>> i don't think i've ever been so interested in stocks. >> corporate health looks good. feel good about that. >> if the momentum continues, it will get stronger than it was earlier this year. >> everyone is trying to get into ai world. the question is who will be using it at her? >> get the popcorn out, the ai revolution is just starting. >> this is "bloomberg surveillance." lisa: it was supposed to be a quiet end of the week. welcome to "bloomberg surveillance." if john were here, he would say let's get you to the weekend and he's on a well-deserved break. anne-marie is here, and jenny berger has to put up with us for

three hours. we came into yesterday's session, it's said, saying that the only thing more boy before a long holiday weekend is the friday morning. we've got stronger service pmi print as a readily identifiable trigger. what a need shift, starting yesterday. >> if you hadn't told anyone that second tier data would trump admit he a, -- trump nvidia, what happened? were we to one-sided? was fed speak nervous before the data? i don't know what it is, but it feels like a big sentiment shift. >> anxiety around inflation. i put this to chris williams, companies remain cautious with respect to the economic outlook with interest rates also citing geopolitical instability in the

presidential election. >> pulling back, there's a feeling that the university of michigan sentiment survey matters. they may pole five hundred people online through instant messages or whatever else they do, but at the same time if people have deteriorating sentiment, there's a feeling that it will have a bigger impact going forward, not only on how hard it is to kill the inflation bogeyman, but inflation generally. annmarie: we've seen starbucks, others, looking for those products, and then there's janet yellen at the g7. this is what she had to say -- she talked about the concern, trying to be empathetic with where the american consumer is. saying that they see it when they shop for food, higher mortgage rates. it's tough for young people who want into the housing market to enter. dani: at the same time i think that is more sympathetic than what we have heard from biden,

who has had this tone like look, i know you don't think that the economy is good, but we know it's good. looking at the pmi yesterday showed us that for businesses, they are doing well, despite the business sentiment. even that shows us to take those surveys with a grain of salt. lisa: looking at prices paid, this was sort of the rub, coming in at the highest since 2022. everyone was expecting services inflation to come down. we are seeing it potentially moving the opposite direction and to me that is a part of the rub. yesterday, we were thinking that it would be all about nvidia lifting all boats. then we got this inflation read at a time where you have a lot of people looking for cool off. michael hart met saying that the rally in global equity is at risk of overheating with barclays talking about how it is starting to look tired.

how realistic is that? dani: ai things sold off yesterday. amd, intel, falling more than 3% yesterday. if nvidia is the tide lifting only ai boats, it didn't even do that. utilities were hurt a lot yesterday, too. to me that seems like exhaustion. annmarie: which led to the biggest selloff in the s&p and the nasdaq in may. the biggest klein of course was particularly in the russell 2000 yesterday, going backo april. the state of play is a little more optimistic, one quarter of 1% to start the trading day. a little bit less than that on the s&p. dollar weakness toddling around for a while, basically steady. you can see the 10-year yield is just a little bit lower but yesterday really climbing on the prospect of potentially some sort of ratcheting back of suspected rate cuts.

coming up, state street, u.s. stocks pulling back from record highs and elon musk rejecting tariffs. pantheon, the global economic outlook, leaders diverging in italy. we begin with our top story, u.s. stocks easing from fresh records, despite a 9% surge from nvidia. looking ahead to next week, leaf average of state street writing -- if we see higher inflation for may and june, one cannot ignore the prospect of the next move being a rate hike. it's a bigger tail risk now than it was a few weeks ago. lee, good morning, thank you for being with us. what did you make of yesterday's price action where the nvidia price action couldn't overwhelm the slightest tick up in goods and inflation? 4 thank you for having me. what yesterday showed was the balance in the risk of the

market has now shifted. before, there was a bigger reaction to positive news in the market. be it lower inflation or a sign in slowing down in the economy, which would be setting the path for the fed to cut rates. that would cause a bigger reaction than stronger data. when the slowdown comes in, the fed looks through it. yesterday showed maybe that the balance of risks in the mind of the market is shifting. the fed told us now that they are going to need time to trust the down trend in inflation again. is that two more? three more? we don't know, but they told us they will need time. on the other seida of the inflation print, how quickly does that feed into the fed starting to think about hikes? there are various members in the minutes who said they would hike

rates further if the data were like today. the balance of risk and how we react to data is shifting. lisa: you have had a positive bias towards risk equities. how much was it instructive yesterday at how at risk these equities are over the prospect of a rate hike being back on the table? lee: i think it has become a real prospect, as i wrote in my notes. it's still a tail risk. it's not a central view. i would put it 25%, ok, higher than a lot of people would, but still a tail risk. but it's there. you know, the fed have openly talked about it for a year and now they are starting to talk about it and i think that vulnerability is now there in the market. look, the central view, i still think data looks ok over the

next month or two. as long as the market believes the next move is a cut and that we are in a cutting cycle, risk assets can continue to perform well for the next month or two, but it will get more volatile, more days like yesterday with overall up trending talent and we will get more days like yesterday and if the market really starts to believe the next move could be a hike, that will signal the top of the market for me. dani: what about the idea that a policy remained tighter or got more tight, the reason it is doing that is economic strength and if that's the case, equities are ok because earnings are ok. is not the case anymore? lee: yeah and that has been the narrative. we had seven cuts this year somehow in the first week was meant to be march with equities up 10%. because it was extend and pretend where we were putting

out the rate cut cycle. we didn't take it away, but he delayed the start because the data was so good. as long as we can keep doing that over the next month or two, stocks will be fine, but if the market sits back over the next couple of months and says -- are we right about the cutting cycle? if the fed signals the need to hike, why are they signaling a need to hike? they need to slow the economy more to get inflation back to target. to get it trending back to target. so, soft landing sort of goes out the window because they are saying this isn't working, we need to slow the economy and hike rates. certainly that argument that stronger data is good for markets suddenly doesn't look as clear-cut as before because stronger data means they would have to do more. dani: the other argument is ai, ai came to save the day.

perhaps yesterday proved that that is not necessarily the case if amd is falling with nvidia. is that trade tired out? ai is the rising tide that lifts all boats? lee: we have come along way, the ai story has come a long way. look at where nvidia is. i don't think the story has played out, there is further to go and ai specific stocks will continue to outperform. but the rest of the market will struggle to continue to play that sort of ai rising tide. i think, you know, that is what we saw yesterday with nvidia having a great day, the rest of the market couldn't go with it. the whole thing with ai lifting everything, that story has run its course. not ai specifically but the boat lifting everything, that story is looking very tired now. annmarie: you are the second

person this to come on and talk about the hike and adam posen was concerned about the fiscal impetus going into next year and the spending that we get from washington. say we see more spending in 2020 five, tax cuts, a fiscal package, potentially tariffs that could be inflationary. what sort of vulnerability could we see from the idea of a hike? lee: tremendous. we have come a long way. if the fed believes we have to hike to slow the economy, yes, you will see a significant pullback. we have come a long way and even if we pull back 10%, we are flat for the year. i don't tickets that much more than that, but a pullback of that magnitude, if the market starts to price hike, that's fully possible. the fiscal thing is important. everyone's assumption on rate

hikes is restrictive, therefore the next move has to be a cut. rates are above neutral for sure, not as far above as we thought. neutral is nominal and the fed has hinted that it is not as restrictive as they thought the other day, but policy is not just rates. it's made up from a level of interest rates besides the fed balance sheet, which is bloated, and fiscal policy. take them together as a combination, policy itself is not restrictive. that is what the data is telling us. that is why the u.s. economy is growing year on year close to double the estimate of trend growth. if policy was restrictive, we wouldn't be growing the way that we are. that does not mean that policy is restrictive. if you lose the fiscal policy for the next year, by definition you have to tighten it somewhere else and the only tool you can do it through is higher interest

rates. lisa: lee, thank you so much for that. we have come a long way, echoing the sentiment, risk looking tired. updating your stories elsewhere this morning, here is your bloomberg brief. >> jen-hsun huang, nvidia ceo, had a good day yesterday. net worth growing to 91 billion as shares of nvidia rose following better-than-expected results. a majority of that comes from his stake in nvidia that he cofounded in 1993. he is now the 17th richest person in the world according to the billionaire index. spacex has initiated discussions on selling existing shares in a deal that could value the company at $200 million according to people familiar with the matter. the valuation would be a premium to what it fetched in its

previous tender offer and they are already on par with some of the world's public lee traded companies. hundreds of students walked out of the harvard university commencement ceremony yesterday in protest of the governing board decision to withhold degrees for 13 students who took part in a pro-palestinian encampment on campus. a mix of graduate and undergraduate students stood up and chanted as they left in the middle of the ceremony, continuing to protest within earshot as the ceremony continued. lisa? lisa: thank you and aside from that, congratulations to graduates on a general note. up next, tesla pushing back on tariffs. >> tesla competes well with the tariffs in china. no differential support.

>> tesla competes well with the tariffs in china. no differential support. so, in general i am in favor of no tariffs. lisa: that's next. you are watching bloomberg. ♪ to start a business, you need an idea. it's a pillow with a speaker in it! that's right craig. a team that's highly competent. i'm just here for the internets. at&t it's super-fast. reliable. you locked us out?! arrggghh! ahhhh! solution-oriented. [jenna screams] and most importantly... is the internet out? don't worry, we have at&t internet back-up.

