>> the fed is going to i think deliver a hawkish message. >> how patient will they be to get to policy objectives? >> it feels restrictive and they would rather hang out at these levels for longer. >> it's possible the fed chair could lead us to a path where there is more tightening of financial conditions. >> it's how he characterizes the environment before the market can resume another push higher. >> this is "bloomberg surveillance." jonathan: it is fed decision day.

live from new york city this morning, good morning, good morning. leaving behind a very messy month of april and kicking off may with the futures 0.5% on the s&p 500. southside note to south side note, saying the same thing, it's a hawkish chair powell. hawkish relative to what, the last time that they met or what the market is priced for? lisa: it's a reason that some people are saying sell the rumor, buy the news. expecting bonds to sell off, they will be disappointed. chair powell, basically hawkish means his coming out and saying we are not sure, we haven't made us much progress, we are still monitoring it and will not say anything about something that rhymes with wike. jonathan: wike?

just say hike. lisa: he doesn't want to say the h word. [laughter] jonathan: 5.03% on the two-year this morning. alan ruskin at deutsche bank thinks this is the stat of the day, the 2-year note has rallied on all of the last four fomc days, eight of the last 10 days of meetings since february, 2000 23. chairman powell has one gear and struggles to get out of it. lisa: the gear being dovish. the gear being well we don't want to cut. this is the question. is he going to go full pivot -- i can't even say it -- is that what he's going to do, or is he just going to stay on the margins because we are not making enough progress? annmarie: well, yesterday we heard from saint -- stephen stanley who started his thesis was being viewed as in the crazy camp because one cut this year.

he talked about the fact that pal is dovish and he wants to bring the consensus of the committee when he answers those questions and i love this, in any case, in light of the market reaction to these pronouncements last year, pal has resorted to a bland set of responses. that is what everyone is expecting, very bland powell, unless of course he goes there and says the h word. jonathan: the big question that we need to hear in the news conference is this one from julian, on the program yesterday, could you see the next move is a bigger rate hike any circumstances? how does he navigate that? we mentioned this program. it should be written down on a sheet in front of him. how is he going to address this? lisa: why not say something simply like monetary policy is that a good place in if we keep at this level, inflation will get under control.

we are open to all possibilities arising should the information more and it, but the bar is high given the hiking get jonathan: did you draft the answer for him? [laughter] lisa: i just sake -- him saying that is what he should be saying. jonathan: that was very fed-like. look out for more. [laughter] if you like that kind of thing, too: 30, it will be that on repeat for 60 minutes. tune in. s&p five future -- s&p 500 futures, negative by 0.5%. getting closer and closer again to 400 69. there was a stream of guests saying bill tune in, this will be a snooze. boring. freezing. cold. ice water over this one. lisa: yet if he says everything and if he's as boring that he says he will be, that will be news in itself, watch for the riproaring rally into bonds. i think even if it is boring, i

think it will be important to watch. jonathan: spec -- special coverage at 1:30. tk is dropping by. coming up in this hour, max kantner. mandeep singh, ai shares rising. david rosenberg counts us down to the fed. top stock prepare for a more hawkish fed. higher for longer rates with gradual rate cuts sounding scary at first, we remain maximum overweight on credit, equities, and death. next joins us for more. max, overweight. talk to me about five. max: i think i'm more in the camp of what lisa was just saying. we are all pretty desperate on getting something exciting out of the fed, but be honest, looking at what they did five months ago, the dovish pivot pretty much out of nowhere, out of the blue, it would be strange

if they boxed themselves in now to basically say that the next move might be a hike. i do think that we are probably going to get something that sounds hawkish relative to the last meeting. if they give us one or two cuts instead of three on the dot plot, it won't the needle a lot. with a tail risk off of that h word, it takes away the tail risk and it looks pretty goldilocksy. it should be leading to a bit of a relief in the duration on the yield side, feeding through the asset classes where risk assets in absolute terms can benefit even more from that in we will find out that yields have moved higher because growth is really good. it's nominal growth that is really good. margins that are rocksolid. earnings growth. look at the earnings season.

beating surprise factors higher than pre-pandemic outrages. at the end of the day, yields have moved up because growth is good. jonathan: can we unpacked a reluctant word, goldilocksy. earlier in the year you were talking about reverse goldilocks. what has changed and what does that word mean now? max: the starting point has changed. the starting point is tremendously different compared to the start of the year. number one, the inflation swap was at one hundred 80, 190. looking at rate volatility, despite increasing yields, it's declined throughout most of q1. it's declined with the selloff in the duration. in the start off of the year, we had one month forwards, a few months out. we have been trading at or below

3%, and that has changed significantly now such that they are trading between four and 400 20 already. even if inflation ends up being over the medium term not a two, but a three or above three, we are pricing the fed at high positive real rates are in the future and that has clearly changed. the starting point has changed significantly. lisa: goldilocksy, i like it. is it just for big tech? small caps will be slammed with higher rates. talking about margins, they are not doing so hot at starbucks or even mcdonald's. at one point is this goldilocksy and then when do people have to watch with and be? lisa: more like me, you are drinking the double espresso or the marshmallow lattes? jonathan: how did you know?

[laughter] lisa: am i that obvious? max: i'm not going to go into that. [laughter] what i think we are seeing now globally, even outside of tech, we are seeing margins right now over the last couple of months settling at levels that are higher compared to the peak from before pandemic. not talking about settling where we were before. talking about the peak before the pandemic. 2018, 2019, settling outside of tech at higher levels before the peak. it goes to show the strength even outside of tech. you are absolutely right, u.s. small caps are not something i would want to go for. i would much rather stay in quality and be in with consumer cyclicals and on the other hand more on the industrials

materials energy side, overweight oil, because we are seeing more of an uptick in the manufacturing activity and leading indicators overall. so, that still makes sense, but particularly large caps, and to date, because we have a different starting point, it's tech in particular that should be benefiting the most from it with emerging markets, looking for example typical positioning on u.s. rates. it should give a tail stone for em. lisa: how much of a goldilocksy condition do we have? months? could it last years? max: i don't think years. what we will really talk about over the next six months to 12 months is jumping from one extreme to the other. from the start of the year, that notion of us jumping from

goldilocks to reverse goldilocks still stands. if you said the fed wasn't going to cut at all because inflation is back, and you know, looking at three-month annualized core below 2%, people made too much out of that. if you had said that four months ago, people would have called you crazy. now if you say -- you know what? the next stage is probably goldilocks because the starting point is so different now, it equally sounds pretty crazy because of course now it sounds like when you look at the annualized inflation charts, surely we are on the brink of the next wave. but i think as much as we exaggerated four months ago, we are now on the hawkish side and that has been a three or four month change. i don't think it will be six to 12 months stable goldilocks. it will be flipping to one extreme and then once we have played that we flit from one extreme to the other.

annmarie: you say you are not oblivious to risks and that one that keeps coming up in conversation is the sustainability of u.s. government debt, but you are not concerned. why question mark max: not entirely concerned -- why? max: not entirely concerned. look at the sheer size of the u.s. treasury market. if people really are concerned about the sustainability of u.s. debt, frankly where are they going to go? there is a lack of safe assets, right? they can't all go into old or bitcoin. -- gold or bitcoin. the lack of assets outside the u.s. calling into question the sustainability of u.s. debt threat, when we look at government debt, that has yes spiral higher since 2020, but it needs to be put in context. looking at u.s. government debt compared to things like household debt, household debt

since the financial crisis has gone down significantly. looking at since 2010, for example, total household debt, government that, it has only gone up by 16% of gdp, not negligibly small, but nowhere near as shocking or as dramatic as if you were only focusing on government debt. jonathan: max, this was great. brilliant to catch up. secretary yelling -- secretary yellen getting a absolute grilling on this topic this morning. the story going on to rita's follows, janet yellen will use a speech to address the kane institute and deliver a clear warning about the dangers on american institutions with detail in the story referencing the trump plans to increase presidential powers, she will make a broad historical argument

referencing easter germany on how autocratic regimes stifle economic growth and make a plea for the federal reserve's independence as well. quite a speech. very political for the treasury secretary. annmarie: very political. we have seen that over the course of her tenure, moving from academic to trying to tow the company line with the biden administration and be more political. i think she will really hone in on the fact that she is a former fed chair and that independence is paramount. but he's not going to be able to rein it in. this lies with congress. jonathan: back to that story later. equity futures down, updates on stories elsewhere with your bloomberg green, here is dani burger. dani: starbucks shares premarket, falling more than 12%. falling for the first time since 2020. one analyst called it the worst set of results for a large

company so far. other companies like mcdonald's and nestlé have price-sensitive borrowers coming from price-sensitive households it if the decline holds, it will be their biggest drop since march of 2020. bad news for those hoping to sell a home in the u.k., house prices falling at the fastest rate in eight months. there's been a pullback in pricing for the bank of england and the average home price fell 4% in april. economists had forecast an increase of .1 percent. nypd officers broke off and escalating pro-palestinian protest at columbia last night and that the nypd was called in just after 9 p.m. to restore order in the university president asked officers to stay on campus through may 17. police made arrests for the uptown at the city college of new york. jonathan: honestly, what a waste

of city resources. ridiculous. lisa: i heard the choppers over me all night and it raises the question of how much the mayor is correct about this being something other than just hubris. jonathan: going to leave it there. coming up next on the program, a's -- amazon's ai be, paying out. t>> they are the king of the cloud jungle over google and microsoft. you are seeing the flagship business builder. jonathan: live from new york city this morning, good morning. ♪ ♪ with the power of ai... ...with a perfect name, a great logo, and a beautiful website. just start with a domain, a few clicks, and you're in business. make now the future at godaddy.com/airo

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jonathan: closing out april with equities lower, kicking off may with the same thing. check out this name, starbucks in the premarket, lisa brought it up. lower, 13% on the week. listen to this on the south side, the tide turning quickly. the stock is down hard. lisa: people expecting a turnaround didn't get it. is this about consumer appetite? is this because of geopolitics?

these are traditionally american names and oversees some of the sales have come down, but what is the dynamic? is there a broader read that is economic or is this just a starbucks mcdonald's problem? annmarie: the company is dealing with the challenge of selling six dollar lattes and customers, younger base, bulking at the fact of the perceived supporting of israel from starbucks. jonathan, you could have moved starbucks to the biden administration and the struggles companies have, same as the struggles companies are having. -- of the biden administration is having. >> we are seeing projects kicking off and the u.s. is the king of the cloud jungle as the leader over microsoft and google sorts itself out. you are seeing the flagship is this really filling. at the end of the data are a growth company investing into innovation.

