>> our attention has really shifted to the earnings season. >> the mag 7 is not particularly where you want it to be. you have to look at tech and really bet on quality, strong balance sheet. >> earnings momentum in the other parts of the >> i look at what hasn't happened to this economy think we will be able to avert a recession. we will see earnings continue to move higher. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. welcome back, this is -- lisa: welcome back, this is

"bloomberg surveillance." manus is in the hot seat. we have cpi, ppi coming up next on the late. because bank earnings -- we have bank earnings. manus: when the call ended at this morning to join surveillance, what a moment. no guidance is going to be revised higher because we are in a higher for longer weight. but going to jamie dimon says come he is not completely sure. 70% to 80% chance the market thinks there is a soft landing and i think the odds are lower. what is the rhetoric and guidance? lisa: that is what people are going to be watching for. we are expected to get jp morgan, wells fargo come at it

click get citigroup. markets are fascinating because we are looking at a situation where bonds are stuck in everything -- are still kind of really -- reeling. it raises a question, is this a market that can withstand people's where they are -- withstand yields where they are? annmarie: and you siemens coming out about this no landing scenario. the reason earnings is so important is because of the data we have already gotten. this is the last leg of data to her stand we are. i go back to what mohamed el-erian told us. looking at aggregate data is backward, they were not looking at burning calls and what ceos were saying in terms of the inflation outlook. lisa: i am struck by the fact that we are seeing a rally but it is with a specific and not russell 2000.

it is far behind where it was before the cpi print. it was magnificent seven ring back, amazon joining the fab five. how much is this going back to what people know and havens delivering outside scans? manus: you have a barbell approach to risk. one site is cash in terms of the allocation. it is about for the resilience is even in the ace of higher problem longer -- higher for longer. the market is stuck around this 5%, potentially no consent all. you have solid balance sheets and that is what gives the resilience to magnetek. lisa: which is the reason by people are used to buyers -- about the price action. is this the broadening out concept people have been talking about where are we looking at the mag7 and fab five?

let's look at the scores before we get to the commodity space because i want to dig into what is happening. you are seeing a decline on s&p futures. the euro continuing to decline, 1.066. the ecb seems most certainly ready to cut rates in june. the 10 year yield dipping a little bit after crossing straight through 4.55. gold hitting a new all-time high, a lot of people talking about the unrest in the middle east and how this is a result of that. annmarie: you are seeing a lot of geopolitical disk across the commodity space and this is israel -- as israel is bracing for this attack. news talked about an imminent attack, there is something tangible that happened. the u.s. government to the u.s. embassy in israel is telling the

personnel and their families don't leave major areas like tel aviv or jerusalem. when you see signals from the u.s. government or israel in terms of airspace and embassies, that is what we could be on the brink of this response. manus: the important thing is to define what is the scale of the response and this is not necessarily reflected in the oil prices. the moment you have any oil market that reflects a couple of bucks of geopolitical risk, because there is no escalation within the persian gulf, midstream, downstream, and upstream, the tension is under the red sea and not the persian gulf. if there is a major escalation in the persian gulf, you are looking at potentially a $40 spike in oil. that is a 30% possibility of that event risk. that is not punitive coming through right now. lisa: if that does happen, that

will cause serious waves. coming up, jonathan stubbs of berenberg as stocks reset after hot cbi. ed mills of raymond james on a takeover of u.s. steel. gerard cassidy as we kick off the earnings season u.s. stocks and treasuries looking to regain a bit of the losses as investors pushback rate bets once again. jonathan stubbs saying this. equity markets tracked expectations closely but equities have continued to rally as expectations have moderated. some fed members are suggesting just one bridgehead later this year. jonathan joins us now. before we get into the will they or won't they debate, i want to make sense over the price action. stocks have prevented entirely magnificent seven with the rest of the complex left behind. jonathan: a lot of complicated

dynamics. the mag7 has been really strong in editorship role in the u.s. but you look to japan or europe and value strategies have leading. growth in tech has been the dominant force in the u.s., but you have done a bit of running value. we have mixed signals coming from markets. the gap between equity markets and rate cut expectations. the market is beating to multiple drums and that makes it difficult for investors to know how to position real-time. manus: the divergence was very pressing between the tonality of christian lagarde and her ability and desire to get on and cut rates. look at the bond market.

these are more confident. what does that divergence to do to europe? jonathan: it is one of these contrasts we are seeing. policy level come inflation level, you take a step that can say this is what i call a very visible hand of the u.s. government. if you look at investment added to government, running at 12% year on year. that is twice as high as the highest level we have seen the last 20 years. u.s. government debt is being added it within dollars almost every day. u.s. economy has been so robust and why u.s. rates will be higher for longer. europe doesn't have such influence so we are seeing that cap emerge.

in terms of what it means for equity markets, we are getting signals u.s. equities and german equities. investors should not be choosing the market at this and that is consistent across our signals. we think we are set free consult in phase -- a consolidation phase. we have to digest risks, some local and some geopolitical. manus: the past number of months, if you talk about a pause, what invokes a significant pause? is it a drawdown of more than 2%, 5%? are you stenovec and saying there's not going to be a correction? what is it that invokes it? we are down to one cut by some of the major houses or does u.s. exceptionalism mean equities can trade with impunity?

jonathan: it is a very good point. goldilocks trade was based on u.s. avoiding recession, soft landing, that seems likely but still risks there. part of that was how this support from moderating inflation and significant rate cuts. it seems that is unlikely. markets have turned a blind eye to that and evaluations we are seeing, we have only been higher than that in 20 years. liquidity field. you can argue we have some version of that because we have some liquidity crowding into u.s. equity and tech and credit. we have these powerful liquidity dynamics. as we go forward, it is important for investors to pursue active hedging strategies. we have a high rate of asset

allocation hedge. we raised a month ago on the energy sector. it has balance sheets and by back support and free hedging into geopolitics and the tech sector. we are looking at active hedging strategies. we have to change how we approach equity markets at these levels. lisa: what kind of drawdown of your looking for that would make it attractive? a 2% drawdown? that would seem out of the norm as of late. jonathan: to genuinely trigger signals that take on risk signals, we are looking at a double-digit drawdown for this equities -- for u.s. equities. that is the magnitude we need in these markets. whether they are valuation based or earnings argent driven. we need a double-digit drawdown to see some signaling supportive

of taking on risk. to get that, we need help from a risk being activated at this point. you mentioned active risks in faries parts of the world, including the middle east, these are risks investors have to take on board right now. as you say, we have not seen much of a drawdown in u.s. or europe remarkably over this six month rally period. it has led to risk adjusted return in europe showing manager minute we have the highest adjusted returns in the last 20 years, another signal telling us to be more cautious at this point. actively hedge, don't disengage with equities but make sure you are protected. manus: thank you -- lisa: thank you so much. let's get you updates.

kkr is taking a cue from brookshire hathaway by taking a bid on resulting dividends. the eco-chief executive officer tells me the company expects to see $309 of dividends by 2026 with plans to double that by 2028. >> berkshire hathaway is an apt analogy in that we looked at a lot of business models. there are a lot of powerful messages in what berkshire hathaway has built. the power of compounding and the power of smart capital allocation within your business. lisa: the biden administration is ramping up its economic stance towards china. the commerce department adding six new chinese companies to blacklist. that brings the total number of firms blacklisted by biden to 319, the most of any u.s. administration. topping the 306 by donald trump. amazon hitting his first record

since two by 2021. the online retail is the last of u.s. tech firms to reach an all-time high in a rebound from the post-pandemic selloff. amazon has slashed costs and restructured its business to streamline operations. it helped to boost profits and win over shareholders. -- bid for u.s. steel is under scrutiny. >> this deal gives me great concern about the threats to those jobs. lisa: that is next. you are watching "bloomberg surveillance." ♪

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lisa: trying to finish the week with quietness after a volatile couple of days. we are seeing the stock market retrace some of the gains is so yesterday as we see the bond market trying to gain a little bit of momentum after a brutal selloff. some really bad options. this is "bloomberg surveillance ." jonathan ferro is off today, manus cranny is with us. we are looking at a market under agent factor -- under a trifecta of influences. yep economic data and geopolitics. nippon's bid for u.s. steel is under critical -- under scrutiny.

>> we are pressing on trade enforcement and fundamentally what this means to american workers. >> our principal concern are the steelworker jobs. this deal gives me concern about the threat to those jobs. lisa: shareholders of u.s. steel voting on the porch and but in dollars sale to on steel. the vote coming as the department of justice opens an antitrust probe into the bid. ed mills writing, "investor expectation is the shareholders will vote to the deal. president biden has committed to being the most prounion president in the history of the u.s.. if united steelworkers support it, it gets done. if they oppose it, it does not." is this saga there to come to a close today when shareholders vote on this? again steelworkers that oppose this and joe biden backs off? ed: if you have the steelworkers

support this, this is something that might need to go for approval. one of the first lessons i learned in d.c. is when you are explaining, you are losing. it is a narrow window to get the support of the steelworkers but also not to have other republicans, especially the nominee for the presidency, to still blast the biden administration. the two senators you highlighted are two of the most vulnerable senators this fall representing ohio and pennsylvania. if they lose, the republicans have a majority in the senate. if joe biden loses pennsylvania, he is not reelected. there is a political story here. what we are seeing and in d.c., what peoples are telling me, the former chief of staff telling people to chill. that might be a signal we have

to work out the politics but there is this continued insistence by a number of people that u.s. steel needs to remain a u.s. thomas dowd company and that is what i really highlight how important it is for the workers to come on board and to get labor commitments before this deal would politically be able to close. annmarie: it seems they have to run not clock. the other ohio senator, j.d. vance, also potential vp pick for donald trump, is writing this letter about u.s. steel and concerned about the company's misleading shareholders in a proxy statement. you see this on both sides of the aisle. if you look at the future, doing deals in the u.s., how difficult is it going to be whether or not it is fighting or trump exterior -- biden or trump next year? ed: we have populism in our

politics and when we have that and the equality that exists and the technological changes, that usually sees an increase in antitrust scrutiny. i think that continues regardless of who is president. some of the personnel will change, the incentives will change. the nippon-u.s. steel deal is unique in the fact that this is an economic name. this brings about some economic anxieties that have existed within the midwest for years. there is the trade fight we have with china but before the trade fight with china in the 1980's and 1990's, those trade fights were with japan. it comes at a politically different -- difficult time where this might be the wrong company at the wrong time.

