory that was forced to shut down in georgia on the basis of complaints that chinese capacity is exporting cheap goods. that seems to be one thing that is emerging from the talk but let's not forget it's about putting guardrails to stabilize their relationship between the two world superpowers. annmarie: president xi says if you send cheap goods, you should

send a thank you note. this is different from the biden administration. she was not a total hawk. what has changed in terms of how janet yellen views china? >> the treasury secretary has changed her view on china. it's a hawkish approach to trade with china and this is why there is an expectation that there might be more steps coming in terms of what they can do to tackle oversupply or excess capacity from the chinese side. china is pushing back against this as well. in that readout, the chinese readout made it clear they will not sit by and do nothing while the u.s. continues to put controls on chinese technology companies for example. it's a clear pushback there and they made it clear that putting sanctions on chinese companies is not de-risking but creating new risks. this is not one-sided even

though janet yellen will raise these concerns. she has certainly entered the hawkish camp and china's pushing back and will not take this lying down. annmarie: state median china is focused on one line she said in this meeting. he told biden don't flip-flop, don't cross the line. you look at the two readouts from both countries, do they agree on anything? >> i think there is commonality there on the low hanging fruit of cooperation on ai, some cooperation on climate change and they are working under -- on narcotics control. there are areas where they can come together and i think there is a broad theme that we are six or seven months from the u.s. election and it's kind of timeout and china won't want to go to deepen a strategy with the u.s. so close to an election. all that said, none of the focus problems have been solved.

we just spoke about the treasury secretary going to beijing with a laundry list to bring to the chinese government. within that readout between biden and xi, biden raising concerns over chinese cooperation with russia. there are some guardrails and they are trying to stabilize things but it feels more like timeout, none of this has really been resolved. lisa: as i read about these calls, how does this go down? does someone say i need to talk to you? how does this transpire? who has more leverage at this point economically as you have these discussions and tit for tat and raising concerns. do we have a sense of what the catalyst here is? >> i think last year when they had the meeting in november, there is a feeling that u.s. economy is going gangbusters in china's economy much less so but sentiment toward china is coming from foreign investors especially u.s. investors in the

doldrums in china is trying to tilt the focus back toward its economy to stabilize things and lastly, the president of china held that last-minute meeting with ceo's. they are trying to get investors engaged again. there is a feeling that lease on the economic side of things, the u.s. has the upper hand and the strength of the economy here. china is looking for aggressive investment so they are trying to get that back on an even keel. that may be the only part where the u.s. has leverage. elsewhere, there was a poll indicating that popular opinion there toward china is away from the u.s. and that speaks to the challenges the u.s. has on the global stage whether it be gaza or ukraine. elsewhere, the u.s. has plenty of challenges in terms of wooing global sentiment when it comes to china. jonathan: let's look at the prospect of terrace coming

sometime soon. when is the decision on ev's in china going to come? >> no hint of timing on that. it was a nod to the tariff with their talk yesterday. broadly speaking, people expect the trade policy to continue. ev's are part of that and it will be interesting to see what comes out of janet yellen's trip to beijing later this week. jonathan: we appreciate the update. let's check out shares of tesla down by close to 5% yesterday but negative this morning 0.9%. the chair of the chinese market at tesla going from 10.5% in the first quarter two around 6.7% in the first order of this year. lisa: guy: how much of this is a pricing issue. lisa: they are being supported and pushed out, can tesla

continue to do well without the chinese market which is the biggest one for electric vehicles? jonathan: that market is hyper compared to the u.s.. what will have more on tesla with the stock down by about 0.9% after being lower by close to five percentage points yesterday. equity futures on the s&p 500 are negative by 0.2%, yields are creeping a little higher once again by one basis point or two, 436.52 and in the commodity market, the rally continues. new highs for 2024 in the last 24 hours. 85 on wti, 80 nine on brent. ♪

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jonathan: two days of losses to kick off q2 in your equity market is tempted to not become day three. we are negative by 0.2% on the s&p 500 and the russell has the big rotation, small caps did not work yesterday. down 1.8% in down close to 3% in just two trading days. energy worked so parts of this rotation are still happening. lisa: that was tied to the fact that energy prices were flying with bond yields flying as well which is part of the reason we said yesterday how much to

higher yields challenge the rotation trade? yesterday seem to indicate quite a bit but then we heard that it's all noise. yesterday, bonds are very much in focus for the sector. jonathan: let's get to the bond market, levels we have not seen so far this year going through the year to date highs. but 10 year is up a single basis point and back through 450. maybe we won't get any cuts this summer based on how strong the economic data has been. strong economic data without inflationary pressure is the feds's hope and dream. the market might be spooked by this. lisa: i wonder what triggered at this time. people are good at dismissing every single data point and people try to ramp up excitement for the upcoming information we will get with pantheon coming up with ism services. they said the report is deeply unreliable so people are saying

ignore the data points. what triggered at this time? we've been getting this steady drip that fed officials don't be -- don't seem to be concerned and that seems to be in line with their expectations. jonathan: in commodities, we can check out crude and equities down by 0.2% and it was snoozing in the face of what's developing elsewhere. brent is approaching 90 at 89.32. the move in precious metals gets my attention the last couple of weeks. all-time highs on gold over the last month, silver breaking out yesterday and fueling those questions -- the commitment to getting inflation down to 2%. lisa: our gold and silver better proxies for inflation havens than any other asset class? or are some of the precious metals flying because industrial production is great so people have to get in but it points to strengthen ongoing pricing pressure and that maybe is