jonathan: the latest this morning's amazon shares rising in the premarket, posting their strongest sales growth in the year as businesses resume spending on tech and ai with services on pace for multibillion-dollar annual sales. mandeep singh joins us for more. can you compare and contrast the numbers from the last quarter outlook. was one stronger and one of them weaker? mandeep: if you parse through the numbers, they clearly had sequential acceleration in the growth with marginal being quite prominent. my feeling over here is they did not give us enough specifics to kind of have a run rate on generative ai. it's multibillion, but how does it compare to the 7% contribution to growth from microsoft? with microsoft we can see it making up 5% on the over all

revenue. granted, amazon has 100 billion it it's bigger, but we don't know the rate at which the generative workloads will grow. they are the incumbent employers in cloud and have to invest more in capex to drive the generative ai tricks -- chips in their sector. that is the risks with amazon needing more capex to refresh data centers. i think that we have probably seen heat aws markets and i would be surprised if they keep showing expansion on that side. lisa: which is the reason you are not seeing a pop in the shares given that we have seen the strongest growth in a year in the cloud service business. amazon pit and misys the year so far. things dealing with the consumer, not so much. what is the message that you take from that, that this is not

an amazon problem but something that is economic on their sales platform for the average consumer? mandeep: i mean, look, that platform serves so many different types of consumers. clearly, the prime bundle has a value proposition. i think again if there is one subscription you want to keep as a consumer, it's amazon because of the number of services they deliver. but you are right, you can see it in the print. it's hard to see margins expanding on the e-commerce side. they have pulled all levers around costs optimization and doing whatever they can in terms of layoffs, etc., so i think the margin side is where i'm most concerned. aws was the, basically, the margin expansion story. it's not able to subsidize the businesses anymore, going

forward, given its own, and that is the part that investors have to parse out. lisa: what happened to the dividend that didn't come? mandeep: they called it a multiyear capex cycle. it's similar to meta-, where everyone didn't like the reality labs investment. in this case they are calling it a multiyear investment capex cycle in there weren't any answers around dividends or buybacks. amazon in their history has really done buybacks. this has been a topline growth story and it has been amazing. you could argue that they could be a $1 trillion revenue company , but it is a margins call that people are not sure about and right now the uncertainty has gone up given the investment required. jonathan: you could break the company down between corporate

spending and consumer spending. is one more resilient than the other at the moment? mandeep: amazon skews towards small businesses on the spending side in the consumer side is also focused on the kind of small consumers of all sizes, but on the enterprise side i would argue that they are not as resilient as microsoft, because they are skewed towards large enterprises. they are not going to dial back the spend as quickly as a small business. i do think that they are more of a risk to amazon cloud growth and microsoft. jonathan: interesting, fascinating cramming -- framing. what do you think of that, large versus small? lisa: perhaps the reason amazon isn't getting the same reception even though they had the strongest sales growth in a year, stronger on two prongs for the customer base cloud service question basic sales for the average consumer who doesn't

want to buy clothes or toilet paper on amazon anymore, doesn't like big shipments. jonathan: this is personal? lisa: no. no. just saying -- other things. garbage bags. people are feeling the pinch. we have been talking about this extensively, this cumulative feeling of uncertainty, big versus small, will we keep seeing that in earnest? jonathan: just sick of buying the toilet paper from their. personally. lisa: it's a lot of packaging. you get these huge packages. boxes are wasted. jonathan: totally agree. i hate wasting boxes. can't stand it. really frustrates me. putting the boxes out. [laughter]

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jonathan:jonathan: leaving behind the worst month of the year for u.s. equities, good morning to you. equity futures on the s&p 500 negative, down by 0.9 on the nasdaq 100, down 4% in the s&p month of april, snapping a five-month winning streak. the bond market, quite a run. stocks down, yields up, plagued by higher-than-expected inflation with yields back on the 10 year and a single basis point this morning, making

another approach, a look at 470. lisa: people pricing out the rate cuts, here's the issue where we have seen complete this agreement on the show, essentially can the equity market sustain its rally given where yields are if they stay here? or is it going to hammer it going forward? we don't yet agreement. is it a rolling goldilocks or rolling recession and people cannot agree. jonathan: and what does it mean if you throw in a stronger dollar? big week for pricing, 40 basis points in the front-end. pushing it through the fx market , that's a much stronger dollar. dollar-yen for a moment, the yen's on the worst monthly streak going back to 2014. you could argue that back then, a decade ago, this was something that the doj -- boj was trying

to engineer, but this is not anything they tried to engineer this time around. lisa: but arguably one of the reasons you seen a big selloff as the bank of japan didn't take a more hawkish stance or seem concerned, saying that they would raise rates. they were watching it but it was not the main thing, raising the question that if they are not that concerned about it, at what point does it hamper the economy with the bad inflation it supported? jonathan: that is why it is eventually so much harder. doesn't feel like they are on the same page at all. lisa: and until the bank of japan gets on the same page, can you get a sustained rally? annmarie: today under surveillance -- jonathan: today under surveillance, the fed expected to keep rates steady and jay powell expected to make a hawkish pivot following a series of hotter than expected prince. david rosenberg later this morning, but hawkish relative to

what, the most important market question we have going into this news conference. relative to the last meeting or to what's already priced in the market? as we said at the start of the program, one is a much higher bar. lisa: it goes down to as he want to engineer a selloff? he showed the alan ruskin stat. the issue for me is does he view the pivot from late last year as a policy error? that is what a lot of people have been saying and if he does, does he want to reverse it by saying that hikes are on the table with engineers selling off closer to the goal? annmarie: later our guests will discuss the partial fed pivot that jay powell is trying to conduct, leaving optionality open, easing but acknowledging a window that is getting narrow. jonathan: there's a news conference 30 minutes after that, look for that this afternoon. tesla, eliminating almost its

entire supercharger organization, having built a vast network of public charging stations that every automaker in the u.s. is tapping into. elon musk said that tesla plans to grow the network but at a slower pace for new locations, more focused on 100% uptime with expansion of existing locations. if you are a major manufacturer making the shift to using this network, what are you thinking this morning? lisa: we know that rivian, ford, gm, they are angry. they are not please, they are adapting technology to adhere to these chargers. how much does elon musk hold the keys to the entire electric vehicle option and if he does, is he flipping off the industry? annmarie: reading into the statements from these companies, they were blindsided. this was a huge win for tesla, they were coming onto their

charging networks. you have to think about what elon musk said, we need to be hard-core about headcount and cost-reduction, so this is hard-core. jonathan: volvo, kia, honda, mercedes, europe, asia, take your pick. reading between the lines, i wonder if there is a little dear white house, dear other sauce. come on board if you want us to hire more people, we can help but we will need a little bit more. lisa: especially given that they are trying to get the nod from gees and paying, saying they won't provide the infrastructure unless. it's not a coincidence that both of these things happened. jonathan: i did wonder that when i saw the story. antony blinken, looking for a cause for a cease-fire deal. saying -- even in these very difficult times, we are determined to get a cease-fire that brings the hostages home

and get it now. the only reason that wouldn't be achieved is because of hamas. joining us now for more, stanley cook at cfr, author of the upcoming book, "the end of ambition." let's go to the first question, sir. are we close to a deal between israel and hamas, or not? stephen: it doesn't seem that we are close, though the reporting would suggest otherwise. the problem is that hamas would have to give up the one piece of leverage it has this conflict, that is the remaining israeli hostages. especially since the israelis have not been willing to commit to an end to the conflict. there has been talk of a sustainable calm, but the israelis are determined to destroy the hamas ability to

threaten israeli security. there really is no indication that the israelis will be getting out and as a result, hamas leadership, particularly leadership within the gaza strip doesn't see any reason to really move forward in this cease-fire for a hostage deal. lisa: wendi -- annmarie: when do you see netanyahu directing the idea of going into rafa? steven: they've indicated they are fully ready to go. it is important to note that the prime minister has said that whether there is a hostage deal or not, rafa is going to happen, putting him in direct conflict with the president of the united states who continues to say he doesn't support that operation. the real issue in israel is the significant political support for going into rafa and to not do it potentially breaks the coalition. i think it is quite likely that there will be some type of

operation in rafa. israelis saying that they are ready. that could just be a negotiating tactic here, but nonetheless i would expect it at some point. annmarie: even if we get a deal, you expect netanyahu to go into rafa, but how much time could that prolong a decision? steven: from summer months into the fall, but the leaked documents about this potential deal, they talk about 100 days of cease-fire. the initial 16 day cease-fire is when a larger number of hostages would be released in exchange for palestinian hostages and then two 42 days of calm. so, if it happens, it could delay the rafa operation for a number of months, the israelis seen determined not to go back to the status quo.

lisa: how much of these protests at universities prolong the conflict in the sense that it makes certain members of hamas less likely to accept a cease-fire? steven: i think it has a dynamic effect on both sides. they are being covered wall-to-wall by the israeli press. we have seen hamas and hezbollah figures praising university students. hamas and its allies leave they have the momentum of global public opinion behind them. the israelis feel more and more isolated, like they have less and rafah less to lose by going into rafah, dammed if they do and dammed if they don't. i think it has a dynamic effect on the ground in terms of prolonging the conflict. lisa: what to some of the arab allies of the united states and secretly of israel think about the protests in the united dates? thinking, for example, of saudi arabia, jordan, egypt.

steven: they understand that the politics of israel and the united states might be changing as a new issue of authority comes to the united states, but they are really focused on bringing a cease-fire and an end to the conflict. protests on college campuses are an interesting sideshow and i will note that in addition to the israeli press, al jazeera is also covering this wall to wall. arab officials are or concerned, actually, with the state of affairs in the gaza strip, what will come next, and whether there will be, in the words of american officials, a concrete time-limited credible path towards a palestinian state. from their perspective, the protests are neither helpful nor hurtful, just an interesting side story to the overall conflict in the region. jonathan: do you believe that

the endgame is the same, israel will wind up occupying gaza? steven: it's hard to see how they are not going to. plans for the day after mean essentially what we have been talking about since october, november, revitalized palestinian authority. with the help from major arab partners of the united states, the problem is none of those parties have the capacity to maintain calm in the gaza strip. at the same time, rebuilding it while they have also requirements that there be a credible process towards a palestinian state. that leaves the idea of them being able to provide overall security in the words of officials, adding to the mix the radical right in israel, which is -- which has a potent political argument about settling the gaza strip. in 2005 they said that if israel withdrew, there would be all

kinds of security problems and after october 7 that argument makes more and more sense to people and a significant number of israelis, according to polls, who would support resettlement of the gaza strip. this is by no means something that will end with a cease-fire and a hostage agreement, or even if the israelis call off the operation. jonathan: as we discussed, college campuses are a mess. biden is losing the youth vote. we have seen that in poll after poll. political struggles reshaping his view in the middle east. you have written about it. how will it shape that for this presidency and maybe future democratic presidencies as well? steven: the president, you can trace everything back to his bearhug of the israeli government that israelis interpreted as giving them license to prosecute the war

however they please. his advisers thought it bought him the ability to influence operations but now the united states seems to be going down the road of a big, ambitious product of building a palestinian state and we know how that has worked out for three decades, it is likely to end in failure and likely to be blamed on the united states. the united states needs to lower its ambitions for what could possibly be done in the gaza strip at the first priority is to make sure that the israelis do not resettle it. jonathan: stephen cook there, the author of "end of ambition." let's get you an update on the stories elsewhere and a brief with dani burger. dani: johnson & johnson is hoping that a bigger payout will resolve ongoing litigation over allegedly tainted baby powder as they are set to ask thousands suing it to resolve the claim

for $11 billion, $2.1 billion increase for an offer made last year. j&j urges those who blame the powders for ovarian cancer to support a third bankruptcy filing aimed at settling current and future claims. a luxury cruise ipo is likely to begin trading this morning, viking holdings raise $1.5 billion at the top end of the range. the company and the investors are offering shares for $24 apiece and the ipo will be creating a neat little fortune for the founder of viking, who has a focused of the business on the founder of -- on wealthy customers and no kids. mary barra discussed why she is investing big and electronic vehicles, crucial she says to the next era of cars. >> it was overhyped, now it is overhyped, and the truth is somewhere in the middle. again, yes, growth has slowed, but it is still growing.