we have to see if that works out. it is unfortunate for them to have this two days after the japanese prime minister had a white house state dinner and was before congress. it is more about the unique aspects of this deal for this company. it is in the broader antitrust environment that exists here. annmarie: we have a number of developments regarding the middle east about how the u.s. embassy is telling personnel to travel outside this is like tel aviv or jerusalem. we heard from the chinese foreign ministry there was a call between secretary blinken and his counterpart regarding the middle east. there are a lot of concerns there is going to be this retaliation from iran. what is the u.s. response going to be to that? ed: since october 7, the biden administration has been trying to contain the conflict between israel and hamas.

this is the biggest challenge since october 7, especially after the israeli attack on the syrian consulate in iran. iran is going to want to have a response. what that response is is going to be a question of does it just respond to that previous attack or is it a precursor for a blotting out -- for a broadening out of this context? in d.c., what we are looking at is how much that impacts energy prices and inflation. how much does the broadening out make it even more difficult for biden to discuss how he has led the geopolitical side of this job? the more there is geopolitical risk, the more there is inflation, the harder that is politically for biden, the more there is inflation and geopolitical risk, the harder for this market to grind higher.

this is an international and domestic story, but also in d.c. and market story. manus: how important is it that the escalation is in the form of proxies in these or hezbollah -- who the-- houthis or hezbollah. we have the ehrman guard sing it won't block the -- straight. there is an inflection point on oil and energy prices. what is the tolerable acceptable response for the u.s. in terms of the proxies? ed: i would think from any investor perspective -- an investor perspective, if it is a response to the proxies, that would be viewed as arguably the best case scenario. we are already seeing the proxies of hezbollah and houthis

already engaged in the region. how much of it is diving up of iran to remind the world is to have the power and they need to have a direct response to the attack? that would be viewed from the market as the least disruptive. if you see something directly from iran, that is where we have the biggest question marks for this market and the fact it could be broadening out. you hit on the exact issue we have been debating. lisa: ed mills, thank you so much for joining us. as you debate this, you see oil prices up 1.1%. just crossing the $90 threshold. i am struck by the idea that this is going to be escalation regardless. if iran directs houthis to attack israel, it solidifies the connection. annmarie: there will be a response. when is the question. the iranian foreign minister

told his german counterpart it will be appropriate. i don't think iran wants to start a war but when their consulate is attacked, they know they have to respond. lisa: tit-for-tat without creating mobile confrontation. coming up, earnings from j.p. morgan at wells fargo. you see markets taking a dip after yesterday's reprieve led by the magnificent seven. ♪

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lisa: this is "bloomberg surveillance" with trump and farrell, visit from wits, and annmarie hordern. jonathan is out. the stock market -- reprieve in the stock market was led by the tech stocks. 5235 on the s&p. if we talked about that at the end of last year, people would say you are crazy. how long can the magnificent seven really keep generating the gains at a time when it turns to the bond market? i would love you to weigh in as bond yields reach past a certain level. when does that threaten magnificent seven which was thought to be the most interest

rate sensitive stocks? manus: you will have a litany of analysts talk about the strength of god's sheets -- strength of balance sheets. lisa: this is amazing. this is the issue, they are making bank with cash. manus: tech and ai are every evolving and the something we are going to drill into. lisa: is a complicated picture with diverging narratives. one thing that has thrown a wrench in the works is what is going on in the commodity space. is this going to extend the cycle or curtail it? it is not just oil. we were talking about the risks in the middle east, it is oil, copper, oriole hitting and all-time high. are they being influenced by the same potential risk off from the middle east crisis?

or is this something else, this mish mash of narratives. annmarie: is about a global manufacturing revamped, potentially in china. also copper is because of these copper costs and chinese smelters because of how much copper matters to the chinese market. the question analysts ask is if this is temporary or not. when is it will can reach $100 a barrel, people are looking at december and then potentially it fades away. manus: that is political was in here. driving season is coming, gas at four dollars per gallon. as you go toward the election, that is going to be critical. you have opec+ in their ability, the ability to switch on the taps quickly. is saudi's excess capacity. if opec+ wants to about their friends in the white house, i don't know if that is the kind of alliance they have. lisa: we have two oral experts

on the show this morning. this is relative to the recent price action. some of it will be determined by where yields are and what that means for that policy. fed president susan collins urging patients before easing again saying recent data has not changed my outlook of the highlight uncertainties related to timing. this applies less easing of policy than previously thought they -- maybe wanted. this is what people were looking for. how much does hot cpi print change the narrative for a federal reserve that has seemed too about cutting the matter what -- that has seemed gung ho about cutting no matter what? manus: there's a divergence in confidence between the fed's confidence to get on the cutting track. down to one and done in december, late and less than the

market anticipated. the narrative from christine lagarde was emphatic. that lady took hold of the news conference and said our disinflation is different to their disinflation. perhaps i am overdoing the flavor but -- flare. annmarie: unfortunately last three months have not been supportive of that case would priya misra biz bumpy -- is bumpy. is that a blip or a bump or now going to be a trend? that is what we want from susan collins. lisa: they don't seem ready to abandon the. that normalizing the policy means bringing the rates down and is needed at some point today. apple looking to boost sales within of max featuring in-house processors designed for artificial intelligence. every model will be updated

after sales fell 27%. apple climbing over 4% yesterday, the single -- biggest single day gain in months. this raises a question, is this signaling or something actually going to fuel sales? it is not the macs that are going to drive anything. it is just a suggestion of ai. annmarie: they are weaving ai into products unlike weaving them into fancy products like the robot we are talking about. the problem with apple is there playing catch up to microsoft and google. the end of the year we will see something tangible because ai may be integrated into your computers. you don't need to go see it. lisa: your phone will talk to you and cook dinner for you and tell you why you are parenting incorrectly. morgan stanley shares falling after reports that -- are investigating the banging unit.

the comptroller and treasury digging into if the bank has done enough to identify risk clients and potential for money laundering. jp morgan, goldman sachs, and -- give earnings this morning. gerard cassidy joining us now. before we get to to be working come house thursday are you taking this report? gerard: it is very serious. aml issues are very serious for all institutions. you have to imagine morgan stanley is working diligently with the regulators to solve this problem. it is important this has happened but i think they will resolve the problem and for time they will fix this issue. lisa: jp morgan on deck. people used to held this is the beginning of earnings season and

kickoff to the tone we used to expect from other companies. it has not served as that but has shown to be a litmus test for bank earnings. what are you looking for in this report? gerard: the two most important parts of the reports we are expected today from jp morgan and its peers is manages income growth. this is driven by the interest rate environment and interest-rate environment is different than january when they gave their guidance on $90 billion of net interest income in 2024. they were expecting six federal reserve rate cuts. as you have pointed out, now is the expedition of zero to two. our anticipation is able of biblical guidance on that income because they were expecting their net income to be less than where they were last year. the second most important part is credit. what is credit quality doing for

them? we are from and what is going on in the office markets. is credit holding up in the other areas? the third is capital markets. how strong our capital markets this quarter? manus: if you take it back one year ago, we were dealing with a regional bank crisis. jp morgan stepped in and gave the honorable thing and saved for system. first republic said it was going to be generating about $500 million. that has been increasing number of times in terms of what the market is worth. up to $2 billion. how important is first republic in the numbers and does that story run out of some stage? gerard: you bring up a good point because they did initially guide to $500 billion of annual net earnings from the first transaction.

in their shareholder letter, jamie dimon pointed out they anticipate about $2 billion. significantly higher. they were being conservative going into that weekend when they took over first republic. on top of that, they discussed the quality of the business was better than expected the people themselves are embracing the jp morgan culture. as you go forward, it is an important part of the business. this is an enormous company and this will be helpful. it is not the primary driver of the business but whenever you can pick up $2 billion of net income, that is positive. manus: it will be well taken by anybody. we had a ring start to 2024 and it feels as if that exuberance -- the head of hpc talking to me

about ecm. it seems they have possibly hit a bit of a wall. how important is it they guide forward the equity capital markets, continue with the strength we saw at the start of 2024? gerard: it is an interesting observation because the first quarter of the year is always the strong quarter. particularly dcm you have identified. the canons we are expecting is seasonally going to slow down and you look at it on a year-over-year basis. in the first quarter of this year, banks are expected to report investment banking results that are anywhere from 10% to 11% to bus 18% year-over-year growth. we anticipate we will hear more positive guidance in this area because the capital markets are

so resilient. unless the markets the collapse, which we don't expect, we expect to see decent investment banking. it is seasonal so sequentially the second quarter is lower than the first quarter but q2 2023 will be the critical number. annmarie: i want to talk about wells fargo, how concerned are you about that one book and the health of people estate market -- the real estate market? gerard: commercial real estate today is very manageable. you turn back the clock to 1990 and you look at the inspectors the making industry -- the banking industry had, it was higher than today. wells fargo real estate loans to total loans is just under 10% and they identified their office

portfolio which is around 2% to 3% of the total loans and have set aside 11% of that portfolio in what we refer to as loan-loss reserves. no one is denying the banks are going to have some issues in commercial office space. the key is it is manageable. they have so many other revenue drivers that though they take some losses, they are going to be able to handle those. in 1990 losses were so significant no one could handle them and it caused bank failures. we think we would hear more about that today on their call. lisa: we are getting news coming out of reuters that susan collins is eyeing two rate cuts this year. this feeds into this idea that we are in a higher than -- higher for longer environment. are you saying at this point given how much the rate structure is adjusted, all of the big banks are only going to benefit from higher for longer

rather than have that be a detraction from some portfolios? gerard: i think you are right. what you're going to find is higher for longer is going to be better for most if not all of the big banks. the reason being is the cost of funding and deposits is starting to stabilize. if you go to the last four tightening cycles, what you will find is route 6 to nine months following the fed fund rate increase of july last year, the cost starts to stabilize. the cash flow is coming off of the assets. extensive givers -- fixed income securities as well as loans could invest in higher-yielding securities so these spreads start to widen. higher for longer is beneficial for the banks. 12 counts would be better because funding cost would start to fall. generally higher for longer we would argue is better. you compare that to what is going into 2020 at the start of

the pandemic when they cut rates dramatically and that was negative for margins. we are not expecting that today. annmarie: higher rates cause a lot of pain for regional banks. what is the divergence you see from the big to small across the u.s. landscape? gerard: we have to look at the size of the regional banks. when you think about the regional banks, they tend to generate more net interest income then fee revenues. the benefits you are going to find for the regional banks is their funding cost will stabilize. as long as you don't see rapid increases in deposit costs, they will be some continued to bleeding into what we call the non-interest-bearing going into interest-bearing deposits. regionals are good to see the same benefit of cash flows. there is a bank in puerto rico

called popular and they have some of the best guidance on net interest income growth because of this phenomenon of stable deposit rates and reinvesting into higher-yielding assets. lisa: we are waiting to jp morgan earnings crossing any minute. let's get you any update on store this morning. here is a bloomberg brief. yahaira: -- arc investment -- into ai. the biggest coming from microsoft investing $13 billion. they have been struggling. it stumbled due to a decline in tesla stock performance. eu regulators finding a weight loss drug does not post increased suicide risk. the european medicines agency

posting the review found similar results to ozempic. they also studied drugs from eli lilly and astrazeneca, no lead was found for those drugs. after more than a decade of negotiations, new york city is getting his first soccer stadium. new york city fc has been given approval for a stadium in queens near city field. it is part of a broader development in the area that will include 25 affordable homes -- 2500 affordable homes, a hotel, and retail space. the mayor says the development will generate a $6 million -- $6 billion for the city over 30 years. lisa: we are getting some wells fargo earnings early, seeing net interest income below expectations.