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get your business online in minutes 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 lisa: after the biggest selloff so far in three weeks, we are trying to claw back a couple of a bit of those gains, you can see one quarter of 1% gain on the s&p in early trading with dollar softness and a risk on tone as people look to potentially stronger economic data and may be a fed rate cut coming in september.

under surveillance, policy front focus, tesla pushing back on tariffs. >> neither tesla nor i asked for these tariffs and i was in fact surprised when they were announced. tesla competes quite well in the market in china with those tariffs, no tariffs, no differential support. so, in general i am in favor of no tariffs. lisa: elon musk criticizing the recent tariffs on chinese made evey's, saying that he favors no tax incentives while avoiding a question on whether tesla would bring a cheaper model to the public. craig trudell joins us now. riddle me this, on the one hand what people say in public feels different than what they might say it in private. how difficult is it for not just the elon musk's of the world,

but the bmw and were sadie's of the world facing off with the chinese threat. craig: it's a great question. they proven extremely competitive. elon musk it was saying that, you know, quite recently. i think in january he was asked about just how tough the chinese are and he said that he thinks they will have significant excess outside china, depending on what kind of tariffs or trade barriers are put up. so, while he said yesterday that he was surprised by this, i don't know that i necessarily believe him. this has been well telegraphed. he himself has referred to the idea that if trade barriers are not established, they will really give the likes of bmw and tesla real challenge. lisa: how much is this

political? we know that elon musk has been weighing in in the political sphere. and how much of this is a business interest with tesla having a significant presence selling in china along with bmw and the german manufacturers? craig: that absolutely has to be coming into play. he referred to the idea of no tariffs in china. that's silly. china really does kind of insist for the most part on when you produce locally, and he also referred to the idea that tesla hasn't had preferential treatment, which is also a questionable claim. they were the first foreign car company to be let into china that didn't need to set up a local joint venture with a local manufacturer. so, you know, tesla has gotten some help in china. it is also the case that tesla has significant business that they are exporting to other markets and musk would rather not see, you know, sort of

escalation of tensions between china and the u.s. or china and europe. you know, here in europe, he is quite reliant on the shanghai factory sending over model 3's and, you know, he is making some model y's in germany, but it is the case that his plan in china -- they are an export hub. annmarie: we heard from the french finance minister earlier this morning talking about the overcapacity concerns with china , saying that there needs to be a united front when it comes to dealing with china. he is speaking alongside g-7 partners. what is the european plan right now? where are they in the process of dealing with the china dumping on the market? craig: we are weeks away from getting a sense of the next step russells is going to take here.

there is a general sort of consensus or can -- assumption that tariffs will go up. i think that the chinese manufacturers saw this coming and actually had been kind of conservative in terms of how they have priced their vehicles. there have been quite a lot of ev's coming into europe from china, but you know, when you actually take a look at what they charge for their vehicles in europe, they are quite a bit more expensive than they are in china. some of that is, of course, localization differences and, perhaps, slightly more robust crashworthiness. there are higher standards for those sorts of things in europe than in china. but i do think it has been the case that they were trying to avoid this sort of clash and just were not able to because even with initial, you know, bit of exporting from china, without a huge amount of success, it was

enough to set off alarm balls. to the extent that we have seen success it has been tesla exporting from china and mg, a state owned company that used to be a british brand. a lot of europeans kind of assumed they were buying a british car when in fact they were buying one from a state owned chinese company. annmarie: tesla was out with their 2030 report. do you think -- do you get the sense that they are emphasizing autonomy over the core market business? craig: it is clear as day at this point. over the last couple of years they have alluded to the idea that they wanted to sell 20 million cars by 2030 and in order to do that, they are going to need to offer much cheaper electric vehicles. we have seen one indication after another in the last couple of months that musk is less interested in that pursuit and wants to sort of really doubled

down and focus more heavily on autonomous driving and that has been something that even very bullish tesla investors have been nervous about, because we have seen real issues with companies, you know, running into problems with trying to commercialize the technology. it has a lot of promise and has been something that a lot of people have been very interested in, but the nuts and bolts of getting these onto the road and dealing with potential crashes and the costs of bringing this to market have proven much more difficult and, maybe, you know, in a several year, even decades phenomenon, as opposed to something that will be ready for prime time soon. dani: it's pretty incredible that he avoided or answered indirectly all questions about this, all questions about whether he is still committed to low-cost vehicles. it was only a month ago in earnings where he talked about their growth being mostly

underpinned by low-cost vehicles. which musk are we supposed to believe in? craig: i do think that there was more than a few contradictions in what he was saying yesterday. my assumption is that he was sort of hearing yesterday's question as alluding specifically to the idea of a standalone, brand-new $25,000 tesla. a lot of people refer to it as the model2. that car is just not a priority for him. again, he wants to go the self-driving route instead. reading between the lines of what you said in the latest earnings call, it really just sounds like they are working on taking some of the development work that went into that $25,000 car, applying it to their existing lineup and, you know, spinning that as we are going to offer more affordable electric

vehicles as soon as late this year, leaving out the particulars, which i think, you know, it means that we will see a cheaper model 3 or model y late this year or next year. lisa: it's always confusing to know which musk to listen to as it can be a contradiction. in an otherwise light day-to-day, we have durable goods and at 10 a.m. we have university of michigan sentiment survey with a look ahead for inflation expectations. right now what you can see in markets is a lift. maybe the ai theme isn't as tired as people think with gains on alphabet and meta-up more than 24%. we will talk about some of their issues with ai. this is bloomberg. ♪

we're with bridget, whose husband won't be home for months and whose daughter is due any day. we're with mike, who's leaving home to protect his family, and yours. we're with all service-members and their families who need community, connection, and maybe a bit of magic. are you with them? learn more at uso.org today.

lisa: closing on the week for a long weekend is supposed to be boring but not because of what happen yesterday with nvidia and then the add-on to a higher than expected inflation reading, as well as business activity. good news yesterday is good news today on the margins. .25% lived for the s&p, trying to claw back losses from yesterday. the nasdaq about the same. even with the nvidia again at 9% , we are still seeing the nasdaq down yesterday, the most in three weeks. the russell, this to me has been

one of the biggest mysteries, when does the russell finally get. ? it is depending on the bond market. dani: hpcc said basically 40% of rate caps are exposed to higher rates, so as good as the economy may be, they cannot rally until the archives. lisa: the reason everybody is focused on the bond market. we look at two's, tens and 30's, a bit of a bid after yesterday's selloff, pushing the yield to 4.92 percent. we talked about potential rate hikes. 10-year yield, 4.47 rounded up, and 30 year, 4.58. in the commodity space, a bit of a decline in oils, but with current levels, what is fascinating is this question in

the euro zone of how much they can cut rates. this is fascinating given the fact that we had expected them to cut rates in june, a given, but better-than-expected data, wages negotiated, pushing back expectations of how much they can cut this year. annmarie: and does that mean they have inflation under control if you see wages going up? does this spell a june hold environment? christine lagarde basically said it looks like inflation is at a place where we can make the first cut. they have been talking about it since davos in january. that june cut is on the table but what happens after? lisa: the european central bank said this morning that a possible true rate cut would be a compromise and talked about why after that it would be somewhat challenging. under surveillance, janet yellen is set to meet with christine lagarde at the g7 today. the conversation coming after you comments from janet yellen

on inflation tension with china, saying she would like a "wall of opposition to counter china state driven policies." what a shift given how much she embraced it earlier. annmarie: it was a shift of janet yellen over the past three years. the biden administration has really wanted this multilateral approach when it comes to china. i'm struck by the finance ministers comments over france, talking about china's overcapacity and how the g7 must present "united front to protect industrial interest," but it was a year ago when emmanuel macron gave this stark interview with politico talking about the fact that the great risk europe has is actually there is a crisis and it prevents them from having their own strategic economy. my question would be for europe, which do you want, the united front or strategic and how m -- strategic autonomy? dani: if you look at how the g7

rundown went yesterday, you had speakers from europe, you sayinh stronger, and then janet yellen state, the global growth is good because of us, you are welcome. she did not say that exactly but for her to say that we have really strong growth and that europe is complaining, and that on the other hand say, we need a united front against china, truly she sees contradiction. lisa: there is also contradiction at a time where it is difficult to parse the idea that it is 19% higher than when biden took office economic data points to deceleration of inflation, so you have to grapple with these when you are facing off the grocery store. annmarie: janet yellen would say something like tariffs are inflationary, if we really would like to pull every lever, get

rid of tariffs, but she has moved into a national security sphere. she has been talking about her concerns of china, and that is why she was more comfortable talking about tariffs. lisa: this is our favorite story to talk about, this ahead of memorial day weekend travel, more trouble for burrowing. the company says a halt deliveries to china after a five-year hiatus came to an end with the stock plunging yesterday again after the cfo says the company's cash flow would be similar or worse than $4 billion in the first quarter. how much is this politics and how much is concerned about safety? dani: can you imagine if boeing is caught in the crosshairs of politics, chinese-u.s. politics? global trend, pleasure own problems have gone wrong, and it deals like death by 1000 cuts by boeing at this point. at what point does the u.s. government say boeing is supposed to be a national champion?