6 that airs -- dani: that airs tonight at 6 p.m. jonathan: eastern. jonathan:looking forward to that a little bit later. viking cruise, ok? the one cruise i might consider. a river cruise. lisa: where would you go? jonathan: don't know. somewhere in europe. lisa: down to croatia? jonathan: is that something you would like to do? trying to make this team trip happen. lisa: i'm telling you, small river cruise down the croatian coast would be beautiful. jonathan: i wouldn't go onto the sea, you couldn't pay me money. but a river, i could handle that. next on the program, when bumps become a trend. >> it would take something like an acceleration from where we are and a continued acceleration through the years to really get that conversation through the years. jonathan: the really and david rosenberg, around the corner. this is bloomberg. ♪

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jonathan: kicking off made with equities growing, building on last month's losses. the bond market, unchanged, up a single basis point. under surveillance this morning, bumps becoming a trend. >> for the fed, they feel that they are restrictive and they would rather hang out at these levels for longer than have to raise rates again. i think it would have to take something like an acceleration in inflation from where we are and a continued acceleration through the years to really get that conversation on the table. i think they would still say they are restrictive. jonathan: fed officials are expected to hold rates steady today, looking for a hawkish pivot from jay powell at his news conference. david rosenberg writing that hawkish now means relative to

market pricing not what it once was and that powell seems to be moving away from his earlier view that the inflation pickup of the first three months of the year was due to statistical aberrations and said that he still believes the inflation deviation for the second half of last year will be corrected and david is with us now. we will get to the aberration in a moment, but i want to start with a hawkish shift. so many of the notes has said the same thing, hawkish chair powell, i think you have nailed it. hawkish relative to what? relative to the last meeting, that's a low bar. to what's priced? that's a different story. how hawkish is this going to be? david: at this stage, for him to sound hawkish enough and move yields higher, he would have to strongly suggest that all of the rate cuts -- and there really is only one left for the year, they

are off the table, for sure he's going to be asked at the press scrum about what his view would be on the possibility of the fed actually moving towards raising rates again. and if he doesn't push back on that, you know, that could be an important mark over, but that is where we are right now, the bar is not set at six or even three rate cuts from the last set of dot plots. i would say that he is going to have to sound hawkish enough that either there are no rate cuts coming whatsoever, or that there is a prospect that the fed next will hike in there is some market chatter in that regard over the pet -- the course of the past several weeks. lisa: you still believe that this inflation is coming down the pike. the recent data we have seen, you think, has been an aberration. what gives you that confidence?

david: i don't know that i have a crystal ball as to how long we will see auto insurance going up at a 20% will rate you going back to 2021 and then 2022, back then it was mostly used cars and car rentals soaring to the moon. but it didn't last forever, right? we have auto insurance. we have tenant homeowner insurance, financial services, and what has been frustratingly slow is the dissent in the dominant rental measures. the reality is, when you are looking outside of these factors to show the bifurcation of the story -- and people will call this data mining, but it really is just to identify the real split in the data. when you actually move away from insurance premiums, which is not really about the economic cycle and the arcane way that the rent is treated, financial services

and the like, that's related to what the stock market has been doing until recently. everything else collectively is running around 1.5% on a year-over-year rate. if you can build a strawman, these factors that precipitated the bump up in inflation, january, february, march, due to these isolated components of a cpi pc conflate or, we could possibly revert to the pattern of the inflation data, the core inflation data from the second half of last year, i think the fed will be quite a bit more comfortable as we move towards a july meeting. annmarie: yesterday there was a surge in the employment costs index and housing prices. then the conference board, looking at consumer confidence, the lowest since july of 2000 22. how does powell deal with a barrage of bad data in the past

24 hours? annmarie: again -- david: again, huge divergence. when you take a look, for example, at areas like financial services, they got weaker by quite a bit, but retail was actually down, a big surprise considering the age increases in california. leisure hospitality, of course, which is what powell was focused on just one or two years ago as the signs of mismatch for consumer services, it slowed down dramatically. a lot of the eci was again highly concentrated in state and local government. manufacturing, we saw a bulge. even though, it's interesting, we know looking at the pmi yesterday, all of the aggregate data in manufacturing, the industrial sector is in a recession of its own, yet manufacturing was a leader in

eci. why? we started to see the initial impact kicking in on the data. that was a broad-based report. not something where we want to say it something massive in terms of inflation in the u.s. economy but once again it was a big divide between some of the more private cyclical service areas, which actually two years ago were a big source of the problem. they are starting to slow down. you mentioned the conference board survey. the consumer confidence survey is interesting. the first thing that you think about, a big decline in consumer confidence in april, that was supposed to be because of inflation, but actually the inflation metric stay the same. you know what the weakest component of the report was? the assessment of households on the labor market. currently and over the next six months. i have to say, if that assessment on the jobs market is accurate, it will be tough for

people to go to their boss and negotiate your higher pay packets. looking at what happened with eci in the first quarter, it's something that won't you sustainable. jonathan: what would you say back to the people throwing around the word stagflation? david: it's ridiculous. three handle? when they talk about stagflation in the 1970's, if you described today's situation in the 70's, anyone around back then, you would be a laughingstock. people throw around these words without understanding what they are. i do think that we have a stagnant economy and it's not evident looking at government data, but there is not a snowballs chance that you could read the last beige book, which has been around for 50 years, replete with signs not of recession but an economy that is flat on its back and not reporting along the other data you have seen on the other side of the economy.

what is most important is what we have seen from walmart and starbucks, across a broad array of the retail sectors, companies are losing pricing power. so where is the flation in that? it's called disinflation. jonathan: david, you're one of the best. fantastic to catch up with you. we heard that from walmart executives on repeat over the last few months. speaking of walmart, difficulties around health care and retail. lisa: a couple of days ago we heard about them closing telehealth units with rising costs and now cvs is tumbling, cutting the full-year forecast and the rising costs associated with the foray into health care. jonathan: coming up in the second hour, tony do spirito a blackrock, mary :00, and earl davis on why the 10 year, he

thinks, could test 5%. that's coming up shortly. this is bloomberg. ♪

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>> earnings season has been going well enough, so right now that is the focus. >> earnings by and large are not great but ok enough. >> we are starting to see a few cracks. >> all the earnings growth is five stocks again. that is going to change as we move through the year. >> this is bloomberg

surveillance. >> yields a lot higher. and standing in the we have gains on the first day of may, a federal reserve meeting just around the corner. equity futures negative on the s&p 500. we have heard a hawkish chairman powell is coming to you in the news conference. lisa: is he going to come out with any conviction saying there has been a material shift in the trajectory of inflation or just going to say there is not the same degree of confidence he was hoping for to connect the dots in june? jonathan: would he gain confidence or lose confidence? he has lost some. do they acknowledge the disinflationary process has stalled? do they acknowledge that in the statement and news conference or are they still referring to this as bombs in the road? lisa: it is a great question. it comes down to what to they want the response in markets to

be? you have to imagine jay powell knows if he says this has been a stalling of disinflation that will be read as more hawkish and incur some sort of selloff. does he want that? that is one of the key questions. >> when he opens his mouth, there will be downside risk. if this was not just bumps, what was the point of the pivot in december? that is why he has to say we are still monitoring this data. >> the decision just around the corner, the news conference 30 minutes later. equities are lower by 0.4%. the move we have seen in the last month, unreal at the front and long end. at the front end, we have had a move of 40 basis points. this is 50 basis points higher on a 10 year and equities lower, down about 4%. >> at this point, i'm not as

interested in bonds as what is going on in specific stocks. i am not getting a clear read on things. can companies sustain themselves on these yields? you start looking into which companies are doing what and we talked about starbucks and amazon. there is pressure. there is a sense that they cannot pass on the same price increases to consumers. how do we pair this with the idea that other places are seeing growth and a rebound in inflation? jonathan: let's go to starbucks and put the name on the screen. we touched on some of the southside research early on. the southside research is pretty brutal, a stunning across the board miss, down 13%. a notable miss. this quote is worth repeating.

starbucks is putting a lot in the water to try to paddle, struggling to move. >> part of this is a reset. part of this is competition with respect to how much you can pay for a cup of coffee that has some milk in it and there is a question of protests of american brands due to the u.s. backing of israel with respect to what is going on in gaza. it is not just these. we heard that from amazon, so there is something bigger going on. it is unclear. annmarie: when i look at starbucks, since january we have been talking about their pricing power or lack of in china. china sales down 11%. the same kind of issue with ev's . the price cuts you're are seeing and coffee in china, even with the brand they have in china, it is not working. jonathan: is it a problem for

u.s. brands? lisa: this is what you are seeing in places. multinationals -- are multinationals benefiting from diversification or suffering from not being highly leveraged? jonathan: it is not as easy as it once was. stronger dollar in the mix as well. coming up, stocks snapping five months of gains and earl davis looking for the 10 year yields to test 5%. we began with our top story about on edge ahead of the fed decision. u.s. equities closing out a difficult april. to discuss, tony despirito of blackrock joins us now.