$12.23 billion versus the estimate. their revenue came in above expectations of $20.9 billion. people are looking at the net interest margin, 2.81% versus 2.4%. we will dive through all of those numbers and get a sense of what is going on with jp morgan. the initial rate from stock investors is that it is a negative issue. we are getting first-quarter earnings from jp morgan. just to give you a flavor, we did get a sense they are beating on their first-quarter quarter loans lower than expectations. we will break it down and give you a sense of what we are looking at. they are trickling in as we get a sense of the biggest wall street banks. right now we are looking at managed interest coming in below expectations, $23.2 billion. what you are seeing is adjusted

revenue for the first order, $42.55 billion versus the estimate of $41.64 billion. likely another record in terms of revenue. the shares are up .3%. we will break that down coming up anymore. this is bloomberg. ♪

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great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track. when you're planning for it all... the answer is j.p. morgan wealth management. lisa: we are getting the thing earnings promised. wells fargo came out and it did miss expectations. when you get jp morgan, beating across the board when it comes to revenues. thus under the hood and i bostick tuning us now. what are you looking at?

sonali: on the surface they did beat expectations and the important thing is rate cuts are expected to be less. many jp morgan with benefit. revenue came in above expectations answered fixed income. jp morgan think their balance sheet to work and making markets . you have investment banking fees also up above expectations. jp morgan clicking those fees as wall street starts to come. see credit quality coming in better than expected. we want to see what he says about capital return. lisa: please take some time to look through this.

you have at some minutes to look to this, what stands out? gerard: it is interesting what sonali set about credit, their credit costs were 1.9 within dollars which included $2.0 billion in net charge-offs. our cost of credit was close to $2.8 billion. last year, many of the banks build up reserves in anticipation of a recession. we are not obviously having a recession. i expect across the word for more banks to release reserves which is what jp morgan did. from the credit picture, we view that positive. on the revenue side, the numbers came in slightly better than expected in the capital markets. manus: this is on net interest

income on the expedition was for higher. -- fell on compression, low on come higher for longer. maybe look at money market funds and switch out deposits but this is perhaps part of the narrative for the stock is down premarket. the first blush is deposit margin compression, this is not what the street wants to hear. they wanted an uplift. there is a headline that came through, they expected net interest income of about $90 billion. the market wanted more than that. gerard: you are right. people were hoping for 92 billion dollars but is the first quarter of the year. most banks want to be more conservative. the first half of this year we are expecting most of the banks to see an inflection on net interest income. it may not come in the first quarter but there is likely to be an inflection, assuming the

fed does not aggressively cut rates for the more bear case is the fed raises rates and nobody is expecting that. the net interest income numbers, the margins came under pressure from both banks, wells fargo and jp morgan. vicki going forward is growing the balance sheet some of that pressure. lisa: anything that stands out? sonali: not only is the net income sitting still, you have an upward adjustment of their full year and expect -- full year. it jp morgan is spending $1 billion more, what is the ripple effect? the inflation effect for these banks is important, especially because jp morgan has had of the discipline to grow headcount and keep the ability to invest while other banks have struggled with that.

i am curious about the broader read here on how much that will turn from the interest rate story to the inflation story. lisa: this was not what you expected. you thought higher for longer would benefit banks. how surprised are you? gerard: the higher for longer is really for the second, third, and fourth quarters so so far the numbers are within expectation. it would be nice to see that pushed up a bit but it is the first quarter and we have three quarters to go and i think it will be a good year for this company. lisa: gerard cassidy, thank you so much for being with us. another bostick, thank you -- sonali basak, thank you. you will hear more from you. coming up, we have ken leon, linda duessel, and mandeep

singh. as i parse to this data, jp morgan is limiting money but expeditions are so high based on how much this stock has outperformed. annmarie: expectations are basically too high for them to meet. the market wanted more in terms of net income interest. this is what mohamed el-erian said, don't look at aggregate data when it comes to inflation. what are the earnings calls telling you? inflation is hitting business. manus: provisions for wells fargo for credit losses, lower than what the market anticipated. credit loss provision here come also significantly lower. that tells you go american exceptionalism. lisa: we will have more on that coming up. ♪

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>> right now looking forward, we don't see any rate cuts. >> i think you are okay and you will have some rate cuts but it will probably not be what people expected. >> we are still holding onto the fall. >> people need to have more clarity on how long it is going to take a cut. >> a very primary market when you're on hold. it is going to cause this sort of reaction. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and emery return -- and annmarie hordern. lisa: cpa on wednesday, ppl

yesterday, bank earnings coming out now with an interesting read. welcome back, this is "bloomberg surveillance." annmarie hordern, lisa abramowicz, jonathan ferro. jonathan ferro is off. we just got banks earnings. we are good to get into it. i want to set the scene because it has been it to much was weak in terms of section. a selloff and a recalibration that has left more questions than answers. manus: it has been a solicitation of the believe the federal reserve has the ability to cut, three bumps in the road. really changing the narrative. bonds are running in the u.s.. likewise in germany, a monster move because we have this divergence at play in rates and equities. it is manifesting as we see the bond market fly higher. lisa: confidence tubbs put it

well when he sent there are different narratives driving different actions. it is difficult to come up with any cohesive storyline. with talk about whether treasuries are a haven bid and he goes to this question of how much are we seeing deeply through of what is happening in oil prices in the rest of the commodity complex? is there a sense that is driving haven bids and treasuries may or may not be part of that? annmarie: potentially but what is the haven bid? we have singled hit record after record. people are starting to park their money not in treasuries but saying i want something hard like gold. you look across the board, it is green on the screen from his metals, precious metals, and oil. oil will be in focus because of the rhetoric overnight and the idea that israel is bracing for retaliation from iran. lisa: we have a bit of a rally in the bond market, yields lower than five basis points which is

interesting. 4.52 on the 10 year. yes s&p down .4% after bank earnings. the euro, 1.0649. most likely to cut in june, being pressed into the market. oil is up 1.25%. we did get jp morgan, wells fargo, citibank up. there is a since this is a disappointment that they were not able to jump a hurdle and there is this hint of further competition eroding some of their previous joy ride. 3.5% on jp morgan shares. because fargo is down. citi down in anticipation. i would love to get a sense of what is going on the hood. sonali basak is still with us.

going to the information, what stands out as far as what is driving this narrative? sonali: one is the fact that jp morgan did not raise the bar. jp morgan was trading at 1.9 times book value nearly. way more expensive than any other bank and a 14% rise in its shares until this point. now they are saying they're not raising their net interest guidance. they did raise their guidance for expenses for the full year. there will be questions on how to think about that. another thing that is important is why net income -- net interest income might not prize this year. jp morgan is leaking in the room when it comes to the credit card businesses. we know credit card balances in the u.s. have risen past $1 trillion. now questions turned to rise about how much you can max out the consumer. you have to wonder if there is juice left to squeeze in these consumer lending businesses that

have knitted money. -- minted money. manus: never underestimate the u.s. consumer. jamie dimon is talking about this. there's a number of inflationary pressure. even talking the macro picture, again, they are singing fishery pressures. that is going to hit at their expense line. that is important. sonali: for jp morgan, they can navigate it. they have the best returns on equity by a margin. if you think about the readthrough for the rest of the banking system, how painful that could be. you think about how much some of these other businesses can jump to support the increase cost. one lucky thing is wall street is jumping back. you have investment banking coming back to support those trading businesses. a question remains how much you have to work. not only how much you have to spend when it comes to the extra bankruptcy, the extra trade, -- manus: guaranteed bonuses.

sonali: exactly. when you look at how they're using their balance sheet, jp morgan's risk has been raised higher than last year which means they are having to work harder to the risk appetite back into markets. they go line by line, as you would expect. lisa: which raises the question of how much the kkr's and oak trees are starting to eat -- away at their ability to take it easy. we have wells fargo coming up in less than an hour. ken leon joins us now. what is your big takeaway so far? ken: the first quarter since the base for growth for the rest of this year. i think the narrative is to be "conservative." we have a different economic backdrop for growth. we saw very healthy loan activity that will accelerate for the rest of the year not

only for the consumer good for business. are the banks going to compete with the apollo's of the world? it's a healthy fixed income underwriting and we saw off-the-shelf dusting bank loan syndicates and giving aggressive pricing so the direct venting from the apollos and aries is bought off. the opportunity here is a net interest income is based on rate but also on volume. volume is business activity, expanding the balance sheet. that is why i think jp morgan is guiding conservatively and they are going to exceed expectations if we have a healthy u.s. economy this year which we believe. manus: i am looking at wells fargo and jp morgan on the provision for credit losses. before the break i said $1.88 billion at jp morgan, less at wells fargo.

both of these lower than the market expected and that talks about the uniqueness in the strength of the economy -- the u.s. economy. ken: it does and the narrative is different than january when there was more reception and aries we could see higher credit risk. as to my point, as you see the volumes of a healthy u.s. economy, you will see some increases in loan provisions but it will stay in the normalized area. i don't think credit risk is a problem. both bank management and analysts like to look at it and talk about it. manus: dividend and buybacks are part of the narrative with banks. we will hear more there today from jamie dimon. as you look at the banks, we had this pivot to breadth. where is the leadership story?