it is so important. if it keeps going this way, when do we talk about a bailout? maybe not in the traditional sense but something to help them if they can point out this trajectory lisa: how about just understanding what went wrong and why we are not getting to the bottom of these problems? i wonder what this is about industrial policy, a state orchestrated monopoly on an industry that is so crucial, not only just playing around on vacation but defense. annmarie: absolutely. we have heard this from a lot of guest, boeing is too big to fail. we will find out that they will be briefing the ffa on june 4, so potentially we will know more about what went wrong. when it comes to china, this is a massive blow. they only started to send some of their planes back to china earlier this year after a five-year hiatus nearly. this is a vital cash juggernaut for burrowing, and fact that that is strip out is another problem on a long list.

lisa: at least it isn't a safety concern, so enjoy your morality weekend. unfoldment and meta-are offering millions to hollywood to partner on ai. bloomberg reported that tech companies have had discussions on licensing content to create better video generation of software. disney and netflix denied, and warner bros. and discovery are still deciding. alex webb joins us now. i love the story because it raises the question of all the artificial intelligence models, and i would like to go here before we brought into this story, how much are they relying on the content generated by humans and companies not benefiting in any way, shape or form economically from what the output is from the likes of chat gtp? alex: the risk is that you get a little money at front, but ultimately he could come back to bite you further down the line. it could help you in the sense if you would like to generate computer special-effects, with

this kind of stuff. but the complexity as there are people in a lot of the videos. how are they were enumerated? are they getting additional pay that their likeness is on this? presumably, that is where the complication lies. from the openai side, this is about how do you find the next wave of data to train your next generation of gtp five or whatever it is called? the estimates are but gtp4 was trained about a trillion data points and how do you find more? that is the internet potentially, so they are in the search to find new sources of data to get to that next level. it looks as though video is a huge part. dani: didn't all of hollywood just go on strike over this? didn't have actors and writers walking out? didn't resolve parts of this already? alex: the actors and writers did, but the studios negotiating

this part, there are two studios uninterested. perhaps is the netflix with a slightly stronger tech backbone then some of the others. perhaps they have more of those capabilities in-house. it will be interesting to see how they square up the deals they have side with unions compared to the deals they may sign with silicon valley. it looks like a tough one to square away. annmarie: we do have openai striking this deal from news corp., what do you make of that? is that a model that others can follow? alex: it looks like it. i'm interested to know with the details are of these deals because there is a view that if you think about the media industry as a whole, where it has been in many ways the revenue streams that are

eviscerated in terms of advertising income, the web has taken up huge amounts of that, but they have not had many improvements on the cost side. ai would improve their costs by many they have to employ fewer people. good news for media, terrible news for journalists because there may not be the need for quite as many editors. so perhaps by doing this, it will not necessarily come back to bite the likes of news corp. and the tail because it might help reduce the cost. that is not always working out for you one example from the past, think about toys "r" us. what they did is they went to amazon, and amazon distributed their toys. at a certain point, users are going to amazon.com to buy toys, and the difference between toys "r" us and amazon blended away, and ultimately, toys "r" us went under. that is the risk where if you are giving all of your training data to google and maybe there is so you can get that back in return, it could ultimately come back to undermine your business,

the details are going to play out the next few years. lisa: this is especially true because some big tech players have been getting into media aggressively and raises the question of, a, whether they are going to try to buy the studios and, b, how much more of a competitive are these given the fact that essentially they are in the same game albeit from a different angle? alex: if you are talking about this being the effects -- being vfx, you might end up with the tech companies with suppliers, and then you have the studios is not quite producing the content and the being the focal point for the content, that feels like quite an uncomfortable place to be. lisa: meanwhile, with is a going to look like if it is just people throwing bottles up in the air? alex webb, thank you. no, i'm not bitter looking at my

child's feet. here is your bloomberg brief. >> the crypto sector is closing in on another mile sector. the sec signed off on a proposal from the cboe, nasdaq to launch the first etf's with any third token. fund manager still need approval from the agency before they can launch products, but investors are eager to test whether the second biggest digital asset kendra similar demands to bitcoin. bitcoin etf's had historic debut back in january and have since amassed $57 billion in assets. the ether token is up nearly 20% this week on heels of the news. the top executives at the japanese banker getting big raises. earnings have rebounded thanks to the booming domestic market. total compensation paid to the first aid executive officers of nomura rose to more than $28

million. the total pay for the top managers is the highest in a decade. and citigroup, hp says -- barclays and hsbc would like workers back in the office by the week. they are known as the most flexible wall street firms when it comes to allowing employees to work remotely. regulatory changes will make it trickier for the banks to allow that as the financial industry regulatory authority will reinstate pre-pandemic roles for monetary workplaces in the coming weeks. that is your bloomberg brief. lisa: heated debate around the surveillance table and working from home. let us know how you feel. annmarie: i cannot believe it is 2024, going into the summer, and now they are deciding to get people back to work. why weren't they there before five days a week? dani: because they reshape their lives. people have moved out of the cities and go to the suburbs because they were allowed to work from home, and now they have to commute four hours?

that does not seem nice. lisa: it is not back to work. they have been working. they don't go home and just twiddle their thumbs. annmarie: there. lisa: it is funny to blame them for this. next, divergent economies. > there are emergencies across different economies, which means there will be different responses and monetary policy settings will remain restricted for some time. lisa: that is next. this is bloomberg. ♪ [whoosh] ♪ trains that sense what isn't on the schedule. ♪ trains that use the power of dell ai and intel. ♪ to see hundreds of miles of tracks. ♪ [vroom] [train horn] [buzz] clearing the way, [whoosh] so you arrive

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the s&p. on the nasdaq, this is shocking, down .40%, and nvidia gained north of 90% for a market cap gain, $218 billion. dani: this gets back to what we talked about, how much more wealthy they are now, and would you do with the money? what do you do with that money? you're going to buy assets. when you see declines and you say, they are not as big as they were because when markets get cheaper, they are going to buy. when milk gets cheaper, they will not buy more milk. lisa: basically as people deal with the fact that if you have 30 billion, $40 billion, you not just going to buy a new yacht, you have to go broader. maybe that is what is lifting valuations in the market. just saying that is not actually true. in the bond market, you can see

a bit of a bid after yesterday's selloff. what you can see over in the commodity space is a bit of a dip. this is one of the biggest questions, crude is up point 30%, and this could be one of the biggest surprises on the table. annmarie: we are seeing that and copper prices not oil prices exactly. he with the rise had to do you political risks. we are still going into a peak driving season and the summer and people are expecting more and it comes to gasoline prices. we are going to speak to an analyst as part of gas buddy, was tempering the risk that people are talking about, five dollars a gallon? he has a response to that. lisa: i'm really looking forward to that conversation. i love to analyze the gas station placards to understand the direction of travel. divergent economies under surveillance this morning. >> inflation is settling down.

there are divergences across the different economies, which means there will be a different commodity policy response, but we think that overwhelmingly, it will remain restricted for some time. lisa: traders are pushing back rate cuts. raphael bostic the latest official to reiterate the higher for longer narrative, "the sensitivity to our policy rate, the constraint and the degree of constraint that we are going to be put on is going to be a lot less. i would expect this to last a lot longer than you might expect." meanwhile, the ecc says the likelihood of a june cut is waiting on traction. ian shepherdson joins us. you have a contrarian view. to push back on the idea that maybe this is a less interest-rate sensitive economy and that basically you are looking at something of a lag effect that is going to take affect much later. can you talk about why you just

downgraded to forecast for the u.s. economy? ian: yeah, we take a hard come along look at the operation to the economy, particularly the interest in the small business sector. it is very bank credit dependent. bank credit growth in the u.s. has stalled. it has become difficult and expensive for small businesses to borrow. that is being reflected in their surveys. small businesses can afford to carry less. these businesses employ 60 million people in the u.s. and are extremely important, in the market, they tend to be disregarded because the focus is on the large corporate sector and growth of the companies. and that means you see a slowdown in the small business sector which goes unnoticed until you look at the payroll numbers which ultimately is everyone's kind of bellwether report to what is going on. they are now starting to soften.

it is telling us pretty clearly that we should expect some standstill and growth the next few months, and i think that will start to shift opinions back towards the fed having to do more and starting earlier. lisa: how much is this rushing down your gdp forecast predicated on the idea that raphael bostic is setting the tone of the fed that essentially they are going to hold rates higher for longer, and that is going to be what leads to 2025' slowdown that is steeper than expected? ian: i'm more concerned about the lack of response of timing rather than the higher for longer. higher for longer is not great, but the problems of growth that i have seen on the board is more because of what they have already done. i really think that markets in the fed underestimate the length of the leg. when you look at history, it often takes two years to take actions.

it is two years since they have raised rates, and we could all see that softness begin, and it is in front of us. i kind of think that even if the fed starts cutting tomorrow, a slower economy is due for the second half of this year, and i also think it is important to draw the distinction that it does not mean recession necessarily, it just means that slower than prices of earnings forecasts, which is interesting for the market, which had consistent record highs. i just wonder what that rally is based on for next year and if it is realistic. i do not want to sound super bearish, i'm not, but i just think the scope for disappointment in the scope for the fed to say, hey, this is actually weaker than we thought it was going to be, so let's bring back rate cut

expectations. that seems realistic scenarios at this point. dani: if they cut tomorrow, it will not make enough of a difference because we are going to see the effect of what happened two years ago, so does that mean if we do adopt the bostick stance that we are higher for longer, and let's say we don't get cuts until 2025, is that the policy mistake? ian: yes, i think it is. the fed is spending more, and the u.s. economy has not demonstrated to limit real rates of this level for an extended time. we did in the 1990's, but that was learned tech growth was running at 3% plus and we are not in that position now. i don't think the economy can take that level of real rates, especially because the fiscal group in 2023 is pretty much over, any see that from the data.