>> in terms of the market, i am pretty positive. we are in a decent set up. earnings are growing nicely for the first time in a while. right now, it is running a little above 3%. by the end of the reporting season, we should be close to double digits, so the economy is doing well. there are bumps along the road, but the trajectory is positive. earnings growth quite positive, so it is good for the market. where i get excited is the opportunity for active management. it is skill times opportunity and the opportunity set is dispersion and right now i see a lot of dispersion. i have heard you talk about companies doing well, some companies doing poorly, big differences in valuations among companies. to me, that is a stock ticker paradise. that is why i use the word

actively bullish about the opportunity set for skilled active managers. jonathan: what do you make of these big moves we have seen? just double digit moves everywhere. tony: you're right. the moves have been large. part of that is the market has changed a lot. even though we had a tough april, the market is up 20% since the october lows and still up 6% year to date, so i think there is volatility. volatility is good for a skilled stock picker, but generally the trajectory of the market is nicely up. >> some people were talking about a rolling recession and we heard it has been a rolling coal the locks and you basically have

to lean into this goldilocks narrative. is that what you see right now, putting a halo around ai and energy? tony: i do see this rolling recession and recovery and i think that is a lot to do with the dance of covid and push and pull where we have seen chip shortages and surplus. we have seen step changes in inflation at insurance. that has created this rolling recession, so 2022 is a tough year for technology companies. they responded by cutting costs and 2023 has a better cost base and improving revenues and earnings explosion. when i look at the market now, the market is concentrated on this magnificent seven. if you look at earnings

estimates, the magnificent seven earnings growth has been higher than the rest of the market and valuations reflect that. if you look at quarterly earnings estimates, by the end of the year estimates basically normalize and you are paying more. i think the earnings will probably come out better than what the estimates are, but will be close to equal and that goes to the idea of the market broadening and being an opportunity for stock pickers. i think we will see that over the next several quarters. >> how challenging is this idea that we are seeing a consumer that does seem to be pinched? we are talking about starbucks and amazon. highlighting a real slow down in terms of online purchases. how much do you see that as

hampering ability to broaden out at a time where there is a two speed economy with a growing number of people struggling? tony: i think that is a healthy part of the process. what we are hearing is a consumer being more selective and i think that is a function of this step change in prices that we have seen and i see that as a good thing because, when i look at consumer spending and savings, i see a consumer that has been spending at an above trend rate cut meeting consumer savings rate is too low, hovering just over 3%. normal is more like 6%, so i like that the consumer is getting more selective. i think that is good for the long run. the other positive is productivity growth and population growth.

both have surprised positively and that is helping sustain the economy. even though the consumers being more conservative. annmarie: you spent a lot of time talking about the election and that companies are not talking about it. is that because these two individuals are known? tony: it is interesting. we have gone back since the elections going back to 2012 and cannot using our ai techniques, have gone back and read through effectively conference call transcripts and companies are talking less at this stage. we expect it increase, but fewer companies are talking about the election. i think it is largely because we have two known candidates and i do not think -- no matter how it comes out, we are going to have a lot of close calls, whether that is at the presidency or

house or senate, so that means not big policy changes. jonathan: it is good to hear from you as always. just getting confirmation now from the treasury. the secretary of the treasury will travel to arizona friday to deliver a major address on the economic case for democracy. this will be interesting. this will be a speech which takes on the ideas of the former president running to be president for a second round without actually naming him. annmarie: she is going to town what the biden administration is trying to talk about. this comes on the heels of donald trump down with time magazine, a long and extensive conversation. he was asked again about that quip he made about being a dictator on day one. he said, i was joking, but he

did get into economic policies that drive -- that are very different than what this administration is trying to put forward. lisa: the idea of fit independence he has put front and forward and there has been discussion of veto power and the feasibility of it, but even middle-of-the-road columnists saying trump's fed plans make no sense even for him. others question how realistic this is. how much is yellen acting as a proxy to president biden to make a cohesive argument against this in a way that can appeal to the business community that has not picked a side yet? jonathan: the short answer is a lot. i will go on to say this. this is what i'm thing about the president did in address at the white house correspondents dinner and talked about these

themes and the comedian afterwards basically finished with an endorsement of the president on a similar theme. does this pull well? much of this is well understood. i get that one person stands for this, one person stands for that, and then i look at the polls like my still behind in swing states. annmarie: it hasn't really been done before. you never had a president come out and say this is what my agenda is going to be about. what has polled badly as people are still feeling inflation. we saw it most recently in the cbs poll. people are feeling the economic pinch of higher prices and inflation and that is hurting biden's poll numbers. lisa: wasn't biden running as the anti-trump? jonathan: he is trying to make this election about the future of democracy.

we all understand that. haven't we all got the message that that is what he is trying to make it about? i'm trying to understand if that is polling well. lisa: i get a lot of sense that people are tuning it out. it seems like everyone is just going, hope it is going to end. jonathan: let's get an update on stories elsewhere this morning. dani: amazon up 2.2%. its cloud unit did push stronger sales in the year, but its push into ai has come at a cost. the cfo says capex will increase this year. as for the e-commerce side of the business, amazon fell short of estimates. marketers told me amazon can capitalize off of price-sensitive buyers. >> consumers do not stop purchasing these products. they trade down. amazon is another thing they have done.

they have expanded their consideration set so consumers who are looking to trade down can find cheaper options and still access free shipping. dani: new details on microsoft's spending into ai with concerns about falling behind google. those details came from and email released yesterday as part of the antitrust case against google. the doj is arguing that chatgpt and other advanced tech could have been released years ago if google had not monopolized the search market. a harvard economics professor says financial markets will for political pressure on the fed. earlier this week, reports suggested that donald trump's advisers are drafting plans to give trump more control over the fed. >> if you take away fed independence, investors are going to get jittery. inflation expectations will go up.

so for better or for worse i think markets will throw a pretty cool bucket of water on the president if he tries to do that. dani: that is your bloomberg brief. jonathan: what did you say, liz truss moment? lisa: that is what he is describing. jonathan: in the first term, the markets were limit on his ambitions and then he would back away. is it going to be the same this time around? lisa: i have no idea. the real issue is nobody has any idea, which is why people are tuning out. jonathan: next, pushing for a cease-fire. >> there is a stronger close on the table now. he needs to say yes and get this done. jonathan: the conversation up next live from new york city this morning. good morning. ♪

jonathan: it is fed decision day. equity futures negative, yields just about unchanged on a 10 year. under surveillance this morning, pushing for a cease-fire. >> there is -- there is a very small proposal on the table now. hamas needs to say yes and get this done. that is the determination. we will not rest. jonathan: secretary of state antony blinken meeting with israeli leaders during his seventh trip to the middle east since october. he said the u.s. is determined to have a cease-fire. mario parker joins us from washington. the secretary of state describes the proposal as a strong one.

he has also described it as generous from israel. how would you describe the offer currently on the table? >> you are saying secretary blinken is trying to provide public pressure on hamas to accept the deal, which would include essentially 33 hostages returned in exchange for hundreds of prisoners who are in is really hands right now. a cease-fire for about six weeks or so, a little bit unclear on the exact timeline in that regard, but consensus seems to be about six weeks or so and then the discussion is to move toward some type of longer-term peace deal or cease-fire. lisa: how big of a gap is it now? i reading over yesterday and we believe his words, there is a decent chance we can get something more enduring.

>> what you're seeing now is politics at play. not only the geopolitics. there are the politics the administration is feeling on this side and then yahoo! -- netanyahu is feeling on his side as well. you alluded to the comments yesterday were he said they would go into rafah deal or no deal. keep in mind that he is on the right side but he has some pressure from the right flank of his own party, essentially saying if he does not invade rafah there will be walk out scott putting his power in jeopardy, so he is trying to thread the needle on both sides there as well. lisa: steve cook was talking about how the protests or heightening stakes on both sides , with fresh ramping up on israel. they are increasingly isolated and then the pressure on the biden administration to try to

end this quicker because of the political liability. how do you see it reshaping conversations in the democratic party? >> it is highlighting schisms in the party. if they were schisms among -- along immigration this year between centrist part of the democratic party and the progressive wing, this is front and center. the images out of universities across the country, particularly last night, just highlight the pressures that president biden has. he has these young voters and sue penn -- suburban independent parents concerned about graduations and the safety of their children on campuses and at the same time he is -- republicans are using it as a cudgel against him to paint democrats as essentially the party that is more hostile toward israel and requesting

their commitment to israel and at the same time saying there is ineptitude and lawlessness there. it is really boxing the president in in this election season. >> we saw this administration pushing for how marijuana is classified on the heels of the ministration doing a lot of movement when it comes to student loans. how much can we expect from the ministration appealing to the younger voters of the u.s.? >> we are six months or so from the election and it is worrisome for president biden is he is still trying to shore up his base. before you shore up your base, usually at this point in the political cycle you are doing outreach, so you saw last week the ruling -- they move on menthol cigarettes to cater to black voters, student loans as

welcome and now marijuana. all these policy plays are geared toward shoring up the democratic base. jonathan: build on that. from the perspective of a lot of people, that sounds ridiculous. menthol cigarettes to appeal to the black voter? is that a serious proposal of this administration? >> the administration was under duress from civil rights groups, so demographically black voters are the biggest customers for menthol cigarettes, so civil rights groups were saying, why are you signaling out this particular flavor of cigarettes that are geared toward -- that are used by or consumed by predominately black americans? so he was under pressure along those lines to dial that back and you saw that recognition as

you look at the polls that show he has to shore up support among that constituency. the last thing he needed to do was fray further. >> you are one of the best. it is good to catch up as always . equities right now recovering just a little bit, negative by a third of 1%. the dollar strengthening ahead of the fed decision. that conversation up next. live from new york on fed decision day, special coverage at 2:00 p.m.. >> is going to be so exciting. can't wait to watch. ♪ and if you want a successful business, all it takes is an idea, and now becomes the future where you grew a dream into a reality. the all new godaddy airo. put your business online in minutes with the power of ai.