ken: it is a great question and we are speaking about investors in terms of when we look at the financial sector, six of the largest banks are in there. also return of capital comes up with the midyear june bank stress test. we think the banks well-capitalized. they are also building up their capital because we don't know what is going to happen with the end game which is getting pushback from congress that it is too onerous and has negative impact to the u.s. economy. i think what we have here, overweight on the financial sector anti-large banks are part of that story. we are going to see very health return of capital and probably we are going to get to comes of that at the end of june. lisa: sometimes people look at bank earnings and say it kicks off running season because it gives a tone of the economic

outlook looks like. i am not clear on if there is a clear read of the economy going forward in these earnings. did you get one? ken: we did see credit service healthy year-over-year. the consumer is healthy and spending. we will take a closer look at volumes for transaction activity. you did see -- we did see in the commercial loan activity mid teen growth year-over-year for jp morgan. that suggests we are seeing ceos more confident for capital raising whether it is through loan activity or going to the markets which we think the second half of this year their position on the of capital that has to exit the capital equity firms which is going to benefit ipos. lisa: net interest compression is compelling to me. this idea that they have to pay more for deposits and deposits are leaving.

this raises a question, are you going to get a more direct readthrough of the 5% benchmark rate if you get into a savings account? it might be somewhat personal. it is this question of if they're going to have to pay up from what the regional banks have had to do. ken: totally different businesses. if you are citi or jp morgan, you have treasury services, custodial, institution. we have small business and individual. the relationships are far greater than giving 5% of a small bank versus 4.6% on a cd. the relationships are dynamic and when you look across where deposits are 40 large banks, there is a high percentage that are non-interest-bearing. it is a little different. moynahan, the ceo of bank of america has a great explanation for this.

we have diversified businesses. it is also based on the underpinnings of things we do in those relationships. manus: jp morgan has that bread th. reflect back to the start of the year, hbc wholesale sacked the relisted exposure. they were nervous. the world was nervous. it takes my mind back to just before the gmc who was left holding the baby when it came to cds. who is holding the baby in terms of c or e exposure? is that an immediate session and not any analyst obsession? ken: we look closely at that and i cover real estate. when you go down and look at the

total portfolio of commercial real estate, it is mostly in multifamily. when we go down to office for jp morgan, it is investment grade borrowers, class a buildings. it might be idiosyncratic but to gerard's point, it is under 5% or 3% of the total loans. you get up to the regional banks , it becomes more problematic. because these are not massive consumer loans, those extent these loans for two or three years and work out any problem real estate. for the largest banks, we watch it very closely. we look at all of the metrics and think this will be more idiosyncratic. lisa: you are going to be back with us at adequate a.m. following the citigroup earnings. thank you for being with us. let's get an update elsewhere. here's a bloomberg brief with

yahaira. yahaira: morgan stanley's shares following after investigators are investigating the both units. the sec, the office of the comptroller of currency at the treasury are taking into if there is not enough to identify risky clients and the potential for a money laundering. cathie wood's art investment financing it holds a stake in ai, a string of investments into these look on valerie darling. the biggest coming from microsoft investing $13 billion. this comes as cathie wood's' most famous vehicle has been struggling after years. it stumbled this year due to a decline in tesla stock performance. president joe biden making another move to steckel -- to tackle student debt. he is forgiving loans for 277,000 americans, most enrolled

in the safe program which promises to cancel debt after 10 years of repayments. this will web away $7.4 billion in debt. president biden announced the plan to forgive loans for more than 25 million borrowers. that move is likely to face court challenges. lisa: up, big tech leading the way. >> growth in tech has been the dominant force. we have done a bit of running value. we think equity markets are set for a consolidation phase. over the next few months we have risks we need to digest. lisa: that is next. this is bloomberg. ♪

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bank earnings and trying to understand the locations to the broader q1 earnings. looking at the state of play, singh declined stephen in the equity market -- seeing decline in the equity market. jp morgan has been higher, leaving stocks, cannot with disappointing net income interest, talking about cost increasing. wells fargo down .9%, citigroup up next. they report earnings in 43 minutes. big tech is leading the way when it comes to the market rally. >> growth in tech has been the dominant force. you have done a bit of running value off of this strong rally. investors should not be chasing the market at this point and that is consistent. we think equity markets have set for a consolidation phase or pause for breath and with race risks with digest. markets are beating to several

drums and that makes it difficult for investors to know how to develop real-time. lisa: today is another example of that with the whack-a-mole with bank earnings and the rally in tech. hotter than expected invasion date of the two equity losses and pushed back rate cut bets. linda buse was writing this. "if the fed does not cut in june, tough back have sepia comps make some wonder if it will postpone rate cuts until next year." before we get into the willow bay or birthday, what is the relationship between rate cuts at the stock market which has not been able to figure it out in terms of which direction to go? linda: thank you for having me back again. it is interesting about comps and looking forward and what the market is expecting now is a

consolidation because it has been very strong to this point. what might bring on the consolidation? all of this talk about rate cuts, we're going to have seven rate cuts. six then five then four then three and the market does not care. the market has been a concert with earnings and whether or not we get a cut anytime soon. i don't know how interesting that is. at federated hermes we are down to one or two cuts this year, maybe later on. june if they were to cut is right around the corner. we can worry about rate cuts but we are mainly worried about them and what the fed is saying versus the outlook for the economy and earnings. they have been surprisingly good up to this point. lisa: if earnings is the most important thing in terms of how your position, what is the readthrough we got from the banks? linda: the financials are an

important part of the marketplace. one of the previous speakers was talking about value versus growth. growth in terms of earning estimate and the ones we are familiar with are amongst the strongest as we look word to what will be the earning announcement for q1. we are looking at the financial sector and the health care sector, two big sectors. we need them to continue to cooperate and grow with the rest of earnings. so that the market advance can continue. the biggest banks already prescript the report when they come out and say we meet on earnings and revenues that we are not so sure about the future and our net interest income and costs are too high. that makes us wonder about what their outlook for earnings will be. when i look at comps, the fourth quarter of this year, which should be the best time for the

value sectors, and interesting prominent among them, we can still look forward and expect maybe things will work out. it is a great way to start an earnings season where pretty much everybody wants this correction. annmarie: jamie dimon's statement talks about inflationary pressures and more likely to come. you look at earnings to find out about inflation then the backward looking cpi? linda: it is backward looking and that is where our fingers are crossed. we have seen the numbers come down. what our biggest worries should be our inflation and earnings. inflation being the biggest problem. people can worry as to whether or not inflation will move up again. we don't see good evidence of that, notwithstanding the cpi numbers. what we see is a sticky disinflation and we have been suggesting you are going to see

that and probably going to see that. as a child of the 1970's, you are probably going to see that longer than will believe. we're going to have to grapple with that but it can be okay if earnings stay okay and earnings have been robust. we are bullish on earnings at federated hermes. that is what we are probably going to come down to. earnings tells us whether or not jobs will be preserved. manus: the economy look strong and on employment is low. child of the 70's, it is good to be okay. that is going to mean an extension of breath -- breadth. we are seeing a rally in gold all-time highs and yields under a great deal of pressure. how do i live with it and prepared to live with it more, sticky inflation, that is.

linda: it is very important in terms of what is going to happen with breadth. one of the reasons the market has been so good this year is sing other sectors brought in terms of their participation with this rally. the next logical step is the big cap cyclicals which is what we have been seeing. that would include groups like the financials. the breadth into carry-on. what about those regional banks will be have the real estate concerns going on? as a child of the 1970's, what about the small caps? we all have been expecting small caps to participate and join in with this but their earnings have not been nearly as good as the large cap ones. this is a reflection of the

bifurcation is in the 1970's. lots of people believe you need interest rates to come down for small caps to get the relief, to get the earnings to join in. they cannot reduce interest rates because they see recession but rather because they think they have tamed inflation. this will take longer than many people expect. lisa: you said everyone was the selloff and you are looking to earnings. what kind of selloff would you be looking for that would get you excited? we were talking to jonathan stubbs. he said double digits. linda: double digits is a decent correction. i don't know if it is appropriate to be excited for any because if anybody is looking for something they are probably not going to get it. it was too much money on the sidelines. the first quarter of this year's destructive man's on s&p. the 11th best since the 1950's.

that is a long time ago. historically, the second quarter correction is mild. i position that against the uncertainty of an election year where we usually get a 50% pullback in the summertime. how certain are we really? lisa: linda duessel of federated hermes. apple overhauling its mac line with new ai focused processors. that conversation up next with mandeep singh of bloomberg intelligence. ♪

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lisa: we are seeing a bit of the client across the board after bank earnings kicked off q1 earnings a whimper rather than a roar. there is a question of whether this sets the tone for the rest of the complex. let's not get carried away. s&p futures down .4%. nasdaq futures down after rebounding yesterday, down half a percent. we will get to that in a second. also this believe that that will be the haven trade. the reason why this is so interesting, bond yields have gone to the highest levels of the year, pulling back today, but stocks have been able to rally despite the fact that we are looking at a 4.9 two-year.

is this a higher for longer regime? stock investors are ok with. manus: it is a slow dissipation. you go from six rate cuts in january, now to one and done and christmas time. you will actually live in a world of 5%. state street would say that is the barbell approach. big balance sheets, cash deposits, earning money versus the cost of capital. also, the end is not nigh. look at apple. people were bringing the death knell for that company weeks ago. lisa: the end is not nigh. we are looking at a dollar that is stronger across the board. i want to get a sense in the market complex, commodities has the biggest attention today. gold is at a record high, oil prices rising yet again.

there is a feeling a move is underway and it is not a simple one to explain. annmarie: in some instances it is different. copper is more idiosyncratic, not so geopolitical. you have the demand, the price moving higher. across-the-board what you are seeking is move into commodities on all of the geopolitical headlines overnight. a number of them. whether it is the u.s. warning americans in the israeli embassy, france has come out with a warning, telling french citizens not to go. the world is bracing for this strike from iran, whether it is proxies or iran, we know it is coming. lisa: seemed like a hard needle to thread, retaliating without sparking a greater conflict. this is what we've been watching for the past 45 minutes.

j.p. morgan and wells fargo king of banks earnings. both posting estimates that missed estimates. shares of jp morgan trading lower in the premarket. wells fargo turning positive. jamie dimon reiterating recent warnings, saying he is alert to a number of significant uncertain forces. some of the things that stand out, net interest expense, how much they pay out in interest is climbing. jp morning acting to headcount which also adds to the expenses, different from other banks trying to keep their staff levels down or neutral. manus: it depends on where we are seeing those headcounts. they have been reducing headcount on certain product areas but adding within ai. the story today about jp morgan, wells fargo, what is happening on the net interest.