we not only have a delay from the ministry, but we are in a fiscal boost, as well. in 2025, we don't have either of those supports, and the pressure becomes more pronounced. if they do not cut until 2025, i'm going to start thinking hard about how growth will be in 2026. everyone in markets, media, we would all like things to happen quickly. it just doesn't work like that. it is a danger that we forget what they have done a very wake up one day, and now it is at 50,000. did not see that coming. dani: patience is simply human nature. you said we would not have the 1990's productivity boost as we did from the internet, but we have ai. why are we getting another industrial revolution that is going to lead to productivity boosting? ian: yes, i think it is,

absolutely, and i am an ai bull, but i'm not sure it will be as transformative. with the birth of the internet and the widespread adoption of the internet in the mid-1990's and onwards, it was very much pushed from a ground of people who loved online shopping, the birth of amazon, all these things that generate benefits for individuals. i'm not sure ai is the same. it is always pushed down at the top to the business sector rather than adopted rapidly from the ground up by individuals. clearly, we have added an ai tedium to growth that we otherwise not have to the interest-rate environment because we are bullish. i'm not willing yet to say that it will be as transformative as quickly as the internet was.

lisa: ian shepherdson, thank you for being with us. i will say that this idea of talking about ai and what implications are going to be sometimes feels a bit like the crystal ball stuff. annmarie: exactly. can we pick up on the point of fiscal policy, maybe it is dried up but in 20 25, at some point, there will be big discussions on adding more to the deficit and spending more. how do you pay for tax cuts? that is what the conversation is. lisa: i perk my ears up when he said that, and what about the argument that a lot of the fiscal dollars have not yet been deployed and have yet to circulate through the economy? this is a point of big debate, and others have used. coming up, robert pelosky, aaron david miller, helane becker, and terry wiseman -- thierry wizman. you may see a lift and optimism

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>> this year, the fed probably will see that slowing and inflation that it would like to see. >> core inflation by year-end, may be lower. >> the baseline forecast is we will get one rate cut this year, probably december. >> first cut in december. >> the fed would like to hold the line and make sure we are

coming back to 2%. things could downshift quickly as we go forward. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. lisa: we had a dose of cold water to start. let's bring in the bulls, this is bloomberg "surveillance," from new york city. annmarie here, we had dani burger instead of jonathan ferro who started his weekend early, a wonderful thing. i have got to say that we have been hearing about push back expectations, ian shepherdson pushing back some of the high optimism around economic growth. how much is this that people have no visibility whatsoever into just whether ai is going to continue and how much will it continue to be seen as a lift to the market? dani: you saw that yesterday because nvidia had a good day and the market did not follow. there seems to be skepticism in ai lift, but it could also be that there is an exhaustion of the market.

we just basically had every bear say you need to buy. finally say, even mike wilson, i don't know what's happening in the economy, i'm still going up at my target. lisa: at the same time, you have a question of how much the fed could curtail the party versus continue to fuel it. goldman sachs saw the first fed rate cut now and september versus the previous call of july. this speaks to the momentum of the market, the fed will not have justification to cut rates like people thought. annmarie: we heard a lot of fed speak and we heard from raphael bostic talking about in the first quarter of 2024, inflation went sideways. this was supposed to be a disinflationary story but it didn't go the same way. they need more time. when i take away at the end of this week is not just adam pozen our guest in the last hour talking about a potential serious tail risk of a of 2025. dani: you saw that in the

minutes they said, look, if the data warrants it, arius members said they would look at a hike. one of the striking things listening to bostick, there is a growing divergence between what regional bank governors are saying, more hawkish, then the fed and governors in d.c. we have a biased cut. as divergence grows, i wonder if powell will get pushed back the cutting bias. if you would like to cut this year and sooner, are we going to have folks like bostick saying we cannot? lisa: are we going to have dissent? right now, you don't have that in the market. you have a clawback of the extreme losses yesterday. s&p about .30% today, higher at the session highs. 5300. even number. you do see dollar weakness in the euro zone and skepticism about not whether they can cut rates in june, that seems to be a lock, but how much more they can cut this year. 10 year yields unchanged.

can we call this any movement? crude dipping just a bit because i don't know -- i'm trying to understand what is going on in the commodity space. good luck. whatever narrative it is seems to rule the day. coming up, robert pelosky. stocks coming out there were state in three weeks, helane becker, and thierry wizman, as rate cuts are pushed to december. we begin with our top stories. stocks coming up there were state in three weeks despite massive gains from nvidia. robert pelosky writing this "invidious results reinforce our recent focus on paying attention, not to the news, but to the reaction to the news." "stocks 10% gain tell investors still underestimate the speed, scale and scope of the ai age." jay, wonderful to see you. love having you in the studio. talk about how much in the crystal ball discussions that we have had about artificial

intelligence, why are think the price action shows we are not ocean enough? jay: the market tells us with the reaction to the news, the fact that the stock is up 10% on the day tells you there was positive surprised by definition. and it was super impressive. you have to admit trickling the revenue and a sevenfold, sevenfold, increase in profits and year-over-year, i mean, that is unheard of. so you have a 10% move and you don't have the rest of the market responding, as we discussed a minute or so ago. but to us, we are believers in every company, every government in the world, is going to have to participate in the ai age. it is either you participate or you lose. it is that simple. and there is a concept which we believe in, called solving ai as an example, which states that every country is going to want its own ai, so you are just talking about a massive global

explosion of demand, and you are seeing that with nvidia. lisa: nvidia, they are the winner, it is a question of can they rise or will it be nvidia's party and only there party essay potentially take share from intel, from a lot of other companies that otherwise might be getting some of these dollars? jay: we are believers in what we call the pick and shovel. we would like to be in the digital pick and shovel, and that means for our semiconductors because they are needed for the whole process. they are the winners, to your point. and whether x company versus y company is a different story but it is simple to us, we would like to be in the pick and shovel as an investor and that's the semiconductor space. in the pick and shovel in the physical space is the miners because what is interesting, and you touched on it with commodities, what is interesting

is you are fusing the digital and physical worlds through the power demands for the data center. again, i think the ceo of nvidia is a guy you have to pay attention to. he's at the forefront of this. he is like elon musk a couple of years ago with ev's, he was at the front end, seeing what was coming. elon musk was right. so now you follow the ceo of nvidia. he is talking about the fact that these are the future. he is talking about the data centers being the modern factories of our world as we move forward, and they need power. i will just give you an example. natural gas. lng up 40% the past month, before that it was copper because you needed it for the electric and the power generation, which is going to be global. every country, every region, so it feeds into our pieces of

regional integration, our aging europe and the americas, and you see europeans in the chinese building out ai, the americans are building out ai. everybody has to have it now. the last point i would make is that -- i'm a believer in the idea -- this is going to come much factor. i respect ian shepherdson, earlier he said he doesn't know how ai will come through. my feeling is that the infrastructure for ai is going to build out. dani: part of ian's's thesis -- [laughter] jay: nothing but silence, where is jon? dani: i will take the combative you if he is in here. my combativeness, i'm trying. jay: i'm game. dani: ian's argument is basically that it will not be an issue with companies because if you think about the internet room, everyone and their mother

could sign up to the world wide web and get their own website and then you take off. integrating ai is more complicated and longer of the process. jay: pushback is that it took a decade or more for the internet to be built out because everyplace had to be created from start -- every piece had to be created from start. the ai already has the infrastructure built out so it will celebrate much more quickly , so i'm in it is going to accelerate much more quickly camp and ian can be in the other and we will see how it plays out. i go back to the idea that every company is going to have to participate in this. every country is going to have to participate. and it is a race. so the money that is being put into this, and we talked about school earlier, interest rates, governments and companies are going to spend money on this. companies are cash-rich. governments are spending. the g7 cannot with their outlook for the next fiscal

through 2029, no change. so there is no community for significant fiscal cut, and you have the company is also spending. nvidia is a perfect example. it increased its, it raised its dividend, it has a stock split all these things are happening because they are making so much money, $15 billion. dani: you had greenspan in the 1990's talking about the productivity boost, the paradigm shift basically from the internet age. do central bankers this time around, are they aware of the potential changes to the macro landscape you are talking about and they need to start thinki ng of policy differently because of that? jay: excellent question, we are believers in the blue sky from 2023 to 2037, we see a bullish outcome. and this is what we just talked about because we wrote a piece of couple of years ago called

the age of investment. we are in an age of investment. 2010 to 2020 was monetary policy driven and central bankers ruled the world. now we are in a space where fiscal is going to roll the world. it is a recognition that we need sovereign ai and we need to pay for it. we need climate litigation and to pay for it. when he defense spending. we need to pay for it. all of these things are driving. we believe in the age of investment which will reinforce the productivity gain, which is being fueled by the fact that we are in a shrinkage of the global workforce. demographically, we are in a whole new world, which we think will continue to drive automation, drive robotics, and drive the regionalization of things so that you have the whole reshaping of the supply chain, happening in asia right now or china. china is basically carving out the fastest-growing part of the world, and they will dominate that space.