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jonathan: so here is the set up. these are the scores going into the federal reserve a little later. equity futures negative here. we are down .4%. yesterday, april closing out with the worst day going all the way back to january. that is how bad april was, to be fair. worst month of the year so far. on the nasdaq we are down about .7%. amazon up just a little bit in the premarket. we will talk about that. in the bond market, the two year, just about unchanged on the session. this came from deutsche bank's

alan ruskin. the 2-year note has rallied on every single one of the last four fomc days. every single day jay powell has done a news conference the last four, this 2-year note has rallied. yields have fallen. lisa: it is almost inevitability of a jay powell news conference. he will come out, say the risks are equally balanced, but we really want to cut. it is like tourette's, pushing out this idea of a dovish turn. which has happened every time. especially given the fact that people want to see that this inflation, expected to come later, even if we are not seeing it right now. jonathan: the vicki -- the difficulty he has today, the challenge for the chairman today if he wants to be hawkish, people are saying he's going to be hawkish. relative to what? it is easy to sound hawkish elective to the dovishness of the previous news conferences.

his tone has already changed in the last couple of weeks anyway. what could he say today that would be incrementally hawkish to what is priced? which is basically one cut for 2024. lisa: basically whether he entertains hiking rates. if he says, we could see a conceivably in certain situations, it is something we are open to because we want to see the data and be data-dependent. we think it is unlikely but this is where we are going with this. which is somewhat what john williams was talking about. jonathan: use conference, 2:30. if you are in japan and look up at the ministry of finance, tonight the lights will be on. and you can see the corner. they will have bloomberg in the news conference. they will be watching this too. the south koreans will be, the japanese, because they do not want any more hikes in the face

of what is happening in foreign exchange. lisa: what do you think, one point 70, foreign exchange? a big debate whether he does shift to the hawkish, how much he is cognizant of some other nations that are going to struggle. jonathan: 158, just around the corner. this is an issue. tensions mounting on college campuses nationwide as protests continue against israel's military campaign in gaza. breaking up a protest at columbia university overnight. the university's presence asking the nypd to maintain a presence through may 17. annmarie: between now and may 17 they will have graduation. we also saw this happen in los angeles at ucla. police had to go in and break up of these encampments. this is going to continue. this is what the struggle is for the white house.

i opened up an opinion piece talking about how difficult biden will have winning the gen z vote, which was a large portion he won in 2020. what is interesting is, it is the same issue starbucks is dealing with. two factors they mention, the intensity of the attack on gaza and the frustration with an economy many see stacked against him. lisa: i want to see more reporting on this. eric adams saying there is evidence of professional agitators. we have heard that before. other people shrug that off and say that is a straw man argument. i'm not sure what the reality is. i would like to see more reporting to understand what is behind some of these protests. is it just divestment? is it something else? jonathan: if you are threatened with expulsion and don't care, there is a couple of reasons for that. either you are not at the school, you are not enrolled, you have been paid to be there, or you are wealthy and a spoiled brat and have nothing to do with these situations anyway. i can think of very few people

from backgrounds that are far less wealthy, that can afford to go to places like this, that get tuition covered by the university itself, that would be at those protests. can you? lisa: that is why i would like to know more about this. because it doesn't logically make sense. knowing children who are in college, the goal is ambition and setting yourself up for certain education. is it something that social media? is it something with respect to some specific goal that has not been articulated? i want to understand what is behind this, because it is like whack-a-mole in terms of the answers i have been getting. jonathan: isn't this the challenge of connecting with these kids right now? you sit there thinking, this is ineffective. it's not working. we are talking about how ineffective these kids are a college, college campuses, and not about the humanitarian disaster taking place in the middle east. in fact, it is a distraction.

the protest is meant to draw attention to what is happening over there. annmarie: you are seeing a lot of criticism of one interview with the student, basically saying they are the victim in all of this. barricaded themselves within up -- within a columbia building, and blame the university for not feeding them, and called them -- called it humanitarian aid. when the situation is the dire situation of the palestinian people. jonathan: what did you say, there is a shake shack across the road? annmarie: there is a shake shack. there is a good mexican restaurant close by. lisa: i think there is a lot of arguments that can be made. there is something bigger going on here and i want to understand what it is. you think about what social media and some of the images fed to kids. if they are getting images of children dying, of course people are angry. there is a question of the efficacy of what they are trying to achieve but what is behind this. jonathan: elsewhere shares of

amazon posting modest gains in the premarket. the company's cloud unit posting strongest sales in year delivering a forecast that fell short of estimates. as consumers continue to exercise caution. that name is up in the premarket by a little more than 1%. elsewhere, the dollar holding steady near its year-to-date high. vasileios gkionakis saying this. for the remainder of 2024 we do not hold a bearish view on the dollar and stressed that easing cycles have not been historically dollar-negative. in our base case that envisages global growth slowing, but the u.s. achieving a soft landing. vasileios gkionakis is with us now for more. we have dollar-yen at 158, euro-dollar has been stuck between 1.06 and 1.07. where would you look to play

that strength? vasileios: since we wrote that we have seen some rally in the dollar further. we have come down in euro-dollar down to 1.06. in dollar-yen we are now at 158. i think there could be some residual strength in the dollar over the next few months. potentially against the low yield. there is a clear possibility we are going to see an undershooting in inflation. in terms of monetary policy easing that is currently priced. after we see that residual strength in the dollar, i think the next big move in the dollar could actually be on the downside. let's not forget, over the past

month we have seen a significant repricing, especially in terms of the fed. so that means that the risk-reward has started flipping. as we currently stand. if i was to relate that to today's meeting, based on what is priced, which is effectively one rate cut for this year, it will be difficult for powell to out-hawk the market. jonathan: is that a call for today or the next few months? vasileios: that is a bit difficult. i would shy away from making these very short-term calls. but i think -- look. the only way i can see a sustained further increase in yields and the dollar is if we get that one rate cut that has been priced getting priced out in the market. i think that can happen.

at least, based on what is going to happen, based on the meeting today, is if powell completely removes the preference to the possibility of dialing back monetary policy tightening this year. never say never, but a find this to be a bit difficult, or on the low likelihood as an event. lisa: you are sounding like it is difficult to have conviction about much of anything recently. vasileios: oh yeah. lisa: can you give us a sense of if there is anything you have real conviction about? or if you are looking for a pivot point where you can get a little more confidence? vasileios: you said it. you are absolutely right. conviction is quite low. not just in the fx market, but also in the rates market, based on what is priced in. has come to our attention is we have started seeing some relative signs of rebound in

manufacturing. in this second consecutive month where the chinese pmi has been in expansion territory. the eurozone has started surprising a bit on the upside in terms of growth. so, i think the dollar is a difficult call. in fx space, some relative value ideas that people could potentially explore is commodity currencies against the likes of the swiss franc, for example, or euro against currencies where there is a lot of other high rates priced in, or a lot of monetary policy easing has been priced out. i think case in point would be sterling, because i don't think in the u.k. we have felt the maximum impact of past monetary policy tightening.

lisa: a lot of people have been wondering about how much we could potentially get a break of some of the sideways trading we have been hearing about him whether the fed is going to set the tone for the ecb and tie their hands in terms of how much they can cut rates. are you a believer in that, do you think that divergence is going to get increasingly priced into a currency trade pair that has been pretty flat? vasileios: i think a lot is already priced in. i would find it a bit difficult to see more that getting priced in. that is not to say that euro-dollar cannot fall below 1.05, with historically -- but historically that was back when we were in the midst of the ukraine-russia conflict. obviously we have moved on from there.

eurozone growth is recovering, which means that is putting some sort of floor below euro-dollar. at roughly the levels we find ourselves in. the only risk i see quite tangible is fiscal policy, which seems to be on the looser side relative to where we are in the cycle, relative to where employment currently is in the u.s. we suggest there is a risk of persistence in inflation, and therefore getting more easing priced out of the fed. that could be a risk that could pressure euro-dollar. jonathan: vasileios gkionakis of aviva breaking down the situation in the fx market. a bit of data coming out later. you will get the adp report. at 10:00 a.m. you will get the jobs openings. you will also get the ism

manufacturing as well. there is a fair amount of data going into the fed decision later. we will do that in about 30 minutes time. in the federal reserve decision later on this afternoon. here is your bloomberg brief with dani burger. dani: dan loeb has backed up the truck and filled up on ai stocks. his fund has nearly half of its equity portfolio in ai-related names. in a letter he said it made substantial investment in alphabet. it also added tsmc in what he calls a i-driven catalyst. even so, the tech darlings were not enough. let's get a quick check on starbucks, down more than 12.5%. not enough lattes soul. sales fell for the first time since 2021. other companies that are retail-focused have also flagged

more -- if this decline holds a will be the biggest drop her starbucks since 2020. the u.s. justice department has moved to reclassify cannabis as less risky. merrick garland proposed to reschedule the drug. it is currently classified with narcotics like heroin, but would be moved alongside other medical-related treatments. shares of cannabis companies surged. green thumb industries jumped 22%. that is your bloomberg brief. jonathan: it stinks. notice that, manhattan? every street corner stinks. lisa: we have had some building emails basically. if you are the person on this floor, you know, please have respect. jonathan: it is amazing how that has become a thing so quickly. up next, next stop, 5%. >> are we re-normalizing to

pre-crisis financial levels or going back to the low interest rates post the financial crisis? 5% on the 10-year is not insane. jonathan: el davis on the potential test of 5%, coming up next. -- earl davis on the potential test of 5%, coming up next.

jonathan: stocks are lower. yelled on a 10 year, 4.6738. under surveillance, next stop, 5%. >> are we re-normalizing to pre-crisis financial levels, or are we going to go back to the low interest rates of post financial crisis? 5% on the 10 is not insane, and if we think about more normalizing, the idea that we are going to cut back to two or some much lower number, you have to wonder whether or not you cut back at some point, but not to

some label that is more post-financial crisis. jonathan: investors look ahead to the fed rate decision and jay powell's news conference. earl davis writing, the fed wants to maintain optionality, but acknowledges the diminishing window, adding tailwinds point to a test of 5% for 10-year yields. let's talk about those tailwinds. you list them? earl: yes. we think there is a high probability and high confidence level we hit 5%. part of that reason is, you are breaking inflation. breakeven inflation should go higher. the other one is your real rate. that incorporates a couple of things. it incorporates monetary policy, of which that is changing. especially with the partial pivot we expect today.

as well as the risk premium. risk premiums are impacted by inflation and supply. when you have all the components of a yield climbing, it increases the confidence level and probability you get to that level. that is how we are looking at it, and we do see a test of 5% coming up. jonathan: test is important -- is an important word. how about sustaining that level? earl: in the longer term it will be difficult. this is one of the things where we will be buying at 5% and above. part of the reason is, higher yields, and the market is discounting even higher yields, higher yields will accelerate us toward the end of the business cycle. that reflects -- that reflexivity of interest rate markets. we don't see us being sustainably above 5%, but we do see lower rates by one year from this time. lisa: this is something we hear

a lot. that we will be buyers into weakness. we will be buyers into any kind of selloff. are you a buyer now or are you waiting for that 5% level? earl: great question. last time i was on the show was march, and at that point we were tactically long. we switched that. we are short because our confidence level in hitting 5% is increasing with the numbers we are seeing, as well as other tailwinds. if you have japanese intervention that is possible treasury bond selling, they are the highest holders of treasuries. they do have a lot of u.s. dollar in hand, but if they work through that, they sell treasuries. combine that with a lot of technical aspects in the market in regards to, no one has any higher yield hedges, so people will panic as we get there. we think it accelerates upon

itself, so we are tactically short now, and we will cover that 5% and start going long. lisa: you talked about some of the supply and demand dynamics behind this increasing conviction behind 5%. you talk about potential sellers. i want to talk about the u.s. treasury department. we do get the refunding announcement in about 40 minutes time. we will get details about how they plan to fund a deficit that is increasing. how much is that playing into your call for a 5% yield? earl: it is significant. and it is not just the refunding announcement, but the cumulative effect. last week we had record 2-years during -- years. that will have impact. we have not seen in treasury yields is risk premium. part of what you need risk premium for is increasing supply. it has an impact on the dollar in the long-term, so you want to make sure you are getting return

and your money back. to ensure that in this environment you need more risk premium, and we don't have risk premium in yields yet. treasury supply would be one of the reasons we do start getting that. jonathan: do you see this competing for capital? specifically, competing for capital in credit? earl: i'm going to answer in two parts. the immediate answer is no. 10 billion in bonds being issued this week, and 80 billion of bids? there is a lot of cash. even if it does compete, there is still so much cash there. it was a times oversubscribed on one of the largest issues in history. there is room to compete, but the second part to this question is the reason why we see higher tips and higher real yields. when your economy is so resilient and growing so fast, but the treasury and fed has to do is take the money out of the growth economy, slow it down.