causing people to wake up to the idea more. jonathan: fed presidents daniel messer is holding the line, urging patients before cutting rates this year. mary daly said yesterday that three cuts is a reasonable baseline. they were not surprised by hotter than expected readings to start the year. i need to see more data to raise my confidence and we hear from chairman powell just afternoon eastern time today. the start of the year, three cuts from the federal reserve was hawkish because this market was at six. three months later, three months -- three cuts is dovish because this market has moved so much in the first quarter. annmarie: kimco said they've seen enough already in our positioning for the fed to have fewer cuts than any other central bank. we only just heard from chair powell friday but within that time, we've seen rate expectations change yet again. that's what everyone will parse their when he speaks today and that's ahead of jobs numbers friday. jonathan: it's amazing how much

the market is new -- has moved and how little fed officials have not move. lisa: chair pal is speaking at 12:10 p.m. at stanford on the west coast. right after him, the ceo of google and alphabet is speaking. i think this pairing is fascinating be -- because these are the two prongs of the market this year. monetary policy and the ai hopes and dreams that will revolutionize productivity. how much do they talk to each other at a time when people cannot get the story straight? this has been the framing narrative, it's been highly confusing. jonathan: you might hear more on the federal reserve later on but president biden is ramping of criticism of the israeli campaign in gaza after military workers killed eight workers. he said israel has not done

enough to protect workers. comments also coming from the world kitchen founder. the pressure is ramping up in a bigger way. annmarie: what struck me about biden's statement is it was in black and white and israel has not done enough. it was leaked to the press. this is tough and clear linkage from the president of the united states and we know one american was killed in that hit as well in gaza but at the same time, reports that the biden administration is pressing congress for $18 billion of jets to go to israel. this is what takes individuals in the democratic party take issue with. jonathan: we need to give you an update on the deadly earthquake in taiwan striking overnight, killing at least seven people. the 7.4 magnitude quake, the strongest and 75 years. assessing the damage this morning, semiconductors have moved out of production centers.

taiwan is the source of possibly eight e-90% of the worlds highest chips. lisa: there is the human story on the question of we hope everyone is ok and then there is the industrial side of the story which is that taiwan is such a massive center a massive center of production of this key asset that we use in everyday goods. this highlights how difficult it is to make these, the idea that vibrations could throw production off or these could be destroyed. it shows it will be tough to move production to japan or the u.s. for these other areas. jonathan: i'm not sure if you read the book chip wars about how vulnerable the supply chain is because of where these factories actually are, taiwan is vulnerable to earthquakes and other epi-centers were chipmaking as well. if you could pick out the worst places to put some of these companies, that's exactly where they are. annmarie: the issue is there is no substitute as of yet for

these high-end chips. we are still assessing how much will potentially be taken off market with these earthquakes but to your point, there is the physicality because of the factors of the earth but add in the geopolitical risk which is why think this is interesting. if you want to see the exposure u.s. companies have, what if there was a geopolitical risk as well? that's the key question. jonathan: still assessing the damage this morning but we will have more updates on bloomberg tv and radio. shares of tesla continue to slide this money with the company reporting its biggest sales miss ever, delivering just under 380 7000 vehicles in the first quarter. the most bearish estimates on wall street writing this --

pierre joins us now. i want to start from a quotation from deutsche bank. beyond the production bottleneck, there may also be a serious demand issue. how much of that number was about the bottlenecks in the connection issues they had in the last few months? how much was a fall off in demand? >> we were really on top of the issues the issues related to the situation in the middle east. we were expecting 410-420,000 units. this is a significant shock. now it's tens of thousands of

cars not reaching the u.s. and demand has been extremely low in territories but they are building less than anticipated. they also had discount activity on inventory so demand is really bad. if you have supply issues but demand is still fine, even if samantha slightly weaker, it shouldn't be affecting the bottom line at the end of the quarter. this means that demand is extremely poor. this quarter was a tough wake-up call for tesla. remember, it's winter, january, february march, these are months that have been historically extremely difficult and volatile.

that's for the high end of the car market. we saw that in 2019 and 2018. sometimes, some brands really have barely any sales in january and february and it happens in the europe and u.s. they don't have their own dealers at tesla so when they get hit by an earthquake in the market like that, it's visible in their numbers. the thing i would say is let's take a step back. tesla gained 15 points of market share out of nothing in a few years. it was the high end of the car market, it's a premium car. the new positioning is very unique and very different to regular cars. from this 15% market share, we see that tesla is not gaining

like that. they are not going to increase by 30 or 40% year-over-year anymore. the best we can hope in that segment is to keep creeping up on market share maybe 15-16-18% market share. eventually they will hit 20% but this is not going to develop overnight. the real growth in the car industry now is extending the product line toward an entry price. lisa: i am curious about whether your bullish call for tesla is hinged on the idea that tesla is not ultimately a car company but it's more tied to's the batteries and other products that are fueling some optimism that its valuation can still be justified. >> it's a very good question.

you look at the factory of tesla new analyze it and you look at the economics and its business model. the economics of the tesla factory [indiscernible] it's very efficient and you see a lot of high-speed innovation. we think tesla can grow much faster than the traditional car market because it's basically replacing the smartphone. tesla is like driving on a battery and that's very different driving experience and it could replace tradition cars.