just look at what they are doing with ev's in thailand and vietnam, setting up a regional production supply chain for ev's , and they are going to own that space. annmarie: i wanted to ask about china because so much of your thesis, the basis is that china still integrated with the west. what happens if it isn't? jay: i don't believe that will happen. annmarie: do people actually think we would see what we sell at russia's invasion of ukraine within a weekend with companies pulling out their central bank assets lot? jay: we made it clear to china that we would like to control their ability to rise on the tech stock, so they are now coming back, anything that is an opportunity of what we call our two stacked pieces, where the chinese companies are going to dominate chinese tech stock, the american company will dominate the american tech stock. investors have climbed onto the ladder but they have not agreed on about the former, so china

tech is selling at a major discount to u.s. tech, even though it is twice as large and growing twice as fast. so to china tech spaces with the opportunity is, an icy the same with ev's. china does not want -- china is integrated into the global trade. they have massive trade surplus and exports and cannot afford to be cut out of the global trade flows. so you are seeing that in the reaction to bidens announcement last week about hundred percent tariffs on 80's. that is huge. but there is nothing from the chinese because they need to keep the europeans -- annmarie: they signaled they potentially will have tariffs. jay: and do it on the european side. they need to get the europeans on site. the americans, it is a done deal, so they are threatening the europeans with big tariffs on internal combustion engine, european exports into china.

that is a massive market for the europeans. and that is where the game is being played. i believe china will continue in the economy but the tech stock is being divided up and closed off on both sides. lisa: jay pelosky is sticking with us. let's get you an update on stories elsewhere this morning. here is your bloomberg brief. >> the rally and global equities is at risk of overheating according to make of america's hartnett. it shows that about 71% of equity indexes are trading above both their 50 and 200 day moving averages. hartnett says at the number goes above 88%, it would trigger a sell signal. leading candidate has emerged to take the reins of the fdic. what house -- house officials have held talks with kristin johnson of the cftc.

the biden administration is a need to quickly for the role after the former chair said he would step down on monday following complaints of a toxic work environment. and tesla is hiring, they posted more than a dozen auto pilots and ai jobs in the first sign of workforce growth after weeks of rolling layoffs. the company's career site has been largely empty amid the job cuts, which are expected to impact and percent of the company and last through june. that is your bloomberg brief. lisa: next, president biden defending benjamin netanyahu. >> we made our position clear with the icc, we don't think there is an equivalence to what hamas did. lisa: that is coming up next. this is bloomberg. ♪

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long weekend with a bit of relief in gains after yesterday's massive three-quarter represent selloff. s&p futures up about .30%. you can see a little dollar softness. a little more optimism of european growth, or pessimism about how much they can cut this year, talking about ecb rate cuts. 10-year yields a little bit into it, a little softness in the commodity space. under surveillance, president biden defending benjamin netanyahu. >> on the icc, we do not recognize the jurisdiction and it is that simple. we don't think there is an equivalence between what benjamin did and what hamas did. lisa: israel was pressing on with military operations, announcing that one million civilians have been moved from the city, even as the

international terminal court as an arrest warrant for benjamin netanyahu on war crime charges. aaron david miller joins us now. i have got to say, i don't have any clarity on how this will end. i don't think anybody does. can you give us a sense of the state of play out what is on the table, are we talking about cease fire discussions? aaron: i months into the war, we are in a strategic cul-de-sac. i don't see a clear, discernible way out. if there is any good news, good news that is relative, we have avoided a regional. that is to see a major confrontation with a war that would involve the united states. that seems to be something that can be managed. the ci director will burns is on his way to europe in the coming

days to meet and determine whether or not there is any possibility of negotiating a cease fire. even here, middle east negotiations always have two speeds, slow and slower. benjamin netanyahu's objectives are the principal hamas decision-maker, and there does not seem to be urgency to bring this to an end. right now, it is likely to be a hot summer, and it seems to me that the pictures in gaza are creating and will continue to create huge problems of humanitarian suffering but also the political side with respect to the administration as it chases a consequential election in november. annmarie: a spokesman said israel is operating with care and precision. so are they carrying out this

rafah incursion the way that the u.s. is ok with? aaron: what they are not doing is dropping 2500 bombs, one munition shipment the administration chose to pause and delay. the administration has created a redline when it comes to the u.s. and israel relationship. i think the administration, frankly, is giving the israelis the benefit of the doubt here. we are not -- they're not launching a massive ground campaign. they are not covering the areas as stated in northern gaza from the air. it is more limited and precise. over one million people have moved to areas where there is no access to food, medical care, potable water, so they will come to a conclusion, but the administration has made a

decision that the israelis are going to do rougher, and they hope it is done quickly so they can begin to get to the issue of what comes next. annmarie: you mentioned cease-fire negotiations. israeli forces recovered bodies of three more hostages in northern gaza. it is ever stating to know what the death count might be on these individuals. where does this leave the hostage negotiations, not just cease fire, but getting the hostages out? aaron: this has been a real problem. he believes he can survive this, and the way he's going to do it is to trade hostages for what he really would like, a comprehensive into the struggle. and the emergence of hamas, perhaps not in the same shape as it was pre-october 7, but still, with senior leadership alive after this warrens, and that is

going to mean that he will not release, even if you reached a limited deal to exchange the elderly for a large number of palestinians, that would still leave him with 50 males of civilian military. he will hold them as people until he gets what he wants and hopes pressure from the icj, the icc, the biden administration will continue to press the israelis to be more responsive. i will say it again, we are in for a long, hot summer. lisa: aaron david miller of the karen d -- carnegie endowment for international peace. thank you. hopefully you can join us soon as we see the international response and facing with norway and spain announcing they would recognize palestinian. with your try world polar scene, you have an interesting take on geopolitics and wrote, "those focusing on geopolitics have got

it backwards, geopolitics is a room for those who view the world in a tribe polar thematic fashion and are exposed to the three wages and the themes that they create across and among them." explain. jay: it is just fascinating. you listen to that, and you see the pictures and you read the headlines, anything, volatility must be off the charts, right? the reality is the opposite. the vix, year low, the move, the u.s. treasury, volatility index at a year low. we are in the middle east, crude oil has to be over $100, right? it is down 10% the last months. clearly, the idea that if you are investing on geopolitical headlines, you are getting it wrong. we are in the business of trying to get it right. we are of the view that what is happening is really accelerating the process of regional deepening and integration in europe.

europe has to scale up to build its defense. it has to scale up to create ai in asia and to china. china has to scale of asian regional integration because it is being kept from expanding globally, particularly in the u.s., particularly entech and clean energy. -- in tech and clean energy. those spaces are driving regional integration because they are no longer kind of global goods. the tech stock is being divided, so you have to develop it internally to help develop the region. the ev's, for example, biden stopped on hundred percent terrified china ev's, even though we don't --'s slot 100% tariffs on china ev's, even though we don't allow any. that is integrated southeast asia and china. and that here in the americas, we are still stumbling over how to reintegrate outside of

mexico. we have done a pretty good job with canada, mexico, and the u.s. with nafta, but we have not done much in south america. so we do see things like ev tariffs, like china not been able to access cutting-edge semiconductor chips, as creating the framework for deeper regional integration. lisa: coming up, the summer travel season kicking off this weekend. helane becker joins us next on what to expect when you go to the airport and try to wait in line with the other 5 million people who are doing the same. you are watching "bloomberg surveillance." ♪

people couldn't see my potential. so i had to show them. i've run this place for 20 years, but i still need to prove that i'm more than what you see on paper. today i'm the ceo of my own company. it's the way my mind works. i have a very mechanical brain. why are we not rethinking this? i am more... i'm more than who i am on paper. her uncle's unhappy. i'm sensing an underlying issue. it's t-mobile. it started when we tried to get him under a new plan. but they they unexpectedly unraveled their “price lock” guarantee. which has made him, a bit... unruly. you called yourself the “un-carrier”. you sing about “price lock” on those commercials. “the price lock, the price lock...” so, if you could change the price, change the name! it's not a lock, i know a lock. so how can we undo the damage? we could all unsubscribe and switch to xfinity. their connection is unreal. and we could all un-experience this whole session. okay, that's uncalled for.