the biggest banks earned $250 billion last year on income. it looks like it may not be as juicy this year. but it is the first quarter, so we can all breathe. annmarie: we have a bank analyst talking about how no good deed goes unpunished. the only good item coming from that that interest income and everything else looked encouraging. you can see how encouraged market is for this kind of environment if rates are going to be higher for longer. lisa: also speaks to how high the bar has gotten as jp morgan continues to chug forward. fed speak today. economist pushback rate cut expectations following hotter than expected inflation prints. we will hear from san francisco president mary daly, raphael bostic, kansas city fed president jeff schmidt, and at

9:00 eastern, michael mckee will sit down with boston fed president susan collins came out earlier saying she is looking for a baseline of two base cuts rather than a three that the fed had previously been projecting. annmarie: i want to hear what mike has to say to her in terms of what the fed is potentially not looking at, where these unknown notes are coming from. how much does she pushback from people like linda that we heard from, people from the 70's, we can live with higher inflation. is there any inkling at the fed to what linda said, living with higher inflation, may be fed getting more comfortable with not to percent but 2% to 3%? manus: she even went to the point that denying a rate hike. that is not a part of her baseline. now that you have someone in the fed talking about rate hikes,

that is not on our agenda, that shows you if they are verbalizing that, that is how concerned they are. there is there lovely line from rbc. that is what we are here to debate, which is a no landing scenario, and that could be no cuts from the fed this year. lisa: this is something priya misra has been talking about from jp morgan. if you get rate cuts pushed out for the remainder of the year, they are going to price in some chance of a rate hike, that is how markets work. this is what the fed wants to push back against. will it be difficult, will stockmarket care? what influence will this have on a market that is pretty strong, which is the reason we are so focused on the tech space. tech has been its own idiosyncratic story. apple parent to overhaul its mac lineup with a new set of chips meant to enhance artificial intelligence.

the new design coming at a crucial time for apple computers. sales of the mac falling 27% in the last fiscal year. the company falling behind its competitors in ai, the reason why so many people are excited about the adoption of this technology in a more intimate way. joining us now is mandeep singh. how significant of a move is this by apple? mandeep: everyone has been waiting for that empire strikes back moment when it comes to apple. clearly they still have that installed base and is to be on the smartphone side also i would argue on the notebook and pc side. they control the chip and operating systems. that is unlike a lot of other companies on the pc side, dell and lenovo, depends on intel to give them the chips. vertical integration has always been apple's strength. if they can incorporate this

device, the mood of the moment is, what can you show me on the ai front? apple has not done that. if they can do that through this chip innovation, people will be excited about the prospects going forward. lisa: this might be a dumb question but where did this come from? is this from the car unit, disbanded, pushed over to another unit, did they decide they had this capability to inject ai chips this quickly? mandeep: they have been investing on the ai side. apple is always secretive about what they do. when they launch a product, you see the real innovation. they been talking about how they plan to use more flash memory compared to dram, which is what companies are doing on the server-side. there have been investments going on, but in the and, you have to show the results in terms of what it could do to the refresh cycle, how on the

software side, companies and apps built on top of that ecosystem can do that. doing it makes a lot of sense but you need to see the results in terms of how much refresh it will draw. manus: we were so bearish on the china story on apple. wedbush securities accuse all of a sudden being too bearish on the china story. the markets have gotten so bearish on the ai capacity of apple. it is one of the laggards in mag seven, this year down 10%. this will not take us to $4 trillion as wedbush securities suggested it would make in market cap, is it? mandeep: the china revenue, 20% they have with china, that will continue to go down. clearly they have a lot to do on the supply chain side in terms

of relocating the supply chain. with apple, it will take a while in terms of the revenue lift. they are the only hyper scaler growing single digits when you compare them to alphabet, meta. apple has their unique challenges when it comes to especially the revenue side and the china exposure they have. that will not go away regardless of what they do on the ai front. annmarie: the wall street journal reporting that china is telling telecom company that they need to ditch u.s. chips. we see the likes of intel, amd down in the premarket based on this report. how big of an impact will that mean for them in terms of earnings, how big of a blow could this be? mandeep: the kind of exposure that intel, amd, nvidia have two china has been going down, especially with the incremental data sector spend we are talking with ai, that is probably going

to go down more. every sovereign realizes at this point in time that ai is driven by the latest chips and you just cannot afford to build it somewhere else. it will be domestic. in the case of china, that is what they're are doing with all the infrastructure. it already happened with handsets and pcs, now with critical infrastructure. i think it will be a headwind for all the chipmakers including amd, nvidia, they will be impacted going forward. annmarie: potentially going to get worse when we see the geopolitical risks arise between washington and beijing. they want to develop more national champions. is that just huawei or more? mandeep: huawei have shown they have caught up to apple in terms of smartphone features, and that will happen with every chipmaker in the sense,

long-term, 5, 10 years out you can model that revenue exposure going down to single digits or even zero because that is what will happen in terms of the geopolitical tensions, how the sovereigns are thinking especially around the chip sector. lisa: we've been talking all morning how big tech has outperformed even in light of these rate hiking expectations -- not expectations, but the idea that rates will be higher for longer. how much of this is tied to that, that they have huge cash portfolios, are reaping benefits from this? how much of this is a haven? how much of this is analyst confused and any story that mentions ai will attract people's money? mandeep: typically and inflationary environment is not good for ad spending. in general, tech valuations tend to compress in times of high interest rates. this is unique in the sense that companies are being treated as havens.

a lot of the defense of money is flocking to the companies because clearly they are the most powerful companies if you think about it from a cash flow perspective. i think that will continue but i wouldn't be surprised if you see some pressure on their topline because of the inflationary pressures, or if interest rates remain at these levels, especially on the consumer side. enterprise side remains solid. all these companies have the capex budgets, growing to invest in ai in the long-term. on the consumer side you will not see a quick rebound in pc or smartphone refreshers, inflationary pressures. lisa: just to recap some of the bank earnings, we got jp morgan, wells fargo. similar, missing on net interest income. jp morgan stood out for increasing its headcount. curious to see how much of that stems from the first republic acquisition.

shares lower by 2.1%. also talking about an interest in interest expense. 76% at wells fargo. wells fargo shares have turned positive, jp morgan still lower. citigroup is still on deck, 8:00 eastern. let's get an update on stories elsewhere. here is your brief with uehara hock as --yahaira jacquez. yahaira: berkshire hathaway is betting big on long-term equity. in an exclusive interview, the company expect to see $300 million of dividends and its strategic unit by 2026 with plans to double that by 2028. >> berkshire hathaway is an apt analogy in the sense that we look at certain models, why certain firms are successful over time. there are lots of powerful messages and what berkshire has built, the ownership of

long-term assets, great businesses, the power of compound, the power of smart capital allocation in your business. yahaira: the biden administration is ramping up its aggressive economic stance toward china. the commerce department added six new companies to a blacklist on exports this week. that brings the total number of firms lack listed by biden to 319, but most of any u.s. administration, topping the 306 that donald trump added while in office. samsung is preparing to announce a 44 billion dollar investment into u.s. chipmaking as early as next week. it's a signature project in washington's broader efforts to bring semiconductor production back to america. sources say the biggest memory chipmaker plants are the project in texas alongside, secretary gina raimondo. lisa: thank you so much. pushing back the rate cut timeline. >> the recent data has not

materially changed my outlook but they do highlight uncertainties related to timing and the need for patients. lisa: that is next. this is bloomberg. ♪

lisa: it is anything but boring. looking at market digesting the 1-2-3 punch of cpi, pp and then bank earnings. we are seeing equity market retracing the declines from earlier as they digest some of the earnings from the likes of jp morgan and wells fargo. what we can see is a real question about what higher for longer means for banks. we are seeing this question of net interest income coming in beneath expectations of both jp morgan and wells fargo. the question is will a protracted high rate environment be a good thing or bad thing? the answer often is it depends.

under surveillance is that rate cut picture, pushing back rate cut timeline. >> recent data has not materially change my outlook but they do highlight uncertainties related to timing and the need for patience, recognizing disinflation may continue to be uneven. this also implies that less easing of policy this year than previously thought may be warranted. lisa: treasury is looking to regain some of the losses as investors push back rate cut bets following another hot inflation print. bank of america, deutsche bank forecasting a first rate cut in december. collin martin of charles schwab rights that we are revising our outlook to two rate cuts this year from three, but that can change if inflation remains stickier than expected. rate cuts should be driven by the wish to normalize policy rather than a need to stimulate economy. dissecting which is which has

become increasingly difficult in a time where we don't know where the neutral rate is. i want to call on the idea of just how much the data that we got this week reset expectations. much did it shift your expectations of how sticky inflation is, whether disinflation narrative has legs. collin: it did shift our expectations. two weeks ago, we were in the camp that three rerate cuts seemed appropriate. going back to the end of last year, most readings were continuing to fall, annualized rates close to 2%. what we saw this week is it is sticky. two months, you can say that is a blip, but three months, cpi expectations, that is shown it is sticky. lisa: this is the reason why people were struggling with what to do with this. on the one hand, higher rates were thought to be good for risk assets because it came on the heels of growth. are we seeing that fundamentally challenge now especially as we

see high-yield ticket on the chin? people wonder higher for longer, what does that actually look like? collin: we think there is a risk. if you told us the fed will hike aggressively, maintain and not risk holding for longer, we would see high-yield spreads at three or less. that was not our expectation. so far they have done ok. profitability has been a key driver. but we are worried about the longer part. how long can you withstand such higher rates if you don't expect that profitability and the rate of profit growth to continue, which we wouldn't expect as this recovery expansion continues. if you are seeing borrowing costs 8%, 10% more, that is still a risk. we are still concerned about the risky parts of the market. higher for longer is bad for risk assets. manus: as you see the way forward, no landing scenario seems to be building.