it's not a car company in that way. unfortunately now, the way we humans look at the car market is when we look at tesla and buying a car is a very big decision. it has always been very volatile on short cycles. the car industry as a distribution model that absorbs these shocking valuations. tesla does not have that. it's a tough wake-up call and it's a tough learning curve. it reminds us that tesla can potentially be very volatile and that's what's happening today. annmarie: we would love to get your reaction from the earthquake that hit taiwan. we understand step is being moved at a certain areas and they are moving the impact of production so what do you make

of this? >> no significant damage, we were on the phone with taiwan earlier today. it looks like there is no significant damage related [indiscernible] the situation is still risky with a risk of aftershocks. so far, you haven't had damages which is good news. now, there are factories that have been affected because of safety and most importantly, as you were referring to, there are some steps in the process of manufacturing chips where you are positioning things by the nanometer. if the earth is shaking, even if it's 50 kilometers away from

you, this is risking the process. some of the items have to be thrown away. you will probably see in weeks to come, some companies explaining that they don't have enough supply which will be enough -- will be a matter in manufacturing. if you add the disruption, they could extend it to one or two months but it will be a relatively short-lived production disruption. what's interesting here is that it's another big wake-up call which is we all rely on factories in taiwan and the situation could be much worse and we could have production capacity being lost. we would be back to eight nafta

kind of situation where the whole economy is struggling to find chips. i would relate that to what happened yesterday. [indiscernible] they announced they headline of site of coming into the u.s. yesterday, taiwan was hit by an earthquake which is a tragedy and it's terrible for them but it's happening at a point in time where it's the realization of leading-edge manufacturing and it was almost an decade in the making. it's very slow to get to taiwan semiconductor to the u.s. which we almost had done.

[indiscernible] it's almost done. that means it will take 5-10 years for these businesses to scale -- i think with this earthquake, we are entering a situation where can help people to make that happen. we are now going to see leading-edge manufacturing getting more regionalized and that's good for us and good for the economy. jonathan: we appreciate the insight. a little bit softer in today's session, three rate cuts still on the table coming up. >> three rate cuts is a projection and a projection is not a promise. we have more work to do before i'm confident on that path. jonathan: that conversation is up next. ♪

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jonathan: but today losing streak so for this quarter with equity futures negative by another 0.2%. yields are higher by a single basis points on bonds. three rate cuts are still on the table this morning. >> three rate cuts is a projection and a projection is not a promise. i look at my projection and i say what if inflation is stickier, we may want to cut less or of the labor market starts to fall or inflation comes down more rapidly? we might be in a position where we would think cutting more is appropriate. with a projection of three interest rate cuts, that seems reasonable but we have more work to do before and confident on that path. jonathan: fed residence daily and master urging patients ahead of comments by chairman power later today and payrolls friday.

market expectations are -- that's the fed and that's the market backdrop in the united states. let's start with your, the inflation data we got early is morning and as soon as it dropped, why are they cutting interest rates already in frankfurt, germany? >> they will come i think they will cut in june and some members are calling for an early move. i don't think it really matters the direction of travel. they may be able to say even if we have another good print for inflation today, we have this resilience in prices which will keep us on our toes. there is probably enough there

for the hawks to continue to have a bit of delay and the reaction makes it clear to everyone where they are going to go. it's already quite a significant shift in tone from the ecb in just two or three months. maybe june is a bit too late in the great scheme of things but i don't think moving forward by one meeting will make a lot of difference. lisa: how much of a cycle will this be? people are questioning whether the fed could cut rates once and be done for the rest of this year. for the ecb, do they care if they are cutting more aggressively than the federal reserve? >> actually, christine lagarde was asked about this and her answer was ambiguous. they will do whatever is needed considering conditions in the

euro zone. the only thing which would make them think twice about decoupling from the fed would be if we hadn't issue with interest rates. they could argue at this point in time that even if cutting faster than the fed could trigger a further depreciation of the euro, it would be ok for inflation. the root source of the resilience in prices we have in europe now is not on the upside. it's domestic. the price of manufactured goods which are massively important continues to go in the right direction. we could probably take currency depreciation without having too much inflationary pressure. that is the usual conduit and in the current configuration, there is not enough concern on the effects side to stay the hand of the ecb if they think they want to cut, they will and i don't

think they will wait for the fed. they have to make the decision in june ahead of the fed so it will be a leap of faith for them. lisa: you make a broader point about currency and the potential for weakness to be viewed as a good thing by certain governments especially as we see this incredible ramping up of competition on the industrial side of things. do you think there could be a race to the bottom with respect to weakening different nation currencies to try to be more competitive on the international stage at a time where the u.s. and china both are trying to ramp up industrial production? >> that's the risk especially if we have another dose of protectionist measures coming from the u.s.. we need to take this seriously. if we end up with more u.s. tariffs on products, once there is a temptation for other countries to allow their currencies to depreciate. during the first trade war under

donald trump, china did not depreciate its currency that much. there was a hit but it was a not significant. this time around, especially we talk about taro's height to 60% from 2025, it will be a big temptation for china to use the currency especially in a situation in which domestic demand will benefit from the loser of monetary policy. that's a different situation from back in 2019 so there is no conflicting narrative for china between the domestic and the internal when it comes to monetary policy. the question then would be for europe. we are increasingly nervous with competition of chinese products in strategic sectors like the car industry if on top of everything else, we have further depreciation from china to have

protectionist measures in the u.s.. then there could be is an after effect, a temptation in europe as well to allow its currency to depreciate. we know we don't we have as much control on our currency as china. it will be another reason for the ecb to run monetary policy that is significantly looser than the fed to allow some depreciation of the currency. jonathan: fascinating, thank you. deeply thoughtful stuff on foreign exchange. lisa: especially paired with geopolitical policy in the idea of the industrial production and the competition ramping up area jonathan: maybe china will buy treasuries again. coming up, t. rowe price, the former white house fellow and michael collins of fixed income, that in a whole lot more.