lisa: closing out the week with a little bit of gains after a stellar month, especially with artificial intelligence. we are seeing in markets u.s. equities clawing back towards all-time highs with nearly .3% gain on the s&p. nasdaq about the same. the russell 2000 gaining about .6% as people may be recalibrate how much the fed really is going to cut rates and what that means for some of the most leveraged companies. through the bond market, you can see a bid into bonds. not a lot of drama but a

reprieve after what we saw over yesterday's session when you got higher than expected data on business activity in the u.s., plus inflationary pressures. dani: it's remarkable the market cared more about that than nvidia. we all said it. i wonder some of the shift is because we just got this fed speak and fed minutes that have not a hockey is no but a more hawkish tilt. -- hawkishness but a more hawkish tilt. saying we will be higher for longer and dare i say disagreement with powell that potentially the bias isn't to cut. i wonder if that made us more sensitive to the data? lisa: say it ain't so. not a lot of drama, not a lot of conviction. we didn't see a 20 year auction go off this week without much of a hitch. a little bit of a tale. you can see in the currency

space a bit of euro strength. this to me is interesting. everyone is baked into a june right cut so we aren't even talking about the discussion around that, the uncertainty. how many cuts they can do? we talked about this earlier, but it is worth sitting on. we talk about the u.s. exceptional in inflation and strength but wage negotiations in europe are yielding bigger pay raises than people expected. annmarie: yes, june on the table, but what comes after that? you mentioned part of the ecb this morning that she would caution against moving too fast on rates. the question is, potentially for the ecb, is it going to one of the nip tucks in terms of a rate cut or a cycle? lisa: that is why under surveillance this morning, investors are pushing back rate cut that's too december following strong u.s. business data. raphael bostic reiterating the message that we've heard all week from fed officials. the central bank needs to be patient.

jay pelosky is still with us. a beat from you on why you dismissed the idea of fewer rate cuts and potentially the prospect of a rate hike as being damaging to the bullish thesis? jay: we don't pay much attention to the fed. it creates a lot of headlines and a lot of news. we don't care about the news. we care about the reaction to the news. sorry. [laughter] for us, it is a situation where we are focused on earnings. earnings drives stocks. the reality is that earnings are coming in better than expected because we have a strong economy. as long as that will continue stocks will be fine. when you look at q1 results, earnings estimates going forward the next 12 months have been raised to an all-time high. clearly, the market believes that companies are going to be able to continue to make money. as long as that happens, we are going to be fine.we

don't have tremendous upside because we are fully priced. upside is earnings growth plus multiple expansion. we had multiple expansion and now are dealing with earnings growth. we are focused on convergence and the growth convergence. you mentioned u.s. exceptionalism. we think that that is ending. we noted not the u.s. pmi's but the european pmi's higher than the u.s. for the first time in a year.. europe is converging. the u.s. up here, europe down here, europe is coming up and the u.s. is coming down. convergence. the opportunities and the rest of the world, not the united states. lisa: people who work in the office and people who work at home are converging to work in the office. ordering staff to return to the office five days a week as finra gets ready to reinstate pre-pandemic rules for workplaces that may be doing heavy lifting. it will affect hundreds of employees at citigroup and hsbc.

with the changes at barclays set to impact thousands of staff. our resident get back to work correspondent, we have to clarify. it is not get back to work, it is get back to the office. i wonder how much some of these executives and banks are thinking that it is convenient that finra tightened the group so we can order everyone back to the office, which is what we've been wanting to do anyway. annmarie: they don't want the mass mutiny before the summer. j.p. morgan and goldman sachs already have the policy we want you back in the office five days a week. i only worked from home a few times during covid because i was ill. i -- it is 2024. i don't even understand why there is this discussion. dani: i think it is a very convenient excuse, to your point, that finra is changing the rules are barclays, the most strict, are trying to cut 2 billion pounds. what better way than to ask

employees to get back into the office and have some potential employees say i can't do that, i would rather leave than continue to work in the office. we see employees that say that. that is pretty convenient, too. lisa: are you a back to the office kind of guy? jay: i love the office. [laughter] i love the office. during covid i was in the office every day. it is good for married life, right. at least it works for me. lisa: u.s. travel season kicking off with airlines balancing resilient consumer demand with ongoing fleet challenges. bloomberg analysis finding u.s. airlines are adding seats at the slowest pace since the pandemic. this makes for a really enjoyable experience. helane becker ftd callan expecting another strong travel season adding we think we will see continued strong international travel along with higher fares.

how miserable is it going to be over memorial day weekend? [indiscernible] lisa: i think that we are losing your sound. let's reestablish that. we will come back to you. both of you will be traveling in the airports. why do you try to brave the crowds? what is your hack to get around them? dani: i guess i am just a masochist or a sadist, i love pain and suffering.that will be the case trying to brave the airports. annmarie: i didn't think about it until jon texted me. give yourself enough time to get to the airport. it took him two hours to get out of manhattan to jfk. i woke up and i read helene's note, that 2.5 knowing people will be traveling friday and i thought maybe this isn't the best decision i made. lisa: it is also because of the upgrades to the airports.

they are tearing up the roads. it will take even longer. can you give us a sense of what this will mean with capacity coming down, prices going up, more people are there, then clear ushering people in? how busy will it be? helane: you have to give yourself extra time going to the airport because the lines will be long. we are at record levels. the 2.7-ish million we are talking about, there will be days this summer when you see as much as 3 million people a day. the system is having a hard time already handling the 2.6, 2.7 we get regularly rather than adding another 300,000. i think that you have to bring patienc i see thise. every summer because of thunderstorms because you never know when they will pop up. if you can take the earliest flight of the day, that is your best bet.

lisa: thank you so much for being with us. we will let you get off to your long weekend. how much do you think that the travel boom can continue? you're talking about ai and a tri-polar world, how much are you talking about carnival cruise lines? jay: probably not enough. [laughter] we were invested with riviera airlines and it didn't work which is interesting because there has been a boom in travel. the etf or airlines hasn't really done very well. it is in an area where we've done much. annmarie: i wonder if we can think about the consumer. we have talked about them continuing to spend. not only spending with prices up, but spending with the chaoticness that will be this travel season. there are no seats on planes, travel is horrible, people are willing to spend. what does that tell you about the state of the consumer? jay: we are bullish on the consumer. record low unemployment levels

in the u.s. and europe. workers -- there are fewer workers. workers are being paid more. when you get paid more you consume. people still want to start the summer memorial day weekend going to the beach or traveling or doing whatever they are going to do for the long weekend. i'm happy to say i'm not traveling anywhere. i wish you all well making that trip. i will be in the office, exactly. lisa knows me too well. we will be sitting at home and trying to relax in the city. we're bullish on the consumer. we think there is a fully employed workforce, wage gains, and we aren't believers that the consumer will create a problem here, in europe, or elsewhere in asia. dani: let me say that i am incredibly jealous of your weekend. i wish i had made that decision. i am currently regretting it. the confusingness of the

data because you have this bifurcation. what do you use to get a sense of the consumer when the headline data isn't telling you everything? jay: we look at many different things through our work and we talked to a lot of different people. essentially, we want to have a framework. the framework is a tripolar world and we have a view as to how that is materializing. we put out in our 2024 outlook four macro surprises. lower inflation sooner than expected. that has happened everywhere but the u.s. rising productivity come also in place. a return to stability which we see with the volatility indices descending. an early cycle. we leave we are in an early cycle global economic recovery. most talk of us being late cycle into recession. that has been the thesis for 18 months.it has been wrong for 18 months . our feeling is that we are early cycle, in the beginning of a manufacturing pickup, and the

beginning of a capex boom to build out all the things that we spent time talking about earlier this morning, and that leaves us constructive. we don't sweat the details. we don't sweat the fed coming in june or september or whatever. we are sweating those issues. we are focused on the fact that earnings are solid and that gives us the comfort to stay fully invested. annmarie: are you sweating with the ceos are saying on earnings calls? target, walmart, starbucks, they are seeing a more discerning consumer? jay: we are not, because we aren't invested in that part of the marketplace. annmarie: but you don't see any cracks in this consumer? jay: no. we look at household net worth at all-time highs. household net worth and liabilities versus disposable income, things like that. they are all benign. nothing suggests we are in -- that we are approaching a cliff

for the consumer. we are focusing on really the pick and shovels, the tech space, we are double weighted commodities, completely underweight fixed income, zero treasury exposure and have had zero treasury exposure for a couple of years now, overweight equities, triple weighted in emerging markets. triple weighted versus our benchmark. we are big believers in china tech. we are believers in poland for european integration. vietnam for asian integration. mexico for the americas integration. copper miner, goldminers, and these things have been working. we think there is an imbalance between how best we -- how fast we want to build data centers and how fast we can build a copper mine. what pulls those together is price. we are in the jeff curry camp. copper, and he is a respected

guy, he said it is the best trait he's seen in his career. that resonates with us. annmarie: thank you. i will get you together with dan ives and it will be an explosion of bullishness and it will be fantastic. let's get you an update on stories elsewhere. here is your bloomberg brief. >> treasury secretary janet yellen acknowledging that persistent inflation remains a problem for many americans. speaking at the g7 finance meeting in italy yellen said that wage increases in the u.s. are not keeping up with a high cost of food, rent, and mortgages. the comments come as polls show biden struggling to win over new voters. janet yellen will meet with the ecb president christine lagarde later today. alphabet and meta are offering millions to hollywood studios to partner on ai. bloomberg reports the companies have held discussions with studios to license content for

the tech giant's ai video generation software. this technology can create realistic scenes from a text prompt. disney and netflix have declined to partner with the companies. warner bros. discovery is still weighing a decision. the nvidia ceo had a good day yesterday. his net worth grew by almost $8 billion to $91 billion as shares of nvidia rose 9% following better quarterly results.the majority of his net worth comes from his stake in nvidia, the company that he cofounded in 1993. according to the bloomberg billionaires index, he is the 17th richest person in the world. lisa: i love this idea and you nailed it. what do people do with that kind of money? they aren't going to buy a lot of apartments. they are going to funnel it back into stocks. dani: that is why this is different and this market. even if we get hiccups in the global economy and inflation

continues to be a problem, assets can do well because they are bid up by the jensen wang's of the world. lisa: the case for higher for longer. >> we need to rebalance the u.s. policy mix over time. our call remains come as it has been for a while, the first call in december. lisa: you are watching bloomberg. ♪