the fed and powell themselves used the language restrictive. what does the fed need to do, what to do, insurance cuts, then we go into an extended pause, as we did 15 years ago? collin: i don't think we need to do that. we have heard powell talk about the need to kill inflation. the risk of cutting right now especially given the still high inflation, i don't think that is the move. they know the job with inflation is not done. we are seeing that with officials lately. a few months ago there was optimism. manus: what is the risk to this bond market if it is no landing, one rate cut, maybe no rate cuts, does real money come in at these levels? collin: i think we see real money. to see yields move sustainably higher, it goes back to the neutral rate that lisa referenced. what is it and how restrictive

his policy now? the risk we see if there is this no landing scenario, the fed wants to kill that. if the fed holds for a very long time or if they hike again -- not our base case but possible -- that slows things down too much, we don't see yields surging. . annmarie: commodity prices higher, wage growth not taking a pyre. is that the supply on the labor side? collin: the fed is committed to bring it down. the labor side is still strong. we cannot get past that. it is slowly weakening. you mention wages. wage gains have continued to trickle lower. if you look at the wage gains on a yearly basis, it is still coming down, versus the stalling and potential be acceleration of inflation. if those wage gains do continue to fall, we are not convinced that we will see a re-acceleration in inflation. lisa: i want to talk about bank

earnings that we just got. this idea that net interest expense at the biggest banks went up. everyone wants to park their money in money markets, get 4.5% rates. much as this right now because investors view cash as an asset class, are choosy where they want to go, and are demanding higher yield, so that even the biggest banks have to offer that to keep their money? collin: people are finding those opportunities. we still think investors should move up further in the curve and login yields with certainty, but we are seeing across all banks and brokerages is that interest in short-term high yields. it is tough to argue against a money market fund higher than 5% with little price stability. we are not saying that investors should not do that. but when you mention as an asset class, cash is an asset class, but what should be earmarked for fixed income is in cash, you

lose that diversification aspect. lisa: if it is some sort of asset class, investors will be much more choosy about how much they get. do you find the money is less sticky than we thought during the march financial crisis that was at last year when it comes to shopping around for the highest rate? collin: we will see that. investors and consumers are smart about that. you see numbers all the time weather on tv or social media, hard to see what is -- not to see what is available elsewhere. you want to find the highest yield out there but that always comes back to the risk. that yield that we see in money market funds, t-bills is not permanent. lisa: it's a good thing if you are the investing side. maybe the banks have a different story to tell him when they have the earnings calls. collin martin, thanks for being with us. coming up, anastasia amoroso icapital and ken leon will be

join us. jill carey hall of bank of america on small caps. an interesting asset class that may not catch up with large caps anytime soon. annmarie, you are watching the commodities space, because that has been a main driver. what do you think now based on the price movement, forward expectations, how significant the shift is now with iran preparing to strike? annmarie: you look at the call options in the options market. people see the upside to brent in the summer. the question is what happens after that. lisa: how do you factor there this in? it is whack-a-mole today on bloomberg surveillance. seeing a bit of retracement from earlier losses. bond yields lower for a change. next, citigroup earnings. this is surveillance. ♪

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>> our attention is really shifting to the earnings season. >> mag seven is not where you want to be but you have to look at tech overall and really bid on quality, strong balance sheet. >> we are looking at the

broadening out of the recovery as the earnings story gets better for the have-nots of 2023. >> i think we will be able to avert a recession so we will continue to see earnings move higher. >> this is bloomberg surveillance with jonathan ferro, lisa, annmarie hordern. lisa: we are getting a lot of information coming through. welcome back. this is bloomberg surveillance. we are here with manus cranny, annmarie hordern, i am lisa abramowicz. we have been talking about break earnings. we just got citigroup earnings. they did beat across the board with their fixed income, commodities, trading, sales coming in at 4.1 5 billion versus the estimate of 4.1 2 billion. we will parse through all the numbers in a second. citigroup shares up a half a percent payment this comes at a

time when a motley drumbeat from j.p. morgan and wells fargo, struck by the fact that they don't tell the same story when it comes to how investors are receiving it, but they do tell the same story when it comes to net interest income and net interest expense. annmarie: that misses what is dragging down the stock even though analysts say this is a pretty good report. earnings expense guided higher. inflationary pressure that even the banks are seeing. we will also get a meeting call with j.p. morgan, so those headlight will be trickling down. lisa: what stands out to you, manus? manus: it's about the credit provisions. they are materially lower in wells, jpm, then they were expected to be. citi, there is a bang up number here on investment banking. that really plays to the spike at the start of the year that we are seeing across investment

banking, flow improvement all the way around. that has dissipated as the quarter went on. fic doing well. the credit losses are materially lower than estimated. lisa: we will dig through this. but we are seeing in broader market is a retracement from the earlier selloff we had been seeing this morning. seeing a decline of a quarter percent in the s&p, dollar strength across the board continues. 1.0654 four the euro as the ecb is preparing to cut rates. the 10 year, how we reach the point of buying? we had a couple of auctions that were pretty messy this week. 10 year yields lower by almost seven basis points. 4.52. crude rallying. this is sort of a drumbeat behind all the market activity, the question of whether this becomes a dominant feature in a market rally that has so far

viewed this as a demand story, not necessarily a shock? annmarie: right now this is about geopolitical risk. you see that with gold. today it's all about the geopolitics because overnight there has been a drip of stories that are more tangible than just reports of an imminent strike. you are seeing france, alerts from the u.s. about certain embassies, where not to travel. there is intelligence behind this. israel is bracing for some kind of retaliation from iran. annmarie: -- lisa: coming up, icapital's anastasia amoroso on why rate cuts don't pose a risk to the rally. neil dutta sees a cut in july. jill carey hall on small caps risks. right now we want to get a sense of what sonali basak is seeing in citibank earnings. sonali: a lot of beats to look at. you want to see progress for jane fraser in her turnaround

story at citigroup. they were trading at just over 60% of their price-to-book value. they have a ways to go to catch up with the other banks. when you look at what they've done, what is most impressive is the gains they are making on fixed income trading, equities trading, investment banking. we talk about that private credit competition. j.p. morgan and citigroup now beating on debt underwriting meaningfully here. the banks are coming back with a vengeance to get that share in the markets, seeing them put their money into work to do so. manus: this report card points to what jane fraser said when she was at the rbc capital markets conference, we are ahead on our program. fic is significantly -- is a solid number, well ahead of what they had estimated, likewise with equity sales in trading. do you think the transformation of city, is there another leg to

go, another evolution from jane fraser and the team? sonali: those businesses right are extraordinarily competitive. right now this is flat to down on wall street but citigroup has a big presence. manus: a differentiator for them. sonali: a chance to move money around the world and also gain share in those volatile macro markets, which is why fixed income is so important for citi. remember, she is doing this while changing almost every top position at the bank. that is the part that is most striking about this. you have new leaders in almost all of these businesses and some of them have not started the job yet. lisa: thank you. we want to get a reaction. icapital's anastasia amoroso have been brilliant about being in risk the risk rally. she is sitting alongside us.

the chief investment strategist, we have got some bank earnings. i want your reaction to the earnings we have seen so far. anastasia: not surprising analyst are having a hard time reading the story. it is not uniform across all the sectors of the banks. the negative story is the net interest margin, lack of improvement. if the fed does not cut rates, if bank lending is not going to pick up, and that is the status quo we have today, it would be difficult to see sequential increases in net interest rate margin. anyone that is overly reliant on the core business, that will be a lackluster story. on the flipside, i think what is notable is this strength in trading, investment banking. sonali is right, we are seeing a tremendous pickup in leveraged issuance loans, even equity capital markets are picking up in the second grade part. lisa: a lot of people used to

think about j.p. morgan kicking off the earnings cycle, setting a tone for the rest of it. you are bullish, doesn't matter if the fed cuts this year because there is enough strength underpinning what we have seen in the equity markets. does this color your view at all considering it is not being received well at all? anastasia: it does not. banks have been doing well leading up to this data point, outperforming or in line with the s&p. a lot has been priced in. the market right now is in a bit of a digestion period where we have to reprice for the prospect of potentially no rate cuts. understandably that will take the markets lower a little bit. what i like about the set up now, we came into april with weeks of overbought market conditions. we came into the year with a 10-year that was probably not reflecting the growth environment we are going to have. fast forward to whatever day it is today, april 12, thank you,

you have the 10-year treasury trading at a yield that is above what is implied by fair value. you have the overbought condition that are not there but we are middle of the range. you had a bit of a reset from the technical standpoint. on the flipside, we also see an acceleration in manufacturing, acceleration in the cyclical parts of the economy, not just the u.s. consumer. i like that this is not just a one-engine economy but several things working in its favor. manus: a little bit of healthy volatility. stocks have held up quite well given that bonds have treated so viscerally this week. we wanted this small drawdown. the question is, is this incrementally adding risk, will be get a more expanded drawdown on this no landing scenario as people believe less and less likelihood of cuts? anastasia: the no landing scenario is good for markets.

think about it this way. if we could have an economy that is growing at 5% interest rate, if i can participate in the stock market and the money market fund, that is a very healthy environment for investors. one of the other things i was encouraged by in the technical front, the nasdaq 100, for example, dipped to 50 day moving averages instead of bouncing off of that level. the s&p, we were toying with 50-day but we are trading above that. the story of cash on the sidelines. you know the stats. 20% to 30%, money allocation for a lot of clients. that is why you see these dips. investors will come in as long as the economy is strong. manus: people out there hunting for the best cash deposit. the one thing that we talked about was the resilience of the mag seven in terms of the mini

rout we have had. there is a barbell approach into cash and big tech. on mini drawdowns, it must be tantalizing to think about mag seven. on dips, are they a buy? anastasia: absolutely. that is what we saw yesterday. one of our themes coming into the year was broader opportunity set. we still see that story playing out specifically encyclicals. i want to stick with parts of the mag seven, technology, but what's interesting, manufacturing technology is picking up. historically that has lifted up parts of the stock market, cyclical sectors and regions. that is why we look to the u.s. to have some of the highest earning revision momentum but also japan, looking to industrials, material, semiconductors to have some of that upward momentum.

those would be the parts of the economy i would be adding to. the other part on lack of rate cuts, if the fed doesn't cut rates, you could have a little bit of pressure on valuations, but how do you offset that pressure? higher topline and earnings growth. if i have a cyclical that is accelerating in this environment, that is where you want to allocate. annmarie: you see that woman some globally but also in the united states. do you think that what we are seeing in commodities, this rally higher is longer than just this temporary blip that some are talking about? anastasia: i do. owning oil is a geopolitical hedge, always has been, likely always will be. what is happening in the oil market, we are seeing lower inventories, better balances for the rest of the year. you have the geopolitical risk premium that unfortunately is here to stay for some time. outside of the oil, you have

this pickup in the industrial complex. when we look at the data, the average manufacturing upturned lasts about nine months. this is not a blip but several months of trend. if that is the case, commodities like copper, aluminum, industrials should participate in that. they historically have outside of covid. lisa: anastasia amoroso, thank you for being with us. before we get to the other things to watch, sonali basak is here, anything that stands out as you parse through citigroup? sonali: just how much you earn in one of their key businesses, security services. closer to 5%, 6% returns on common equity for the whole business. when you look at the security services business, that is way higher. that showed you the direction of travel that is the potential for citigroup to reach as they invest. the first couple of words in their presentation, lisa, relentless.