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>> there are pockets of the economy where you see the impact of higher rates. >> we are playing duration from alongside but we are more comfortable in the short to medium part of the curve. >> it's going in the right direction and that's the strongest argument for extending duration of the bond market. >> the inverted yield curve we've been watching for the last two years may become positively sloped again. >> there is a material risk of higher rates of the backend of the curve. >> this is bloomberg

surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: q2 is beginning quickly, from new york city's morning, good morning, good morning for our audience worldwide. the second hour bloomberg surveillance begins right now. overweight in the equity market for the last two days with futures negative by 0.2% and key levels being broken in the bond market. we are through 450 on a 30 year yield and through 430 in the last couple of days on the 10 year. lisa: there is the question of whether this is good news for equities which is the theme of the first quarter and the second quarter starting off with wait a second, not so fast. maybe this is concerning. jonathan: we heard from mary daly, the san francisco fed president and the base case is something like three cuts. three months ago, three cuts sounded pretty hawkish relative

to expectations and now it sounds really dovish relative to how much the market has moved over the last quarter. annmarie: and how much others and the fomc have moved. they were talking about there is no russian rap file bostick said three last year and maybe one will be enough. what mr. said yesterday is it's a close call on whether fewer will be needed. maybe we will pencil in three but few were maybe needed and that's what the market is looking at. i want to know from j powell today is whether he will lean into a labor market or inflation. the inflation data we've seen in's we last heard from him is that a cause for concern? jonathan: jay powell will talk later this afternoon. i looked at bonds this morning then i looked at commodities and brent crude is up by 0.6%, getting closer and closer to 90 on wti.

85.70 right now, up by 0.6%. lisa: yesterday people attribute of the rally in commodities to demand. this was interesting because a lot of people are talking about possible supply disruptions but this is something more with respect to an uptick in commodities. we talk about the industrial production wars. how much does that fuel the commodity sector anyway? that's a theme we keep hearing. some say it's demand. jonathan: it's pressure. lisa: sorry but that's what people are saying out there. annmarie: the issue is is this temporary or it will this be for the rest of the year? bank of america came out and upgraded what they see for brent and wti and they see the peak happening this summer and politically we will be looking at whether the u.s. decides to hit another spr>

lisa: i will send j flowers. i just got emotional. jonathan: we are going to get emails from j. lisa: he is just trying to do straight talk, stop looking at the magnificent seven. let's go beyond and big, he's into china and i'm curious how that trade is going. i would be curious. jonathan: equity futures on the s&p 500 are negative again but note drama with this move. a slight move lower of 0.1 percent with yields higher by a single basis point. coming up this hour, we will catch up with t. rowe price and ed morse with brent crude closing in on $90 per barrel and michael collins on the selloff in u.s. treasuries. we begin with our top story, good news is fairly bad news, better-than-expected economic data is pushing out rate bids. comments from jay powell will happen later today in the u.s.

jobs report friday. we had the cio and head of global investment at t. rowe price. good morning to you. >> good morning. jonathan: have your expectations for the federal reserve shifted in the same way market expectations have? >> we were never as excited about this -- as many rate cuts as the market priced in. one of the things that stands out to me is if you go back to what powell said early on, he is a student up what happened in the 70's. if you look at the mistake made then by cutting too early and if you map the cpi to the very beginning of this cycle versus the last, it follows a similar curve. if they start cutting now, i think they are in. danger of making the same mistake jonathan: is that the biggest risk cutting too soon? >> i do. jonathan: what would that mean for bond markets? >> you would see the spike up and then you would have to react to that in a way that would put them on the back foot and that would lose credibility and you

would have a big issue for them. lisa: i want to challenge one thing you said which is that powell is a student of the 70's. he sounds pretty much like the most dovish member of the fomc and he wants to cut rates and a lot of people are looking at that is the reason to buy stocks. are you saying they have it wrong? >> no, i think he is a student of history and what he has to do is keep test find the middle ground between that group and presented in a way that has consensus broadly within that committee and balance out the other speakers. i think he is very much trying to do that now. as you look at the next several months, the idea of cutting from where we are at an economic perspective doesn't make sense now. lisa: if you think this inflation is stickier your and you think the risk of the 70's scenario is greater than the risk of some sort of unforeseen downturn, do you buy commodities, buy stocks, avoid

bonds because right now, it's not clear this fomc has the conviction to really make the right: not have a policy here? >> i wouldn't go to that extreme. as we've said, we are actually dramatically neutral on our asset allocation. that's between stocks and bonds which is not the most exciting fodder for the media but that's where we are. i think commodities are interesting so within her equity portfolios, we are overweight energy in a vast majority of those in different ways we think there are interesting opportunities. annmarie: going back to jay powell, does the commodity pressure affect him? he says he can cut quickly if he sees market variation but you say he's leaning on inflation more than labor market? >> i can't tell you i know it's in his head but in the inflation numbers we've seen, they have to give you some cause is a

reasonable place to be. what would you do in his place? jonathan: have we seen a regime shift post-pandemic? how is investing going to change relative to the previous decade? >> without a doubt we have seen a regime shift post-pandemic but it's about the absolute rope -- low rates prior to the pandemic where it was much more about the macro and about all things up in a zero environment with risk assets on. you have to be more, it's more of a bottoms up world from our perspective and is not as easy to chase. jonathan: it feels like everything is up so far this year. what shouldn't be up? >> interesting question. we are right now in a position where if you look across our portfolios, we 10 to have some overweight positions in a few areas so mostly in energy and health care.