(♪♪) (♪♪) what took you so long? i'm sorry, there was a long line at the thai place. you get the sauce i like? of course! you're the man! i wish. the future isn't scary. not investing in it is. nasdaq-100 innovators. one etf. before investing, carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com lisa: this is bloomberg surveillance, closing the week with gains. the s&p 500 close to all-time highs once again come up a quarter of a percent. near the 5300 mark. a little bit of a bid in

treasuries fades. it is a little bit of a selloff. basically no action on the day before memorial day weekend. under surveillance, the case for longer. >> basically, the case is we need to rebalance the u.s. policy mix over time. that means monetary policy less restrictive.we don't need to do it now, but probably in the coming years. our call remains first cut in december. lisa: treasury yields jumping after strong u.s. business data prompted traders to push back fed rate cuts. terry wiseman writing, the fixed income market already believes r-star is higher than the fed's current estimate. should the fed signal in june that its estimates of r-star moving higher that takes the stock market lower? it could take longer term u.s. treasury yields higher, perhaps back to 4.75%. theirry, we were talking about

the idea of a potential rate hike on the table the longer that inflation seems like a hard base to kill. you agree? theirry: in published terms, no. i don't think we are going to get a rate hike. i would assign a less than 50% chance for that between now and the end of the year. is it possible, yes. anything is possible. if you read the minutes that came out from the may 1 meeting you clearly detected in the transcript that there were some members of the senior fed policy officials that would contemplate or consider raising rates. they also said it would have to be under the right conditions. those conditions mean we would have to see inflation accelerate from here. i don't think that will happen. i don't think the fed thinks that will happen. there is a basis believing the next few months may see softer inflation in the u.s.

lisa: the interesting point about your theory is you are focused on the wrong end of the yield curve -- long end of the yield curve. people have said that the fed has been keeping rates high on a relative basis but have been somewhat stimulative when it comes to longer data treasuries in terms of some of its repo lines and other balance sheet policies, particularly after last march. why do you think that that is going to end? why do you think the long end could suddenly see something that it hasn't seen for a sustained level so far in this cycle? theirry: it will require a different signal from the fed. not so much the long-term yield but the long-term outlook for short-term yields. there is a little bit of a difference. without getting too technical, what the fed may be trying to tell us or the hawks of the fetter trying to tell us is, do -- of the fed are trying to tell us is don't expect short-term rates will find equilibrium in the 2's again. in other words, 2 point

something. there is a large part of the marketplace that things will get down to a 2% rate the hawks don't believe that. i believe the hawks have a sound basis for that belief. there are, in the long-term, structural trends and tendencies in the u.s. and global economy that are inflationary. that last mile of getting from 3% inflation to 2% will be tough, but made tougher if you reduce rates below 3% ultimately. i think that that is the thesis. eventually the market recognizes this the way the fed is thinking. it is not just the minority but possibly the majority of that the long-term yield will rise. dani: it reminds me of people saying that it was the year for curve steepeners. that this would be the time we got out of a negative yield curve. you have a front end that is scared of the fed and long term and reflecting what you're saying and scared of the economy. if what you're saying is correct

are you loading up on steepeners? theirry: yes. the normal typical shape of the yield curve should be upwardly sloping. there are many distortions maybe dating back to covid and the uncertainty regarding to fed policy, but making the curve invert it now. if you believe that the normal shape is upward sloping you should consider that now. you would not want to be invested in the long bond. there is an implicit and cap there if you are buying at 4.5% when short-term yields are high, likely to stay high, and when you consider long-term structural drivers of inflation in the economy. dani: michael hartnett in bank of america said u.s. treasuries are 48% of the global gone market -- global bond market. so says that policymakers know

that the u.s. is too big to fail. they are setting policy knowing that recession is more consequential than inflation. what do you think? theirry: that may be the case. the policy we are talking about his policy that mainly impacts the short-term rate. the long-term rate is determined by the market. the short-term rate is managed by the fed and other central banks. although it is nice to believe that policymakers have a say directly about the long-term yield they do not. that is determined by the actions of traders and economists and analysts like myself with very little reference most of the time to what the fed is doing on the short part of the curve. i would love to get your take on the consumer. jay pelosky says he is not listening to earnings calls when walmart ceo's, target, starbucks when they say that consumers are becoming more judicious in what they buy. are you seeing cracks on the consumer side? theirry: not yet. i would argue the consumer is

one of the trends longer-term in the economy that is inflationary but not for cyclical reasons, not because the fed is keeping interest rates lower than it should be. the reason is demographics. we have a baby boomer cohort that was made fantastically rich by the stock market over the past few decades. now they are retiring and no longer working, no longer producing, but they still want to consume. that is inflationary. it adds to the imbalance between supply and demand in the economy, the direction of too much aggregate demand and to little aggregate supply. that will roll and eventually reach me. i will be consuming more than i am making. that is what is happening and that is a structural theme that one has to consider when one is looking at things like the long-term bond yield. lisa: thank you so much. have a wonderful long weekend and i hope you enjoy it. coming up, how expensive it will

be going forward to drive around. to me one of the big takeaways has been the confusion, annmarie , in classifying how much the consumer matters, how much they have been weakening, is their savings up and credit quality deteriorating? annmarie: mohamed el-erian says you have to listen to the earnings calls and what ceos are saying about inflationary pressures. oneof our guests this week talked about latte shock. lisa: that really resonated with you. annmarie: because they are expensive. dani: only the lavender ones. lisa: we don't have that conversation coming up next. we have economic data in the markets with a little bit of a lift following yesterday's selloff, the biggest in three

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>> as an asset allocator, i don't think i've ever been so interested in stocks.

>> corporate health looks good. we feel good about that. >> the momentum continues to get even stronger than it had been earlier this year. >> everybody is trying to get into the ai world. >> get the popcorn out, because this ai revolution and 1995 moment is just starting. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. lisa: 90 minutes until the start of trading. we have 120 minutes until the university survey. 140 minutes until the close of the market. this is bloomberg surveillance the day before a long weekend. annmarie hordern is here. dani burger is putting up with us two hours in. thank you for doing this with us. jonathan ferro is on a well-deserved break. front focus is how much do we see inflation remain sticky? how much does that challenge the thesis that stocks can keep

writing through it? dani: if you're of the opinion that all that matters is economic growth and that is what inflation is higher stocks can keep rising through it. i think that it was interesting. in that he basically said that our upside is limited. you have rallied so much. we to a large extent have priced in the good earnings. how much better does it need to get to be able to say that, that inflation doesn't matter? lisa: who do you think will care more about the university of michigan sentiment survey? traders or joe's campaign? annmarie: the joe biden campaign. you saw janet yellen speak about inflation in the last 24 hours sitting down with the financial times talking about yes, we know that prices are going up. it is affecting grocery prices, rents, getting on the housing market and yes we take this into concern. this continues to dog divide and campaign in the polls. what is the issue about the economy that bothers you? student loans, the cost of

goods, housing market. it is inflation. lisa: they feel bad but they keep spending. whether it is a lavender latte or whatever it is, travel where you will be competing to get into the security line this weekend. dani, i wonder if we think about the ian shepherdson view, that is long and variable lag is in play and will hit hard, or the jay pelosky view of the world which is, stop being ridiculous. it hasn't happened, so why are you believing something that seems like it's not reality? dani: those views underscore how confusing everything is, how confusing the data is that logical, smart people can look at the same set of data and come away with the bipolar views. that is what we are seeing throughout the market. whether to your point of trying to understand the consumer, the data doesn't make sense. i wonder if the data is a flip for the modern world we are living in. if the measures we use can help

us figure things out. lisa: one aspect makes sense and that is near record highs on equities. you can see people do bid in given the selloff yesterday. maybe that was a viable dip, .3% decline. at least it's something. the open in about 90 minutes. a little bit of dollar weakness. euro strength, 1.0843 as people look to the idea that the ecb won't be able to cut rates as deeply as some expected given all of the strength. the 10year yield is wavering around the 4.48 level.the crude space is kind of clawing back earlier losses down just .1%. coming up, as traders pushback rate cut vents, gas buddy as a record number of americans plan a road trip this summer and checking out the billboards to see how much it will be developed their tanks, and nationwide reacting to data and looking ahead to next week.

we begin with the big issue. traders are pushing back expectations for the fed's first interest rate cut amid a pickup in inflation. "many u.s. consumers are immune to interest rates. the u.s. economy, driven by a resilient consumer, has been the most important source of growth in the global economy post-covid." thank you for being with us. emory has been asking this question consistently and it's important. why is it not that we are seeing cracks in the consumer when you look at some of the earnings that we have seen from the likes of starbucks, from the likes of the retailers? why are people so quick to dismiss that and say it doesn't really represent something broader? colin: i think that you've seen the u.s. consumer de-leverage since the global financial crisis. they have a propensity to spend. any fiscal stimulus that comes out of the government gets spent