that sets the tone for what jane fraser is trying to get across to the street. lisa: this was a component of the cpi, securities increase in terms of inflation. let's get an update on stories. yahaira: wall street journal reporting that china has told telecom carriers to phase out foreign chips by 2027. the move is part of china's ongoing effort to phase out american technology. chipmakers intel and amd cited as likely being hit particularly hard by the change. officials are pushing firms to inspect their networks for any non-chinese ships and draft a timeline for replacing them. oil is resuming gains to end the week. crude markets are bracing for possible strikes by iran on israeli targets. bloomberg is reporting that u.s. officials and allies believe iran may attack in the coming days. the move would be a retaliation for an israeli attack on its embassy in syria.

the news comes as a tax have stepped up on the ukraine energy infrastructure in recent days. u.s. steel shareholders will vote today on a bid by nippon steel to take over the company. investors are expected to approve the deal but it is coming under growing scrutiny from regulators, lawmakers, and president biden. nippon is offering $55 a share for a total of $14 billion, which would make it one of the largest steel murders ever. lisa:.thank you big banks kicking off earnings season. >> the first quarter of the year is always the strong quarter for investment banking. yes, there are numerous geopolitical risks out there, but unless the market collapse, which we don't expect, we expect a decent investment banking year. lisa: that is coming up next as we digest citibank earnings. this is bloomberg surveillance. ♪

lisa: i lot going on today as we look at bank earnings, the potential for stickier inflation. we are seeing a bit of a cell of although no drama compared to what we saw on wednesday. s&p futures down .3%. dollar strength across the board. we see getting momentum in the bid into treasuries. 10-year yield, 4.51. when you look at where we have come from, it has been quite a ride considering the fact we have risen 20 basis points in one day, resetting the idea of rate cuts across the board. under surveillance, big banks kicking off earnings season. >> the first quarter of the year is always the strong quarter for investment banking. most of the banks are expected to report investment banking results that are plus anywhere from 10, 11 percent to 18%

year-over-year growth. yes, there are numerous geopolitical risks out there but unless the markets collapse, which we don't expect, we expect a decent investment banking year. lisa: citigroup sales and trading revenue coming in pretty much in line although a slight beat. j.p. morgan and wells fargo reporting net income that missed estimates. ken lyons is back with us. you have seen citigroup, j.p. morgan, wells fargo, can you put the three together and put together any theme that stands out to you? ken: these banks are delivering, plenty of upside if we have a healthy economy, which we think we will. we are seeing pretty good loan activity. we are just at the beginning of the game in terms of investment banking. those beats in that area was really related to record debt underwriting.

equity underwriting and m&a still have a way to go. we also saw lots of concern about net interest income. what also makes net interest income and opportunity is the flywheel of higher volumes, whether it is a loan for citi, trade and treasury activity. there are opportunities here particularly with the strong economy for these banks to surprise on the upside. i think the managements are being conservative. citi is holding firm on higher revenues this year in their guidance although net interest income is likely to be modestly lower but i think that may be a beat as we get later in the year. i think there are opportunities for the large banks to really be strong participants in the equity market, and they are dependent on, for the financial sector, for investors to do

well. lisa: citigroup crossed 20 minutes ago. how much of this is an endorsement from what we heard from jane fraser and her overhaul plan? ken: great question, what we are seeing in the results but also in the presentation and narrative, is transparency of a rocksolid strategy. they didn't bring in new management at different levels. of course, they reduced the management structure, but citi will not be all things to all people, no longer the supermarket. this will be a bank that is highly focused and relentless to be a partner for institutions on global trade, to be best in class in terms of global wealth mortgage met -- management, looking for opportunities for citi to leverage that connectivity around the world. but they still exited 14 non-us consumer bank locations, and

they are being smart in terms of freeing up capital. good for investing in the business, also good for the return of capital to investors. manus: jane said this is a cleaner, simpler management structure. with that in mind, what is the next evolution as you look at jp morgan, wells fargo, and citi? is citi the much larger global play compared to gpm and wells fargo? ken: all very different. jp morgan is best in class in terms of institution, consumer, business lending. wells fargo we actually viewed to be more of a u.s. super regional bank, one that is more compared to pnc or u.s. bank. citi, it's interesting, and the question came up last quarter on bloomberg, will be more of a

streamlined bank coming not all things to all people, effective in certain areas where it can be a top three player. bank of new york mellon, different banks that are more specialists my versus being versatile at being everything to their customers. annmarie: we now have these three major banks on tap. next will be morgan stanley and goldman. what are you expecting from the other two? ken: i mentioned it before. we had record debt underwriting, the highest since 1980, in the first quarter. that means corporate's and ceos are looking for capital raise, whether it is in debt, soon to be equity. when we look at investment banking, it is going to be improving. i think morgan and goldman sachs are probably going to be conservative, but what they will talk about is the durable

recurring revenue of their fees, so that it is not the volatility of other we had a good quarter in trading or investment banking. i think david solomon will be coming out with a lot more confidence because we are looking in the rear mirror in terms of all the problems we had before with consumer banking and diversifying. this is a rock solid business moving into asset management, moving into private equity, private debt. opportunities for these two banks. unfortunately for morgan stanley, the headline news from yesterday is there is a lot more government scrutiny to problems that have come up to wealth management. that is a little disconcerting. lisa: i'm curious about what this means for the smaller banks, they don't have the same banking engine that can offset the declines in net interest income. ken: we look at them very closely. our team still feels there is

risk exposure here to of course commercial real estate, much more rate tentative. my analysis would be that the small banks are like small-cap stocks. when we look at equity investing, institutions, there are 12 constituents in the financial sector that are 65% of the waiting. six of the largest banks are there. as you go further to the smaller banks, they become of less consequence for investors, but incredibly important for our u.s. economy. lisa: ken leon, thank you so much as we parse through the big three that reported. fascinating to me the net income pressure, something that keeps coming back, this question of are higher rates good for banks? have we priced into much optimism? annmarie: also dependent what the bank is. big banks can deal with a higher

interest rates, small banks not so much. jamie dimon is saying that what is most important to the future of the free world is what is going on with geopolitics. that could be potentially more bad economic outcomes. lisa: the reason why he was talking about pessimism despite the optimistic sense for his business. coming up, we will be speaking to neil dutta on why july could be the earliest rate cut, basically saying, calm down, everyone, they will still cut rates. you are watching bloomberg surveillance. ♪

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lisa: what a week. we started with cpi and ppi, now the official kickoff to q1 earnings. welcome back, this is bloomberg surveillance. we are seeing a bit of a decline as we parse through what we have gotten in terms of a hot inflation read on the one hand, soccer inflation print on the other hand, bank earnings that came in fine but not as good as expectations. s&p lower by .3%. nasdaq down by half a percent. you been talking about how this has been the leader in terms of the rebound yesterday, now leaning on the way down. manus: the narrative out there is that mag seven is a resilient zone for you to sit in in these hard times, get your cd, deposit

fund, and that is the barbell approach. what you had this week is a much more virulent upset in bond markets. over the past two weeks, 33 basis points rising in 10-year government bond yields. you give back five this morning but look at this divergence. global divergence at play between europe and the u.s. that is the bloomberg global bond index. lisa: strong dollar, weak euro, week everything else, but the euro in particular. 1.0648. just a couple days ago north of 1.08. under surveillance, big banks picking up earnings. wells fargo beating expectations, however, both missing estimates for net interest income.

citigroup reporting concerns and trading revenue. next we will hear from goldman sachs, morgan stanley. i'm struck by what we heard from ken leon, you can expect goldman sachs, morgan stanley to probably outperform when it come to the banking and trading side. manus: they have both done quite nicely. good volatility. it would appear we have had good volatility rather than bad volatility. on a more serious note, there was a nice rate volatility through the quarter as we shifted from six rate cuts to four rate cuts, no writ cuts, no landing. volatility has been there on the right side, likewise in fx. they're just not been the carry through in ipo and m&a. right now, the credit losses are not as bad in wells fargo and jp

morgan, and that told me about u.s. exceptionalism. lisa: what jp morgan did with interest margins and borrowing doesn't matter because jamie dimon said he is worried about geopolitical concerns that might trump other things, which brings us to china. president biden surpassing donald trump when it comes to blacklisting chinese entities. adding six companies to the list this week as the white house continues to kneecap china's access to u.s. technology. the total number of firms blacklisted is 319. that compares to 306 that trump added while in the white house. annmarie, you been talking about this with us back to what is happening with intel. how much of this is a drumbeat that keeps getting louder as other stories are overwhelming? annmarie: you can take from this whether it is biden or trump

2.0, exports on china will continue regardless of who is in the white house. then you see reports this morning that china is telling their telecom company that they cannot use u.s. chips. you are starting to see the tit-for-tat. all of these companies will want to lessen their china exposure because china will not allow them to use their chips. then you will see a ton of national champions in china like huawei. lisa: which is why we are watching import and export data closely. we just got a slew of new information. fed president susan collins urging patience, saying the recent data has not materially changed by outlook but they do highlight uncertainties with timing. also implied less easing of policy than previously thought may be warranted. michael mckee will be speaking with president collins this morning at 9:00 a.m. mike and joining us now to talk about that.

annmarie talked about the tit-for-tat in imports, exports. we got some price data. what does that tell us russian mark mike: oil prices are expensive but other imports are not at this point, according to the bls. import prices went up by .4% during the month of march. that is more than the .3% anticipated. but take petroleum out and import prices were completely flat which is an improvement on the .1% rise the month before. january we had a big rise of .8%. things are looking better on the import price front with the exception of william. year-over-year basis up just .4%. maybe we are seeing a turnaround on this inflation thing. you notice all of my nerdy economists friends who do the translation between cpi, ppi,

pce, saying pce could come in much lower than cpi. something to ask susan about. annmarie: do you think something she will push back on, we have to wait to see the pce, we have to see more data, but how concerning if you are sitting at the fed is commodity prices, especially going into the summer when everyone was expecting a cut? mike: it is concerning but not overly so in the sense that the fed cannot do anything about commodity prices. you can raise interest rates all you want, as prices will go up or down independent of that. the fed cannot affect that. they have to look at the things that they can affect. i know she is probably listening right now, but she and others have said we don't need to act right now. the markets are all taking this as a turning point.