the only way you do that is by having higher savings rates, as reflected by your tips yield. we have not tested the higher of last november, but we are going to test that as well. we will probably make new highs in tips as well because you have to take money out of the growth economy into the savings economy. lisa: i'm looking right now at 10 year real yields. as you said, the highest since last november. there is real divide about where yields are going to end up. he said if we get to 5% that will expedite the tumbling down to another level a lot lower because it will slow the economy. what is that lower level? how big could that rally be versus, say, not as much as people think because there is not the same kind of disinflation that is down the pipeline in the way that was pre-pandemic? earl: i recall from december -- we set it on "surveillance" as

well -- we see the range of 10-year yields from 5% to 3.5% -- 3.25%. i think that accelerates the move back to a three handle. do we see it this year? no, but q1 next year it is a very real possibility that we see a three handle. we do see possibly testing the lower and again -- end again. jonathan: you have been phenomenal the ship. just absolutely brilliant. this was a clinic once again. earl davis of bmo. we could test 5%. at the moment we are not seeing a pronounced competition for capital with credit given some -- given how some of these issues have gone. what you said -- what he said is so important. you need to take money from the growth economy toward the savings economy, and that requires higher real yields. lisa: the idea of t-bills and

chill needs to catch on, and then we will have the slowdown this fed is looking for. it will take away from lending to companies that can expand their businesses and continue some of the growth in the economy. jonathan: hasn't he been brilliant? lisa: he has. he also well-framed the game theory going on in markets right now. that is essentially where you're at, which is why i'm curious about jay powell later today, when he comes up at 2:00 p.m. jonathan: tk may or may not show up. i think he is around. lisa: is this the game theory? jonathan: is tom going to show for the program? i need to email him the time. coming up, bankim chadha, ira jersey. so much more to come. attentive economic data this morning, and it starts next hour. ♪ ♪

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>> the fed is going to deliver a very hawkish message. >> how patient will they be to

get down to the policy objectives? >> it would rather hang out at these levels for longer. >> it is entirely possible that the fed chair could lead us to a path where there is a little bit or tightening of financial conditions. >> we need to hear what he has to say, how he characterizes the environment before the market can resume another push higher. >> this is announcer: --"bloomberg surveillance." jonathan: cricket fans the world over, amh just compared cricket to quidditch. unbelievable. annmarie: your position sounded like you are part of the gryffindor team. jonathan: i apologize. good morning cable -- good morning, good morning. the economic data kicks off. we are looking for an adp report. the estimate, 183,000.

just to get you set up for payrolls on friday. our estimate for that, 240,000. lots of economic data out this money. lisa: the two most important points this morning would be the quick's rate, and then ism manufacturing. how much of a re-acceleration are we seeing in the manufacturing industry at times where we are seeing a bit of slowdown in some of the services sectors? jonathan: and readout friday when we get the ism services number. i want to go through some of the corporate earnings. how much of a slowdown always starting to see from the u.s. consumer? i will reflect on comments we got from a walmart executive. we are now seeing prices that are in line with where they were 12 months ago. i haven't been able to say that for a few years now. it is about the loss of pricing power. lisa: this is from the ceo of mcdonald. consumer being discriminating in

how they spend their dollar. it is important to recognize that all income cohorts are seeking value. this is the theme we are hearing. you could say maybe this is dismissing other pressures that these companies are feeling. nonetheless, it is a theme we are hearing consistently. annmarie: they're going to be hunting for bargains. and they are not in the market for six dollars lavender lattes, which was obvious for starbucks and where they opened up this money. i go back to something home at all arion told us. -- mohamed el-erian told us. listen to corporate earnings calls to find out what is going on in the real economy when it comes to inflation. jonathan: we will catch up with mohammed later this afternoon, seconds after that fed decision drops. equities pulling back by .4% on the s&p 500. yields, we have seen quite a repricing over the past month or so. the 10-year at the moment, 4.6758. lisa: we were just hearing from

earl davis you could potentially get to 5%. lavender lattes is not the thing i'm thinking about. i'm thinking about the five dollar cappuccino. the barrier to entry is so low. why would you pay five dollars or six dollars? this is something you have potential competition. annmarie: starbucks defense. if you don't drink regular milk they have a lot of options for non-dairy milks. if you continually purchase you get a lot of those cappuccinos for free. lisa: listen to her. jonathan: let the record show i mentioned bonds and lisa did not talk about them. she talked about coffee instead. as many seconds as you would like. lisa: i will have 10, which is bonds are fascinating, but right now we don't know which direction of travel is. whether demand is going to matter more or whether it is going to be whether the fed chair says hike, and everyone goes crazy. jonathan: we are looking for a

treasury refunding announcement. are you interested in that? lisa: i am. we got the actual numbers. the distribution of what denominations they are going to sell it in. jonathan: very different to sustaining 5%. that is a conversation we will have. coming up, deutsche bank's bankim chadha. jonathan pingle expecting a lackluster april payrolls report. and ira jersey. as pons close out the worst month of the year. stocks falling on fresh inflation concerns. bankim chadha remaining constructive saying, we see the pullback as just that. the market is well-positioned for volatility around the fed decision. you should see the market rallied. good morning t. bankim: good morning. jonathan: three fundamental reasons for that pullback. what are they? bankim: there is basically the

macro data, and inflation, and rates uncertainty. we also have the geopolitical risks and concerns about mega cap growth in tech earnings slowing. on the here and now what i would say is that, take a look at what is priced into the markets for today. it is a whopping 12 volatility points. but that is telling you is, the market is definitely trading in positioning for an event. i would say the two things you want to keep in mind is, of course, you know, as lisa always talks about, the fundamentals and message coming out of the fomc is important. but i would argue, given the positioning, unless it is way outside, you know, far away from

whatever buddy sort of expects, you are going to see those positions having basically to close afterwards. that is very positive for the market. so, we have had him -- we have had a year-and-a-half of market surprises, and the market is rallying. most of that simply has to do with the positioning, rather than what happens on that date. i would say a reversal from yesterday is likely if we get our view of an easing bias being maintained. the question is, how hawkins is that bias going to be? -- hawkish is that bias going to be? lisa: we are going to get a pullback and it is going to be the buying opportunity of a lifetime. we had earlier today max coming on, i everything, it is goldilocks. you, kind of the same thing. bankim: i was talking about

yesterday and today. [laughter] lisa: carry on. bankim: and perhaps tomorrow, because the positioning is going to roll. payrolls is important. the market tends to position quite a lot. all i'm saying is, the market is aware of what is coming, and has pre-positioned for a. the question is, what does it do after that? is it a message we get from the fed that says we are going to go back into 2022 and we don't know, and the bias is hugely positive and may be up the speed? but barring that, it already happened. lisa: this is really important. are you basically saying that unless we get a hawkish pivot that is more hawkish than the market is expecting, rates don't matter? even if there is only one cut this year that has been priced in and the only surprise you could get to stocks would be an

upside surprise if rates would rally? bankim: if rates would rally, yes. the market would be up, but even if they don't the market will be up, simply because it already happened and those positions have to either be cashed in -- now, people can stay in, but it is zero days to expiry option, because it does expire. jonathan: this is an important conversation. we have been talking about all morning. we are not saying the federal reserve chairman lobby hawkish, it is just relative to what has been priced last month. the russian people getting excited by europe. can you talk -- there are some people getting excited by europe. can you talk about this pullback and the signal you take from that? bankim: there two issues here. one on the topic of the fomc today is u.s. inflation.

i think in terms of inking about the backdrop, you should also think about european inflation there is a very wide consensus that european disinflation is on track. growth has not been particularly strong. so, the picture makes complete sense. i would caution with narrative that -- the narrative that u.s. inflation is sticky because growth is stronger. if you measure inflation in the u.s. the way we measure inflation in europe, u.s. inflation is running lower. it fell earlier. jonathan: gre you are saying -- jonathan: you are saying it is a measurement issue? bankim: european inflation, which is on track, is actually catching down to u.s. inflation. and u.s. inflation, measured by the cpi or pce is obviously

running much higher. what is the main reason for that? it is rent, i would argue, is the primary and key difference. and nobody pays that, it is an imputed price. jonathan: it is going to have consequences either way. given that europe or the u.s., which equity market do you want exposure to? bankim: in the near term we are overweight europe, simply because we are still coming out of, basically, the slowdown we had. i would say negativity is pretty close to max and has been coming off. jonathan: you are one of the best. it is great to catch up with you. bankim chadha of deutsche bank, counting down to that fed decision later today. let's get you to the bloomberg brief. dani: shares of amazon higher by 1.6%. its cloud unit posted the strongest sales growth in a year. as for the e-commerce side, not

too unlike some of the starbucks conversation, forecasts fell short of estimates. andy jassy said customers are shopping but remain cautious, trading down on price when they can. let's get you a check on starbucks. down 12.5% this morning. sales at the coffee giant fell for the first time since 2020. one analyst called it the worst set of results of any large company so far. if that decline holds it would be the company's biggest drop since 2020 of march. the early days of the pandemic. pfizer is higher, earnings coming out about an hour ago. it raised full-year guidance and sales of covid -- that was thanks to an accounting clerk -- cork.

that is your bloomberg brief. jonathan: still giving me a bit of a clinic on the equity market. that read on starbucks is amazing. worst set of results of any large company so far. absolutely remarkable. up next, adp data and a reaction from jonathan pingle of ubs. ♪

jonathan: adp report just seconds away. in our survey, the estimate, 183,000. you know how this game goes. it matters for a second and then we will talk about payrolls for the next two days. the scores look like this going into it. equity futures negative by .4%. yields just about unchanged. mike mckee has the number. good morning, mike. mike: it is a beat for the adp number.