we are relatively neutral in tech and we've taken some of that from some of the areas like financials and a little bit in industrials where we are a little bit more neutral. lisa: there is a question whether 60/40 works in a new era or some sort of recession might happen. how much do you shift away from that with commodities being steadier than bonds? >> we still believe there can be some benefit from diversification within bonds. we also had a strong view that having real assets in your portfolio matters and helps and provides really strong diversification from inflation in a way that many of our peers don't do in their asset allocation portfolios and that's been a differentiator. we have that component which has been good. lisa: you say you're not that excited about financials but if you believe rates are going to be higher for longer, isn't that supposedly good for banks?

with more robust market activity, can't they collect those fees? >> matters is the relative valuation of that group. part of that has been factored in and the banks and the banks a nice little pop and we were in there and that we were taking some of that back. jonathan: let me squeeze in a baseball question. what are your thoughts on the new ownership of the baltimore orioles? >> i was there opening day and bought a round of drinks for everybody. jonathan: thank you. it's good to see you. and mike as well. >> it was axley mike. -- it was actually mike. jonathan: that's the phrase out of t. rowe price. aggressively neutral was the term? lisa: he said aggressively

neutral and people are trying to make cases for a bull market. jonathan: i love the idea of mike going around and buying drinks. let's get to an update on stories elsewhere this morning. it is your bloomberg brief. >> taiwan has been hit by the strongest earthquake in 25 years and nine people have been killed in more than 900 injured during the 7.4 magnitude quake on the east of the island. rescue workers are scrambling to find 56 people after the earthquake leveled thousands of buildings. the controlling investor in wwe in the ultimate fighting championship as agreed to be acquired by private equity firm silver lake. the $13 billion buyer follows through on plans announced back in october. endeavor set at the time it was evaluating strategic options out of frustration with the

company's declining stock price. women's college basketball has a new ratings record on tv. the highly anticipated rematch between lsu tigers and the iowa hawkeyes drew over 12 million viewers according to espn. that makes it the most watched college basketball game in the history of the network and tops viewers for last year's nba finals and baseballs world series. the high was star lead the way for the hawkeyes with a dominating 41 point performance on the way to an iowa win. that's your bloomberg brief. jonathan: up next, commodities waking up. >> we have been saying we are going to be breaching $90 in the summer. if anything, it could come earlier and prices have lagged and it's been telling us this for a few months but we are starting to see that catch up. jonathan: that conversations up next, live from new york city this morning, good morning. ♪

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jonathan: live from new york, equity futures are a little bit softer, lower by 0.14% on the s&p 500 and yields are higher by a single basis points. the commodity market is getting closer and closer to $86 and wti.

commodities are waking up. >> we have been saying we are going to be breaching $90 in the summer and if anything that has come earlier. we have seen not build in q1 and certain months in the physical market continues to remain very strong. you are seeing finally that being reflected in prices that have lagged. we are starting to see that catch up. jonathan: brent crude is nearly just nearing $90 per barrel amidst middle east tensions. wonderful to catch up with you.

what do you think is underpinning the move on crude? >> what's underpinning the move is financial markets, to be frank. we've seen an increase in call buying. this has happened over time in the market was short in the beginning of the year even what happened last year with prices going down rather than up. it was a little bit neutral and now with the rising tensions in the middle east, there is certainly an increase in call buying for brent, an increase in calls. i think this is basically the risk factor in the market. jonathan: i love this line from you, there is a tendency to overestimate the demand rebound and underestimate the supply response. let's talk about underestimating the supply response. how strong is this saturday appetite to with hold barrels to

from this market? >> the saudi's would like to have a $90 price. they don't want to go much below that but you can't manage a market to that degree. the tricky thing about opec is they just had a seminar, and educational seminar that i think went very well. they had some of the most significant specialists on how derivatives markets work making presentations to them so they have a less cynical understanding but a deeper understanding now of the dynamic effects between financial flows in and out of markets and the balances. let's hope that they take that to heart. to answer your question, $90 would be the perfect number and the stable for a long time. lisa: you wrote this is as risky a market as one can imagine and only recently risk has been priced in based on what you just said, i'm not clear in which the

bigger risk is, the idea of so much more supply coming in the prices tank or that you get demand that continues to be consistent with a possible disruption that causes prices to surge? >> its vote. they have different timing. fiscal risk in the market is as high as it's ever been without massive disruption taking place. looking at the fragile five, iran, iraq, nigeria and venezuela, we have concerns about where production will be in all of them. we also have concerns about mexico and russia with the bombings by the ukraine drones on refining capacity. it's a physically risky market. on the other hand, there are changes that take place in the market. china stops buying when prices get above 90 and they start growing inventories.

there inventories are way high. they cover about 105 days of forward demand as opposed to the 90 days of exports covered the iea countries have. they've shown over the last several years that they do buy low and sell high. we get high prices in china will not be buying from saudi arabia and other middle east countries is much as they have been lately. we have the u.s. which has already decided to stop the flow of thespr which they do when prices are below 80. forward curves are going up and they can't buy below 80 so they suspended the purchasing. we don't know whether it will increase. we have a remarkable change in the u.s. market itself in terms of the consolidation of the permian basin. we have large publicly traded companies that won't hesitate to increase expenditures in the short run if they can benefit.