they have priced out everything except for maybe one and a half cups this year. is it a turning point or just an overreaction by the market to one data point? lisa: great question. i will pose that to our next guest. very much looking forward to hearing your conversation with susan collins. neil dutta now joins us with an answer to the question, is that a pivot point or something that is more noise, bumping us to the same road of easing policy? neil: i think the latter, bumping this on the path to still a couple of cuts this year. you have to take the data as it comes to you. what we learned in the last week definitely throw cold water on that idea that individual seasonality was a big driver of why we miss the boat on inflation the first couple months of the year because march was still somewhat firmer. ppi data certainly took some of the edge off in terms of what it means for pce, but at the end of

the day, you are talking about pce inflation likely to be above 3% for the first three months of the year. the way i'm thinking about it, july at the earliest. we had three months of poor inflation data. you are going to need at least that many months to undo the damage. a lot of things have to go right. i think july at the earliest is probably the way i would think about it. if you get another bad inflation number, you just push it out. lisa, i think it is worth reminding people, you have to go back to first principles and the se situations. we know labor expectations have not moved if you look at surveys of consumers and households. that suggests to me that consumers are somewhat resistant now to taking on higher prices. if this continues, i would be

frankly more worried about corporate profit margins. lisa: this raises the question about whether this challenge the thesis of bullish equities. if you see slumming under the surface, people pushing back on prices, inability for companies to pass along things like oil prices and other commodities coming up, how much does that make you less optimistic about what we will get in the equity markets? neil: at any given point in time, you could basically say the economy is one of four things. we could talk about soft landing, solid growth, benign inflation, inflationary boom, or you could talk stagflation or recession. right now the markets are kind of thinking, inflationary boom-like dynamics. that is an environment where stocks can work, bonds can't. if you move toward the situation

where inflation stays sticky, that begins to erode household incomes, keeps the fed off on the sidelines, then you are talking about a situation where equity markets will come under more pressure. i don't think we are there yet. i think inflation will cool. if it doesn't, you have to be cognizant of that risk. manus: that is what the bond markets have been trying to price in. 30 basis points in two weeks. we've had a couple of auctions this week, where it took more to encourage people to buy the 10's and 30's. that is because of dislocation. some are saying we are seeing the first signs of u.s. financial stress appear. rating agencies talking about the deteriorating fiscal situation, term premium trending higher. what do you make of that, the

dislocations of the auction this week? neil: i think financial conditions have tightened if you look at a range of financial indicators. corporate spreads have tightened. i wouldn't say it is a significant dislocation yet. i still think financial market conditions have largely repriced because inflation has been higher. in other words, inflation is higher, it will take weaker growth to get inflation back to where the fed wants it. so you are seeing financial conditions tighten. i don't think it is anything beyond that. annmarie: we've been reporting all week that this attack potentially from iran on israel was going to be imminent. we have report that it will be the next 48 hours. we see signals of that, whether it is the u.s. directing u.s. embassy personnel where they should and shouldn't go, putting certain countries on no travel

lists. last time we spoke, you pretty much shrugged off geopolitics. at this point, how can you say this is not concerning to what is going on in the global marketplace? neil: you don't shrug it off, you take it as it comes to you. in my experience, changing a fundamental forecast based on what is happening geopolitically, by the time you start doing that, usually the crisis is over. to me, the most interesting thing is just the relationship between what is going on in the engineer markets and the dollar. historically, everyone thought, dollar down, oil up, but given the u.s. position as a major commodity exporter, we run a net surplus in petroleum, you are seeing stronger oil prices food's the terms of the trade of the u.s. that strengthens the dollar. the causality is actually from oil to the exchange rate in the

u.s. i think it matters more frankly for emerging markets, oil importers globally. not only are they dealing with higher oil prices, they are also now dealing with weaker currencies. that will limit the ability of those central banks cut interest rates which has been a reason for some of the enthusiasm in global risk appetite. it introduces a little bit more tighter financial conditions particularly in the rest of the world, more so than the u.s. lisa: it sounds like you are less bullish than you have been as of late. is that true? neil: yes, the data hasn't gone my way. you have to be honest with yourself. i will just say, i do think ultimately when the dust settles on 2024, we will still be talking about a situation where the u.s. economy is growing and the fed will be cutting.

that is still the fundamental story. lisa: the data hasn't gone anyone's way. thank you so much for being with us. we appreciate that. amh, looking at 10-year yield's calling on the heels of this report. it seems treasuries are still a haven bid. we are seeing that in the market. annmarie: we've been talking about the signals coming from the united states, france, israel, tangible signals about where people should and shouldn't be. this has to do with some sort of intel about what an iranian strike would look like. our intel tells us of this will happen within 48 hours and that is my markets are concerned. lisa: an update on stories elsewhere this morning. yahaira: apple is preparing to overhaul its entire mac computer line with a new set of in-house processors designed to highlight ai. sources say the tech giant is also near production of its next-generation ship, the m4

processor. mark gurman says they are playing to release the updated max later this year. arc investment management announcing it holds a stake in openai. is the latest in a string of high-profile investments into the silicon valley darling, the biggest coming from microsoft investing $13 billion. this comes as the ark innovation etf has been struggling. after years of gains, it stumbled this year due to a decline in tesla stock performance. bloomberg reporting that israel is preparing for a direct attack from iran in the coming days. people familiar with the matter say it could come as soon as next 48 hours. those same sources telling bloomberg those moves have not yet been approved by tehran's officials. the u.s. has prepared and has moved additional military assets to the region and is stepping up diplomatic efforts as well. lisa: thank you so much.

the risk of higher for longer. >> the risks are looking more tilted toward inflation, even higher for longer than we have had, and the risks are looking that the fed starts at tightening cycle a bit later. lisa: that is coming up next. a bid into bonds on the heels of increasing geopolitical concerns. all of that coming up next. you are watching bloomberg surveillance. ♪

lisa: welcome back. we are dealing with the fact that we have bank earnings on one hand speaking to strength, cpi pointing to strength, ongoing pressures, and geopolitical risks fueling a rally in the commodity space across the board. when you look at markets, crude back up north of 2% gains. $86.76 on wti.

we will continue to break it down in terms of the latest from israel. under surveillance, the risk of higher for longer. >> still have the fed cutting in june but the risks around the forecast have changed. the risks are looking more tilted toward inflation stays higher for longer than we have had, and the risks are looking that the fed starts that interest cycle later. we are holding onto those similar views of the risks have definitely tilted in different directions. lisa: fed officials urging patients. john williams signaling there is no need to cut in the very near term, whatever that means. tom barkan saying it is smart to take our time. bank of america's jill carey hall writing we think the uncertainty overhang may challenge the performance of the russell 2004 now. small is likely the lag large until later this year if and when we get more cuts.

always a fascinating discussion. if we are getting the cyclical boom, why are we not seeing it in small caps? you are saying it is hinged on rate cuts, and if we don't get them, we will not see it this year. jill: we talked to a lot of investors and there have been more optimism on small caps this year. we see that in the inflows that we track. in the conversations we have had come investors looking to that as the next catalyst for why the russell 2000 could move higher from here. corporate's in general, especially the s&p 500, have locked in long dated debt. 40% of the russell is short-term or floating debt. we think this could be a significant hit to earnings over the next five years if rates were to stay high relative to if we see cuts, then this becomes a less detriment to headwind. lisa: forgive me for the hypothetical here but what does

it take to get fuel to this particular sector, one rate cut, the prospect for higher rate cuts off the table, or do we need to see the beginning of a protracted rate cycle that could bring these expenses back to something similar of the past? jill: one cut is not going to necessarily solve the problem. given how elevated rates are, our economists are expecting to see a cut in december, pushed back from june, four cuts next year. if we get greater confidence that we are on the path to lower interest rates, so that when these companies have a lot of debt coming due over 2025-26 and beyond, that refinancing cannot be as big of an impact your earnings if rates stay at these levels. the macro positive for small caps still stand. prophets recovery.

another risk there is that the profit recovery this year is very backend loaded. earnings will the negative the season but consensus is looking for small-cap earnings to recover to about 30% year-over-year by the time we get to the fourth quarter. we will be paying attention to guidance coming in. if things do come through, that could set us up for a better year and rally for small caps, if we have confirmation that the backend loaded is coming through, inflation is coming through, the fed will cut, as mentioned, our economists now forecast for december. manus: the russell 2000 energy is up over 10% and tech. when you look at the commodity complex, we are talking about oil, geopolitical risks that are there. we are looking at oil, copper, some kind of a news cycle. within the breadth narrative in

the russell 2000, will it endure? jill: the good news around commodity oriented areas, they are some of the sectors that have lower refinancing risks relative to sectors like real estate that could see a much bigger earnings hit. within small caps, if you are an investor right now, you want to be selective and these commodity-related sectors are a way to do that because they will benefit from manufacturing, gdp improving, but less sensitive to refinancing risks. that is one area that we see that are positioned within smid, would stick with stocks that don't have a lot of leverage or short-term or floating debt. manus: the russell 2000, financials. we are getting information from jpm, citi about the net interest income. that story incrementally under a bit of pressure but is that more

pressure to come in financials in the regional banks? jill: within banks we would they were large over smid banks. overall this is a sector within the russell that is sensitive to credit conditions, the fed. that is an area that even though it is relatively well, we are selective right now. we are watching the earnings season, watching guidance closely. u.s. corporate's had guided relatively weakly in the past three months. we will see if we see any improvement there. that is one that we are more cautious on in small caps, has more risk or refinancing. lisa: jill carey hall, thank you as always as we try to parse

through the different cost currents, whack-a-mole of narratives. we have jp morgan earnings, wells fargo, citigroup kicked off, did great, just not quite as well as people had expected. you pointed to a quote from j.p. morgan. manus: jamie dimon, increased dividend because our capital cup runneth over. it is the king of wall street just going, i have got it all. lisa: they do have it all in terms of a lot of cash coming in, not as much thought with net interest income coming in below expectations. we are also watching, to prices really closely. gold making an all-time high. copper the highest since 2022. oil prices continuing their march. ann marie, it is causing a question of what this means for a strong dollar in light of a lot of people talking about

industrialization, what this means for inflation. annmarie: we are going into a weekend that is now tense with geopolitical risks. our report is within 48 hours we could see some sort of retaliation. all morning we've been pointing to the actual tangible actions that the u.s. and france are sending about warning signals, individuals in israel. iran wants to show capability. what does that mean? they told the germans it would be "appropriate." this could just be us walking in with a bigger premium on oil on monday. lisa: a stronger bid into treasuries on the heels of the risk off concerns. on monday, peter scheer of academy securities, kbw ceo tom shouted, and new york fed president john williams. this was bloomberg surveillance. ♪

>> i am dani burger. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading. this is bloomberg be open with jonathan ferro. dani: futures edging lower after banks kickoff earnings season. jp morgan mrs. on loans. commodities keep rallying as gold hits a record high. thanks kicking up earnings season with a whimper. jp morgan disapon