192,000 jobs is what the payroll processor says were created in april. that compares to come as you mentioned, 184,000 last time, which has been revised to 208,000. so, significantly under for adp, and adp does not consider itself, it says, a predictor of payrolls. goods-producing jobs, 87,000. construction, 35,000. adp had been finding a job losses in some of those categories, but they seem to be strong. 145,000 in service-providing jobs. it looks like a very strong jobs report from adp. remember, they only measure private-sector jobs, and that sets the stage for this friday. it does suggest we are going to

get a stronger report. jonathan: it is good they don't consider themselves a predictor. three months average -- three-month average is really punchy going into friday. can you go through some of the estimates for us? mike: right now what the bloomberg survey is suggesting is, we are going to see for friday's number an unemployment rate of 3.8% and 240,000 jobs. we will see when 90,000 in the private sector. that compares to the adp number telling us what the payrolls numbers going to be, according to them. another strong month. the bottom line is, the fed is thinking, we are not in a situation where we need to cut interest rates because we have a very strong economy going. jonathan: i want to finish with a tease. we are going to get that treasury refunding announcement around a: 30 eastern time.

can you tell us what to look for? mike: the treasury had said at its last refunding that they are not going to be increasing auction sizes. we will take a look and see if they do that, even though the deficit is pretty bad at this point. there is an expectation on wall street that they perhaps are going to be slashing bill sizes and start turning out some of their sales so they can bring down the cost of longer-term bonds. but we will have to wait and see. there is also this buyback announcement they have been teasing for quite some time. does that come today as well? a lot from the fixed income desk to look for. jonathan: you will catch up with you in about 12 minutes' time. if you are just joining us the adp report came in at 192,000. that is an upside surprise. no big price action off the back of that. we are still lower on the s&p 500. the nasdaq we are down by .6%.

yields just about unchanged. on a two year, down two basis points, but just about holding onto a five handle. in foreign-exchange, mixed against g10 today. against the euro, positive 5.1%. with us, jonathan pingle of ubs. the three months -- three-month average has been punchy. what you looking for on friday and how does that adp print informed that view? jonathan p.: we have written about adp, and the correlation is not great. the correlation from private -- from private payrolls is .1%. it has some value on its own, but it is not something that is going to change our thinking for friday. we are expecting slowdown. the pace of payroll gains, incredibly brisk. punchy is a great word. the first quarter was absolutely

spectacular. we think some of those gains were pulled forward at of what we will see in the second quarter. part of our slowdown is actually we had extremely warm winter. when i say extremely warm, really warm. chicago was 72 degrees, last march, the last survey. that is, you are hanging out, each weather in chicago. we think we see the first step of that in the april report. 200,000, one how to 65,000 in private. we think you are going to have a string of cooler job gains. jonathan: you think it is weather-related pull forward? jonathan p.: also some seasonality. let's face it, the economy has been strong. gdp growth last year -- lisa: you have an interesting thesis. where you basically get the disinflation people are expecting, or if you get a

reacceleration in inflation you could get hikes that take it up to 6.5% next year. do you fall on this given the fact that the data keeps coming in hot? jonathan p.: the employment cost index was a disappointment. but looking at it, the year-over-year percentage change in wages and salaries, which is what we look at for nominal wage growth, was 3.4%. that is not a whole lot different than average hourly earnings in march. you are seeing some cooling. it is a little bit like the inflation data. it is disappointing, but we took a lot of comfort in the recent gdp report. we have seen a lot of the fiscal impact on growth has come through the manufacturing plant construction that was rapid in 2023. government expenditures and investment were over 4% in 2023. part of our thesis is that a lot of that fiscal thrust that was

probably a percentage point of growth comes out in 2024. we see the signs of that in the construction spending data, in the gdp report. we are still pretty comfortable with our assessment that the economy is slowing at this juncture and that the labor market is going to slow on the back of that. lisa: let's get to the game theory part of our program. you can say this, but fed chair powell cannot. if he says that it is going to ignite a rally that only further pushes the fed away from the ultimate goal of getting inflation down. is that basically what you are expecting? that this is going to be a fed chair that comes out and tries to pretend he is hawkish in order to tamp down on the enthusiasm in markets? jonathan p.: i don't know if that is the game theory i would go with. i think in some ways they have gotten what they want. we have seen a little bit of the pivot. we had chair powell and vice chair jefferson out the week

before the quiet period, clearly disappointed with the inflation data, saying it did not improve their confidence. it looks like it has dented their confidence. i think we will hear that today. when we look at the market pricing for -- last time i looked it was a little over one cut this year. it is kind of the committee's debate. we will get a sense of where they are. jay powell is probably pretty comfortable. he will be just as hawkish as he was the week before last. the thing i worry about is whether or not there has been a bigger shift than that. i think we will find that out early in the press conference. if we look back to the roadmap for the press conference, if we look back to march, chair powell starts with his prepared remarks, and it was in his prepared remarks, actually the seventh paragraph in the middle he has the sentence where he says, you know, or policy rate is likely at its peak for this

tightening cycle. and then the second half of that sentence is, if the economy evolves broadly as expected it will likely be appropriate to begin downing back policy restraint at some point this year. if that sentence is still there and unchanged, i think that frames the rest of the press conference. he's not going to rule out the potential for rate. he's not going to rule out the fact that they might not cut rates this year. but if it starts out with the premise that their base case, greater than 50-50 odds, is they are going to begin cutting rates this year, i think that is going to frame all of the other hawkish statements. the chair probably leaves people somewhat comforted by the fact that there has not been a more hawkish shift, that i think he has basically the markets roughly where they are, and i think that is the committee's debate. is he going to be one, maybe two if the data starts breaking their way? certainly they can change their minds later.

i think that one sentence is key. annmarie: if he socializes what the market is already pricing in , to be hawkish he would say, there is a possibility for a hike, which is something you wrote about weeks ago that then started becoming more normal in financial discourse. jonathan p.: i think, you know, he has never really ruled out the possibility. i think chair powell at this juncture everybody has been surprised so much in the last two years. i don't think chair powell is going to rule out anything. the degree to which he puts that on the table would be a hawkish shift. i think if they change that language then it will be appropriate to cut rates this year. if they change that language and discussed the fact that they may need to resume raising rates in the next two years, it would be significantly more hawkish. jonathan: we will talk more about this this morning. i want to understand if they change the first paragraph. never mind the sixth paragraph.

lisa: the middle of the seventh paragraph. jonathan: forgive me. [laughter] this characterization of the economy. the unemployment rate has remained low. inflation has eased but remains elevated. i want to see if they reword that if they need to. lisa: has the disinflation narrative taken ahead? that is what you are getting at. and what a lot of people are going to be looking for at a time when job growth is strong. jonathan: jonathan pingle is going to be sticking with us. the u.s. treasury refunding announcement. mike mckee is going to break that down for you. and we will catch up with ira jersey, looking ahead to that fed decision later on this afternoon. equities or lower. from new york, this is bloomberg. ♪

it's an amazing thing

when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. jonathan: just moments ago we had the adp report that came in at 192,000. the estimate was 183,000. looking at things elsewhere, equity futures still -5.4%. on the nasdaq, down by .6%. the bond market, where the fireworks might be over the next few days, the 2-year is down by a couple of basis points. we are down a single basis point on a 10 year. the so-called treasury refunding announcement has just dropped.

like mckee is in washington to break that down. mike: good morning. the earnings sizes are unchanged, but we do have other news. 100 to $5 billion is going to be offered next week. -- $105 billion is going to be offered next week. there was a thought treasury would reduce bill's sales but they are not going to do that. a slight fluctuation, they said, in the current month, and then in june they go back to the highs of february and march. a surprise, since treasury bills are above the 20% total treasury issuance level the treasury likes to have. you're also going to make six week cash management bills a benchmark will -- benchmark bill. the buybacks, the treasury is going to begin the long-teased buyback program on may 29.

weekly liquidity support buybacks will be held up to $2 billion in coupons, and buybacks will begin under a cap of 20 separate bond issues. that cap will eventually be issued. buybacks are going to begin with off the run treasuries starting may 29. in terms of the refunding numbers, unchanged. $58 billion in three years. and $25 billion for the 30 year. treasuries keeping auction sizes unchanged, but doing work around the edges in terms of issuance. lisa: just to be clear about the buyback program, this is mostly for liquidity. to put some more traded ones on the market. i am curious about what the signal is here about the fact that it is more heavily weighted to t-bills. is this the idea that eventually

they will come down? mike: they are staying with basically the skewed toward t-bills. it does have the effect of longer-term reducing liquidity. the treasury may have to change, especially when they get into the third quarter, when issuance is going to have to rise significantly. at this point it might be a holding action. lisa: we have a sense, we talked about the earlier announcement monday about the borrowing plans and how it came in above a lot of estimates. $41 billion worth. not a massive number in the scheme of things. we have a sense over whether they have gotten fewer tax revenues than they were expecting? makes up the deficit we have seen in some of the treasury's books? mike: it is partly tax receipts, and partly projected tax receipts, but also spending has been higher. the government has got to make

up the difference. that is why they are going to be borrowing more. the anticipated least in the third quarter $800 billion. jonathan: stay close. we will come back to you on that deficit in a moment. bonds bid, yields still lower. just about holding onto that five handle on the two-year. we will go into more economic data later, including the jobs report. jonathan pingle is still with us. we have been talking about the effort the federal reserve needs to go to to get inflation back to target. how much of that has been offset in what is happening in treasury? the amount of fiscal easing we have seen? jonathan p.: fiscal policy is a huge support to 2023. we all about the chips act, the ira, and we are all watching this extraordinary boom in chip plant manufacturing, construction. you know, all of the related ev

construction. structures investment in 2023 is -- added roughly half a percent year-over-year gdp. direct government spending and investment, the public sector investment, add on a little bit of the deficit-widening, we generally think of the government as being somewhat interest rate-insensitive, right? this was definitely a thrust the fed was forced to fight in 2023, with higher rates that really wasn't going to be affected by monetary policy. jonathan: you keep seeing 2023. can we talk about 2024? much money is still being distributed off the back of these programs? jonathan p.: a lot less. if we think about it in terms of growth rates, it is like we moved up the level. now we have these wider deficits, but the level now is

staying the same for a while. that means the impact on growth is essentially going to zero in 2024. this is a natural way of thinking about fiscal policy, right? this is why it is countercyclical. you widen the deficit at bad times. we have ended up widening the deficit in good times. we have had the growth benefit, and now we have the wider deficit and the growth emphasis is fading at this point. lisa: as an economist do you think the likelihood of the u.s. treasury department more heavily weighting the issuance to t-bills make sense? that basically you can capitalize on the demand for short-term t-bills, t-bill and chill, and not lock in 5% yields over time? is that what we can infer from this announcement? jonathan p.: they are trying to minimize the interest expense for the taxpayer, based on their calculations. depending upon history and how interest rates may or may not

unfold, you want some nicks between bills and coupon instruments. there was a long debate over whether the u.s. should turn out it's that a lot. a lot of those models do not say terming out the debt is the most cost-effective thing to do. but a lot of it is uncertainty too. it depends on the outlook for inflation. at this point that interest payments are more than defense spending. you are talking about 3% of nominal gdp is paying interest. it is almost 20% of federal government revenue. they could get a lot worse if rates stay high and inflation stays high, or better if the fed starts cutting. lisa: another way to frame this question is, do you think the treasury is making a call that interest rates are going to go lower? jonathan p.: i can't. to janet yellen's mind. lisa: can you try? jonathan p.: the treasury is trying to balance what they are seeing on the yield curve.