we have high prices in the summer and if they are sustained for three or four weeks, i think we will see the publicly traded companies coming back and i would not be surprised that instead of an expectation of 800,000 barrels per day in american production, we will see a million or more. we will see u.s. export skyrocketing. we are in a very different market where reaction is faster than opec plus is reckoning. lisa: i'm thinking of a range, how big is the range you are looking for in terms of some sort of price on crude as you look to these two-sided risks on all sides? >> on looking at a 70-90 five dollar range which is wide but that's what we've seen in the market over the last couple of years. we seen distortions and as those distortions work out, the market recalibrate and goes down. we had a massive disport --

distortion in suez and the red sea and the flows between europe and west of europe through the suez canal to the middle east. that is now adjusting, trade rates are adjusting. we are seeing the distortionary impact cleaning up even as we move into the summer. it's a more complicated market than we've ever seen before. you can't even look at inventories which is one of the most misleading data points that people are parading out. comparing where inventories now with where they were a month and a year ago, that's not the point. the point is we have to look at inventories discreetly and look at them in terms of forward cover. if we look even at the u.s. where people argue that we are in a market which is showing a tightness on the gasoline side, it's the third-highest of the last three years. it's more of an average market

than a market below inventory. we've got to get used to a new set of indicators as we look at markets and help us make judgments about where prices are likely to go and where the trading community should be going. annmarie: i want to talk to you about demand because you have a contrary view and you see peak demand happening in advanced economies, why? >> it's easy if you look at them one by one. the european economy is certainly been industrializing at a rapid rate. they've adapted policies at a fairly rapid rate to reduce the number of fossil fueled trucks and cars. demand across europe, we don't have high-frequency data that tells us much. we have five high-frequency data

from europe may have a 2-3-month leg. even iea data legs in terms of frequency other than in areas like rotterdam where we get high-frequency weekly date on inventories but not uncritical supply and demand. in the notes i said, we had high demand in china on a year on year basis but when we look at the last 6-8 months, demand has perked up. that goes along with everything we know about the chinese he, me and what we know about ev penetration, what we know about growth which is one of the most misleading indicators. we had china claiming they had 3% growth in the imf indicating china this year will have over 5% gdp growth. the reality is that if you talk to chinese specialists in chinese economist in china, they

will tell you home decide that demand and gdp growth was not 3% last year, it was more like 2.5% and might've been lower than that. we have gdp that's stagnating, we have incremental buying pushed by the government of electric vehicles, displacing fossil fuel vehicles and in the u.s., if we look carefully at gasoline demand year to date, we had january data with virtually no demand growth. they were stagnant year on year in the same is for february. the data we have for february looks like that we don't look at the third week of march until later this morning. we did have an increase in gasoline demand in the last average moving numbers and we will see how sustainable all that is. more than anything else, it's kind of a misleading number if

we look at a historical level over the past few months. jonathan: when i get home later, i will relisten to this conversation. thank you very much. brent crude at the moment is 89.60. lisa: the most dangerous market he seen in a long time given the various risks. the new metrics jonathan: jonathan: signal that. coming up next, president biden escalating his criticism of israel following the deaths of seven eight workers and that conversation is coming up next with elliott ackerman from new york, this is bloomberg. ♪

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this has been a week that stocks have woken up to higher yields. >> begs the question. but there we are. the two year getting closer again. we saw new highs for 2024. just short of 4.40. we closed the q1 at 420. >> which begs the question, and you frame it well, saying what took so long and is there a trigger point at which yields start to matter and be restrictive? is the market trying to game out what a restrictive rate is. everyone has been surprised again and again by the strength of the economy. this rate hiking cycle has not had any influence whatsoever. this raises this question of is

this market trying to game out how true that is? jon: the difference between what's happening in the commodity market and the bond market. can we pull up what's happening with gold? we have seen all-time highs. the relationship between gold and treasury yields and how it's developed in the last few weeks, is it strange to see yields breakout and gold breakout simultaneously? lisa: it begs the question about whether -- i don't want to make the dramatic statement that the u.s. has lost the privilege to borrow but is there a concern the u.s. cannot have the same kind of haven status if its borrowing money and has a fiscal overhang and deficit as big as it is? i don't want to make this too definitive because i don't know the answer but raises the question about the fiscal picture possibly coloring bonds, maybe gold acting like

that more. >> as an inflation hedge but the fed continuing to say they will cut. your point earlier, precious metals are going higher and metals in general because we are seeing manufacturing pickup on a global scale. jon: let's get to under surveillance. the fed speak continues today. chairman powell the headline act. officials sticking to the script in the face of stronger-than-expected economic data. any reason for chairman powell to change his thoughts? we have one explanation that said perhaps you get a difference between what you heard at the news conference and the man himself to get his opinion later on. lisa: i have such little conviction he's going to say anything different than i find the forum more interesting. he will probably continue with his tune because he has,

regardless of how hot the data is, the fact that he's speaking alongside the ceo of google and alphabet to me highlights how challenging his position is. does he hint at that productivity boom we are expecting, some of the transformations they give him confidence we will see inflation lower? annmarie: i'm more interested to hear what raphael bostic says. he had said he was 3, 1. now is the zero when it comes to rate cuts this year? how much is what he's talking about going to influence other members? jon: did a brilliant job exposing that bias. they talk about being data-dependent but any data not in line with their thoughts they call bumps in the road. lisa: how can you be data-dependent when one analyst company says the data we will get today is deeply unreliable? jon: but you are relying on it to explain you are sufficiently restrictive. lisa: we are depending on that

data. jon: elon musk deepening his feud with bob iger as the ceo appears poised to lose a proxy battle with the company, weighing in hours before a shareholder meeting, musk has repeatedly criticized iger after disney pulled the advertising from x. shares higher by something like 35%. the latest reporting from reuters overnight, disney has secured enough shareholder votes to fend off a challenge. that according to reuters. lisa: with the backing of jamie dimon. there are two stories. there's the disney story and the elon musk story. i have this question about how much his stances are working against tesla or if he is ramping up because that's what's defined him.

this is sort of a company and personality that has drawn attention. annmarie: he is adding fuel to that fire and tension. he had some choice words for bob iger but also said he should be fired. he's saying if you act on that, maybe i am the buyer. jon: we have giving him a platform on pretty much everything. once someone becomes hyper successful in one field, their opinion seems to matter in pretty much everything. lisa: he also has gone into pretty much everything considering he bought twitter and is in space exploration and cars and renewable energy. annmarie: and going to palm beach and exerting himself in the immigration debate. he puts himself there, which is why journalists almost have to ask. jon: he's free to say whatever he wants. this just interesting that journalists go after everything he says about everything. why is it relevant what he thinks about who should be

running the world disney company now? annmarie: because it cells and people click on it. that's part of it. he has deep pockets but that's what it comes down to. jon: tensions between the u.s. and israel rising after president biden says the country has not done enough to protect civilians following the death of aid workers. the prime minister called the strike unintentional but biden saying it shouldn't happen. joining us now is a u.s. marine corps veteran and former white house fellow. a conversation we had yesterday i would like to build on with you this morning. do we overestimate the influence america has on israel? >> i think in some ways we do and in some ways we assume that if the u.s. distances itself from israel that will cause israel to be cowed or de-escalate the war when it has the opposite effect that could

make israel feel more isolated and this war as more existential and cause them to escalate him ways that are unexpected to -- escalate in ways that are unexpected to us. annmarie: it seems like the growing acrimony between biden and netanyahu has reached the fever pitch. do you think this is a new chapter in the israel-u.s. relationship? elliot: we have certainly seen what i would characterize as a new chapter in which the u.s. will not just be unequivocal ly supporting all of israel's actions. that has second and third order effects for the u.s. and our ability to affect the direction of the war. it could lead to an escalation of the war. >> you are looking at some of the reporting that came out of that meeting between israeli and u.s. officials. one place they don't seem to

agree on is how to evacuate those civilians. given your experience, how do you assess that situation? >> is extremely difficult to operate -- it is extremely difficult to operate on these types of urban battlefields in which your adversary is hiding among the civilian population, using the civilian population as cover, and that's a deliberate decision on the part of hamas. wherever you evacuate civilians, you will also evacuate hamas to blend in with them. this is difficult to do. perhaps even impossible because the fighters need the civilian population. >> do we have a sense of what's left of hamas and to the influences are? is irsan still working -- is iran still working with hamas? >> i think the key leadership of

hamas living in exile continues to live in exile. the second and third order commanders who are on the ground in gaza are placeable. we saw this in the american experience with al qaeda. we launched a 20 year campaign to destroy al qaeda and we work effective at destroying the second and third tier commanders, but every time you kill these people, they will be replaced. that's what we are seeing in gaza with hamas. that's why this war is so difficult for israel, particularly when they state that the objective is to destroy hamas. it's difficult to completely eradicate a force like,. that adheres to the american experience with al qaeda. >> a lot of people are trying to understand what the signal is. is this the next phase in trying to get to the root of the issue

and laying the groundwork for an incursion to israel's north in lebanon against hezbollah? >> i think it's difficult to say. we talk a lot about hamas but not as much about the threat to the north with hezbollah and if hezbollah were to enter the war -- they are already somewhat active on the northern border -- it would change the parameters and scope. it's difficult to know whether this strike against has below -- against hezbollah and iran was a targeted opportunity or otherwise. >> what do you see as the likely route iran will take in terms of their revenge on israel for the killing of these irgc commanders in damascus? >> it's important to remember

that there's a difference between expressing a desire to take revenge and having the capability to take the type of meaningful revenge. case in point was the death of possum soleimani, in which they vowed revenge against the u.s., and that was tepid. they fired a few missiles at our bases in iraq and that was the end of it. they will need to be seen to take some kind of revenge. there's a chance it could come against israeli targets abroad. >> when you say targets abroad, what kind of targets? can you give us more color on that? >> diplomats, targeted assassinations. iran is a terrorist state and we should expect that their response will be asymmetric, some type of action that seems like a terrorist attack.

i'm not saying that's what will happen but those are the type of responses we can anticipate as opposed to seeing some type of revenge operation. they will probably get lost in all the noise and violence that's going on. >> do you thick they would go so far as to do that on u.s. soil? >> i don't. i think that is a degree of escalation they probably don't want to enter and it would bring the u.s. more directly into the war in ways that would be uncomfortable for iran. i'm saying these are probably the range of options the iranians are looking at. that also goes to the point of do they have the capability to execute that type of operation successfully? so a lot of questions and uncertainty around what that reprisal will look like. >> thank you. elliot ackerman on the latest and how it ran will respond to this. >> they like to respond via