i think that is probably an appropriate thing to do for short-term funding. we certainly have seen in the money markets key reasonable appetite for bills. you can see that in all of the money that gets parked at the reverse repo facility at the fed. the money markets are still relatively awash in cash. that would indicate all else equal that there is a lot of capacity for village -- bills there. annmarie: there is also more people, which is propping up this economy. how do you see this potentially changing next year? jonathan p.: i think the budget choices get hard, which is one complication, but the presidential election is a hugely consequential election for fiscal policy. if we think about what is unfolding in tax policy, most of the individual side of the 2017 tax cuts expires at the end of 2025. and because that is written into

current law, that is something that congress and the next administration are going to want to address. otherwise it is going to be roughly $3 trillion tax increase over the subsequent 10 years. the plans to pay for that are likely going to look very different, comparing the democrats to the republicans. that could have a huge amount of impact on fiscal policy as we look out to 2025. jonathan: on capitol hill just yesterday, you can make these investments while reducing the deficit by $3 trillion over a decade through a combination of smart savings. -- smart savings and proposals. mike mckee, you have witnessed some of that, i'm sure. what did you think of the proposals coming out of the administration? make these investments while reducing the deficit by $3 trillion over a decade? mike: they have not put out an exact plan, but the important point for the administration's, they do not plan to increase

taxes on anyone making $400,000 a year or less. biden did not mention that when he tweeted that the bills need to sunset because the deficit is too high. so there was a big back-and-forth up on the hill about whether they would do that or not. yellen insisting they would do that, but there is going to have to be a way to make up some of the difference between the two sides. although we are going to have to see the results of the election. not only who is president, but who controls each house. if the democrats are in charge of the house it is obviously easier to let the tax provisions expire. but if not, then we may end up with a real fight on our hands over how far they are willing to go, both sides. annmarie: she really got a grilling on this, because when biden's campaign tweeted, he left out the fact he wants to

keep the tax cuts for families making under $400,000. does this come down to, they are going to pay this by raising taxes on everybody above that threshold? mike: but they have outlined is, taxes go up for people above that threshold on a graduated basis, and corporate taxes will probably go up. what they will not go up to where they were before the original tax cuts. they will go part of the way there. there was a hearing not long ago in which officials from the biden administration were saying, the economy was fine with -- we would be fine with tax rates that are a little bit lower, but not as high as they were. we don't have to go all the way back. they will try to sell it that way. lisa: jonathan pingle is still with us. as you listen to all of these proposals and you listen to janet yellen yesterday, how much dispersion is there about your potential outcomes for the economy based on the divergence

in tax, as well as tariff policy, between the two candidates? jonathan p.: we have written a fair big -- bet on this, and it is a fairly big gap. in looking at some of the plans that have been put forward and what we can glean from the campaigns, it looks to us like, essentially, a republican sweep. if former president trump wins the presidency and republicans take both houses of congress, they would want to extend the tax cuts. but also reduce some other taxes. the biden administration, what you can glean from both the president's budget proposals this year and last year, is, as mike would say, they would fully extend the tax cuts for households making under $450,000, the taxes rise to the old marginal rates for those making over, then you could also work on corporate taxes,

potentially raise the capital gains taxes for upper income individuals. was a very different outcomes. you really are, over a 10-year window, looking at trillions of dollars in differences between what the deficits would look like under one set of plans or another. the historical template is the expiration of the bush tax cuts in 2012, which was a similar playbook. the tax cuts expired for the upper income households, were extended for those making under a certain threshold. we sort of have run this playbook before and we can see what a divided government outcome might look like. certainly -- certainly the republican wave offers a different fiscal outlook. lisa: when is it a drag on the economy rather than a boost and fuel for american exceptionalism? jonathan p.: the deficit in some ways already matters. we saw last fall, you know premium getting pushed around

from the refunding announcements, as we went from august through november. i think we could also make a case that we are already making choices that are difficult, constrained by our budget pressures, whether it is our defense spending, geopolitical posture, you know, our fiscal stance and position now i think is already starting to influence policy and the choices we are making for the economy. lisa: on this fat day how seriously do you take proposals of eliminating fed independence? jonathan p.: i worry. i hope is that cooler heads would prevail. i think congress obviously would play a very important role in the ability of any administration through appointees or legislation, to try to alter the position of the federal reserve. as a former fed staffer i think monetary policy independence is absolutely crucial for a

well-functioning economy. annmarie: but it is mandated by congress, something the former president, which may be the future president, could do, is tariffs. he talked about this extensively. he said potentially that ring around the country could be more than 10%. he says, i also don't believe the costs will go up that much. how inflationary is a 10% or bigger tariff? jonathan p.: if it is on everything camino, you could imagine that this is going to feed through pretty quickly and broadly. it is going to hinge on, is it everybody? is it just imports from china? that is the crucial question. whether or not they are going to follow through with this and whether or not congress could have a role in stepping in. they have delegated a fair amount of trade authority to the

executive branch through these various provisions. national security, trade protectionism, etc. there is a chance congress could weigh in on this issue and try to limit the amount of the tariffs. because it would impact other treaty arrangements we have. jonathan: you can do a ton with executive action, that is for sure. jonathan pingle of ubs breaking down the data this morning. the adp data, a small upside surprise. equity futures on the s&p, negative by about .25%. here is dani burger. dani: cvs shares down 13% premarket. the pharmacy chain cut its earnings outlook for the second quarter and a row. cbs said the trend toward higher medical costs will persist throughout the year. if these losses hold a would be cvs' biggest one-day drop since 2022. barclays drop -- job cuts have arrived.

those dismissals have started today. they focus on staffers in global markets, investment and can, and research. the job cuts are part of a $2 billion -- 2 billion pound cost savings drive, with the ceo under pressure to catch up to rivals. stock market might not be able to rely on fed cuts soon, they can rely on corporate buybacks to boost shares. new research from goldman sachs says share repurchases will surge this year, and next year they were caught -- cross $1 trillion. more confidence in economic growth means companies no longer feel the need to hoard cash. we have seen it in companies like alphabet. that is your bloomberg brief. jonathan: thank you. up next, counting down to the fed. >> and you have all of the components of the yield climbing, it increases the confidence level and probability you get to that level, and we do

see a test of 5% coming up. jonathan: that decision later this afternoon. from new york, this is bloomberg. ♪

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jonathan: equity futures just off the lows. down about .25% on the s&p. yields a little lower. the rally sticks, if you can call this a rally. under surveillance this morning, counting down to the fed. >> when you have all of the components of a yield climbing toward higher yields, it increases the probability you get to that level. that is how we are looking at it and we do see a test of 5% coming up. we don't see us being sustainably above 5%, but we do see lower rates by one year from this time. we are tactically short now, and we will cover that at 5% and

start going long. jonathan: u.s. treasuries coming off of their worst monthly performance in about a year. some looking for a retest of 5% on a 10 year. joining us now is ira jersey of bloomberg intelligence, looking ahead to that fed decision. wonderful to see you. what are you in the team looking for later this afternoon? ira: it's going to be devil in the details. firstly, any announcement or pre-announcement about quantitative tightening going from $60 billion of treasuries to $30 billion, that may not start until july at this point, but certainly any announcements about that would potentially be a little bit of a dovish signal. but i do think that jay powell has to be very balanced, and the market certainly has edged that way over the last couple of weeks with options markets, options on futures now pricing for the chance of a hike.

people are hedging for that potential possibility, just given the economic data we have had. lisa: what rhetoric do you expect to hear that could indicate they are open to that versus humoring a question? are you expecting to hear them say the trend of disinflation has stalled out? has not been making progress? is a more significant problem? ira: i would be listening for, in the opening remarks, powell has been regularly saying, we have made a lot of progress on inflation. so saying something like you suggest, progress on inflation has not been as robust or as significant as we had hoped, and because of that we will continue to do whatever is necessary to make sure that inflation comes down to our target. i think the fed has a little bit of a challenge here, because they have kind of boxed themselves into a corner by not having a more flexible inflation target. when they said they had some kind of average inflation

targeting, you can fudge that. but now that they continue to say we want to have a hard target of 2%, you know, the possibility that they hike continues to go up as you get good hard data. we have gotten consumer confidence numbers and survey data that is a week, but most of the hard data continues to be pretty good. and that is something that the fed is trying to grapple with. this idea that some of the forward-looking survey data is not working at the same lags it has in the past. people are not spending their confidence, or they are spending way more than their confidence, for example. because of that, i think the statement has to be a little bit on the hawkish side. will it be more hawkish than what they said over the last couple of weeks? i'm not sure it will be. i think people might be disappointed that they are not more hawkish. particularly the bears and people who have set shorts over the last couple of weeks in the treasury market. lisa: it sounds like you agree

with people that say this is a market positioned to rally. that you could see bears being blown out of their position if the fed does not deliver the hawkish in this -- hawkishness. ira: in the treasury market technical levels matter a lot, because people put in stops and the like. if we blow through that because of something in the statement that sounds hawkish, or if chair powell sounds hawkish in his opening remarks we could wind up at 4.754 4.90 by the end of the day. you have seen 15 basis point moves on statements here and there from out of the fed. so, the market, i think, is set up for a rally or selloff one way or the other, with 5% being inside for sure. then again, if we hold four

point 70 because he is not as hawkish, you could wind up retesting 4.50 as well. i don't think it is symmetric, but people are set up and hedged for a more hawkish federal reserve. jonathan: we are three hours into this program. nobody has mentioned taper qt. it is not going to be a main event later? ira: i did earlier. that is something we are going to be looking for. the challenge with tapering, there is structural reasons to do it. i think there is people that say fed balance sheet is too big. the way the banking sector is set up today and the need for the amount of bank reserves to meet regulations is underappreciated by a lot of market participants who are outside of the nerds like myself. tapering qt does not necessarily stop the federal reserve from increasing interest rates or reducing interest rates at some

point in the future. i would take it as a dovish signal. i think one thing jay powell has to do is, we are doing this to ensure appropriate market functioning and ensure the banking sector has the reserves it needs to function properly. it will talk more about their financial stability mandate in doing that and he needs to disconnect the qt element of this more from the rate element. they have not done a great job separating the two at this point. jonathan: thank you. ira jersey of bloomberg intelligence. fantastic lineup coming up this afternoon on the surveillance special. he was lineup for you. kathy jones, charles schwab. the brilliant mohamed el-erian of queens college cambridge. bank of america's michael gapen. and jeff rosenberg of blackrock.

it does not get any better than this. the program starts at 1:30 eastern time, the decision at 2:00 p.m.. this was "bloomberg surveillance." ♪

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manus: good morning k had the issue for star that is a bit of that a drag. that stock is getting dry -- getting trounced. countdown to the open kicks in right now. coming up, markets are on the edge after suffering the worst month