proxy groups, so it's hezbollah, the who -- the houthis. also israeli ships. to his point about what happened with soleimani is fascinating. the response was tepid because the back channel talks -- >> u.s. regulators have blocked global climate risk rules for u.s. banks as european central bankers have been advocating for the basel committee to agree on requiring lenders to meet rate cut commitments. officials have cited their narrow mandates and concerns the basel committee is overstepping its purpose. president biden and former

president trump added to their delegate counts last night. the presumptive nominees easily won in new york, connecticut, rhode island and wisconsin. trump picked up 78% to 84% of the republican vote while biden took 83% to 91.5%. they are in talks with investors over a stake in the english football club. the board begetting talks after stating it requires a significant increase in its equity base to invest in its teams and take on future capital projects. chairman daniel leavy revealed the club was open to selling a stake and received offers in the past but none were of interest. lesser bloomberg brief. jon: thank you. bond traders facing up to higher for longer. >> i continue to think the most likely scenario is inflation will continue on a downward

trajectory but i need to see more data to raise my confidence. >> that conversation just around the corner. this is bloomberg. ♪ to me, harlem is home. but home is also your body.

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>> 8590 on wti -- $85.9 on wti. an update from opec-plus. >> they will stick with their supply because they planned for the first half of the year, keeping the pressure on. are they enjoying prices that are higher at a time when some of their companies are looking to raise money? >> they are renewing requests for better compliance with cuts. if you are not hitting them,

ratchet back even more production. >> inching closer to $90. under surveillance, bond traders facing up to higher for longer. >> i continue to think the most likely scenario is inflation will continue on a downward trajectory over time but i need to see more data to raise my confidence. some further monthly readings will give us a better sense of where the disinflation process is stalling out or whether the start of the year readings reflect a temporary detour on the downward path to price stability. >> a selloff keeping yields near the highs of the year as hopes for a rate cut fade. peach and saying that fed's rejections indicate a policy rate of nearly 4% by the end of 2025. given the incoming treasury supply and inflation that remains above target. michael collins is with us now.

did i hear an our argument for -- an argument for higher bond yields? >> if you are the fed, why would you think about cutting interest rates when the economy continues to be solid? inflation continues to be sticky and above target. the labor market is still rocksolid if not outright strong. the stock market has been hitting new highs. financial conditions are the easiest -- since they -- since the fed started hiking. their m.o. is to not do anything until they have to, until one of the indicators starts to crack. we are looking for them and they are not there yet. >> if i called you this morning and said the 10-year and the 30 year, would you like some, you

would say no? >> we are short the two year to seven-year part of the curve because that's where those cuts are priced in. over the long-term, we are sticking to her guns. i'm looking at the 20 year at 4.6 percent. if you have a long-term time horizon three years and out, you are supposed to buy long-term interest rates. there's value. it will probably be lower but it's the next 12 to 18 months we are hedging our bets. >> if they don't cut -- if they don't follow through on that and cut rates in june despite the strong data, would you move away from that long-duration view? >> no. if they cut rates sooner, it emboldens the view that those long-term interest rates are too

high. looking at the five year pricing of what the fed funds rate will be. it's at 3.8% today. so the markets are only pricing in about 160 basis points of cuts forever. and that's really why we have a stronger viewpoint on the longer term value in treasury yields now. because i think the fed funds rate will probably average well below 3.8% a year for the next 10 years. we are debating the next six to 12 months. over the long-term, global growth is slowing. china is struggling. you are seeing inflation in europe continue to decelerate. so there are big picture signs globally that growth will continue to moderate and inflation will come down.

the challenge has been in the u.s. data. >> which is interesting because this is one of the key nodes of debate. are we in a new regime or not? would a possible policy shift change that, the potential for a more aggressive protectionist policy with higher tariffs and the near shoring or on shoring of production? >> the markets were pricing in almost 100% probability of this really weakflation, soft landing scenario, and we thought that was too aggressive, meaning risk assets were to a bulimia, two optimistic -- were too ebull ient, too optimistic. the stickiness of inflation associated with diane you are seeing -- with that and you are

seen oil jump, but even commodities that have underperformed or bottoming out, so you could have this kind of bounce and commodities associated with some of the geopolitical risks, which leads to stickier inflation and a fed that forced to hold rates higher, and that's a risk to the market, the economy, to credit spreads. >> high yield a little bit wider, near multiyear tights. is that tightness a reflection of strength or complacency? how would you describe it? >> it is both. the fundamentals in the credit markets, of corporations around the world, are actually still robust. we have expected profit margins to come down and they really haven't. profitability is not great but it's ok. companies have done a good job

managing their balance sheets and liquidity and these higher rates have not hurt them so much. credit default rates are not going to search in our estimation -- to surge in our estimation. is hard to even argue they are fair value. but we have seen in past cycles where credit spreads narrow and stay at these narrow levels for a long time, years in some cases, and we might be in one of those environments. we also have learned that the tail risks are significant, that when credit spreads to widen, they spike -- do widen, they spike wider, and it could be any exhaustion us shock out of the blue. so it's prudent to cut risk. we are selling into the rally. we have been for a while, continuing to play defense to some extent.

one thing you are seeing, treasury yields are high. the premium of a treasury bond over the real risk-free rate is highs so there's already this big supply premium in treasuries. maybe the corporate bond yields are at the right levels. so i think the spread -- there's this technical aspect to it. there's not a lot of supply give their supply of private sector credit debt --there's not a lot of supply of private sector credit debt. >> this was a clinic. next time, we will do this around a table. thank you. michael collins of pgim. up next, steven wieting, eric cantor and mandeep singh. ♪

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>> the fed is telling us inflation is still a problem. it will be less rate cuts. >>