. it is not saved, it is spent. i think that you hit the nail on the head. when you're looking at going to starbucks or nike or whatever versus travel, in terms of going away and doing experiences and services. that is the dilemma that people are trying to understand. it is not surprising seeing earnings weaker here and there. overall, the u.s. consumer is wage growth and median running higher than inflation, so therefore they feel better. therefore, they will spend. lisa: do you weigh in on the jay pelosky view of the world that everything is awesome and we are in early stage of recovery that will broaden out, or in the lee ferret camp where we are suddenly talking about the prospect that albeit small of a rate hike maybe early next year that will torpedo certain valuations? colin: i think that whether it

is one rate cut down or one rate hike up, i don't think that it makes a difference. we aren't going from zero to five again or from five to 10. from that perspective, a little up or little down, it's part of the finesse of the policy. i subscribed to parts of what jay said in terms of the markets turning around and manufacturing, the commodity side of things, but i agree that valuations are too high. with the liquidity injection that we saw in may, you can see why equities have jumped so much and recovered from the april drawdowns. dani: if it is more of a finessing, a midcycle tweak, you wait a month, maybe you don't, does the big deal we are making about europe in terms of rate differentials come if they go first and continue to go, it

will be a problem for the euro? is that not a case if we are just talking about finessing? colin: i think that the path of ecb rate cuts could be difficult. there might be one, possibly two. when you get into three or four you have to think that there is something bad going on in the economy.that is when the euro will be hit. if the euro is hit inflation will start to push inflation numbers backup. therefore leaving the ecb with the dilemma. i think the ecb is in a more difficult place than the fed on that particular point. dani: if they are in this dilemma at the moment, do we start talking about euro parity if that's where this is going? colin: i think if they say they will cut rates and continue to cut rates, that will leave the euro to go lower. we could easily talk about parity, because i think if you

see big rate cuts there is something wrong with the economy. therefore you see growth falling and possibly inflation. therefore that will cause the currency to lose one of the spots. as we are seeing with the global manufacturing recovery and recovery in europe, you're actually seeing that quite clearly now. you saw the banks report good earnings. the european economy is actually doing ok, and therefore i can't see why they would want to do more than one rate cut, possibly two. annmarie: you said earlier the ecb is in a worse place than the fed so how is the economy doing better than you expected? colin: this is from the manufacturing side. the manufacturing sector has been in recession for 18 months and you're are beginning to see that bottom out. you saw that in the u.s. data with manufacturing pmi's turning

around. europe is very much an open economy and more a manufacturing economy than a service-led economy or consumer-led economy. they need that growth in order to get the german people to feel better about spending. it comes from the manufacturing side and industrial production side. lisa: what is your biggest conviction about right now? colin: i still think emerging markets over the next 12 months should outperform the start of the year. we talked about china. that was my surprise for 2024 that china's equities would be the best performing equity market this year. lisa: thank you for being with us and have a wonderful come along weekend. in london, do they do memorial day? dani: no. annmarie: no, but they have enough bank holidays. dani: you don't even get a reason for it. it is not memorial day, you just

get a day off. everyone gets a holiday. lisa: you get a holiday, you get a holiday, you get a holiday -- and we are very happy about it. elsewhere, here is your bloomberg brief. yahaira: elon musk's spacex initiated discussions about selling existing shares in a deal that could value the company at $200 billion. that is according to people familiar with the matter. the valuation would be a premium to the 100 $80 billion that it fetched in its previous offer. spacex is on par with some of the world's largest publicly traded companies by market cap. vice president harris is gaining popularity in key states. the latest consult poll says 48% of swing state voters say that they trust harris to step in for president biden if he can no longer serve.this is the highest since the survey was first conducted in october and comes after a series of high-profile events that harris

has held around abortion.new developments in the ozempic revolution. the new england journal of medicine said that patients with kidney disease caused by diabetes were 1/5 less likely to die of any cause during the study if they took ozempic rather than a placebo. the findings out to evidence that the treatment for diabetes and weight loss can help with a host of intra-conditions around obesity. one never all just said the findings will likely change the way that kidney disease is treated. that is your bloomberg brief. lisa: it has definitely got a lot of insurance companies quaking in their boots because they will have to pay for it if it can solve all of these other problems. dani, what happened to the obesity pandemic over that people were talking about that all of these weight-loss drugs would ignite massive gains in artificial intelligence? they are only up 34%. that is nothing compared to nvidia. lisa: 34% is still not nothing,

but it is the supply and demand thing. there is a lot of demand and not a lot of supply. maybe if insurers approve it because of the kidney disease thing. lisa: maybe you will end up with the idea that they will have to cover it if it basically solves everything. annmarie: does insurance have to step in? the government might have to have a say if it comes down to medicare, medicaid. if it is going to be used for more than weight loss, then insurance may have to pay. dani: we will all be on it one day it sounds like the way that this is going. lisa: you get a shot time you get a shot -- not necessarily. >> people still want to start off the summer memorial day weekend, going to the beach, traveling, or doing whatever they will do for the long weekend. lisa: neither of you need it in any capacity. you are watching bloomberg surveillance. ♪

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lisa: 5300, we are definitely climbing towards all-time highs once more. welcome back, this is bloomberg surveillance the day before a long weekend. i'm sure you're all glued to your screens, riveted and counting down the seconds until you can leave for your long weekend. s&p futures off of the session highs a quarter of a percent. a little bit of dollar weakness across the board. not a lot of drama. everyone is hoping that nothing really happens to draw them back to the office. under surveillance, the reason why people are looking forward to the weekend, the summer travel season begins. >> we are at record low unemployment levels in the u.s. and europe with fewer and fewer workers. workers are getting paid more. when you get paid more you consume. people still want to start the summer off memorial day weekend

going to the beach, traveling, or doing whatever they are going to do for the long weekend. lisa: it is the busiest weekend of the year for road travel. a survey from gas buddy says 60% of americans are planning a road trip over this memorial day weekend. other people will be flying and going to the airport. patrick writing, while americans gripe about the cost of gasoline, it doesn't seem to many will be deterred from hitting the road. great news for those who are planning to travel. motorists are likely to see more stations lowering prices to $2.99 a gallon or less as the summer wears on. patrick riddle me this. what happened with all of the people saying that we didn't have enough refineries. we are pumping 30 million barrels a day but supply cuts are coming from elsewhere and gas prices will skyrocket during the busiest driving season of the year. why do you not think that's true? patrick: it hasn't been u.s.

refining capacity, but there have been global editions. i would point out that this year and the post-covid world, a lot of americans in 2022, gas prices skyrocketed over five dollars a gallon. things cooled off last summer. i think that this summer will skew international with air travel. tsa reporting the gasoline demand data shot up from yesterday about 11.7% rise from thursday prior. we are starting to see americans fill their tanks. i don't think the gasoline demand will be at record levels. a lot of people will be traveling and doing so via air. the ev transition is part of that discussion, although that has slowed down. no matter, a lot of americans are hitting the road this memorial day. annmarie: some say this is an understated aspect of demand in the gasoline market. that more people have more efficient vehicles, even if it

isn't electric vehicles. it could be hybrids or cars that get better mileage for gas. how much is that a factor of demand for gasoline? patrick: probably a notable one. you talk about the ev transition where people completely ditch vaseline, a small but rising part of the conversation. especially in places like california that are looking to put incentives for americans to move to those vehicles. look at how manufacturers have skewed to plug in electric vehicles. five dollar gasoline, americans, when they buy a new vehicle often have the memory of those gas prices. buying a vehicle is a long commitment. a lot of americans have been looking at fuel-efficient options the last couple of years. keep in mind, that like myself at this moment, work from home is still a thing with a lot of americans doing that. that's probably where some of the drop of consumption is coming from, that it has been a slow return to the office. annmarie: if we inch towards

five dollars a gallon what do you expect the white house to do? you know how important gasoline is to them. you have been a guest at the white house when ron klain was the chief of staff and they were obsessed when prices were spiking.what do you expect the administration to do? patrick: they don't have a lot of leverage. every american thinks that the white house has huge leverage that controls prices, but there's not a lot. the president can offer things like unleaded 88 or e15 all summer available through waivers, but the only other thing is really to hope and pray that hurricane season isn't going to be as bad as they expect. some of the issues with summer gasoline prices come from the fact that the u.s. is fragmented when it comes to the summer blends. to give you one example, refineries have been struggling in the chicagoland area. chicago uses reformulated gasoline different from downstate illinois different from detroit.

there are different localized blends. if the federal government wanted to do something, they could simplify the system. california and arizona are on different blends. you get a blend, i get a plan, everyone gets different lengths. that becomes problematic to supply. these various blends. the white house already shutting down the northeast strategic gasoline reserve. of course, that was mandated by congress. trump tried to do it in 2020. even that isn't going to move the needle. the white house is along for the ride, hoping that opec will continue the status quo and oil prices will continue to be under $80. annmarie: what do you think will be a bigger impact this summer, natural disasters or geopolitics given that we have two hot wars, one in the middle east and one in ukraine? patrick: without a doubt the weather. the middle east, iran has a lot of its own issues with the

helicopters and elections coming up. iran and israel was something to watch but even that didn't move the needle. oil markets are stuck in a depressive state. opec is saber rattling and will have a virtual meeting. oil prices this morning are under $77 a barrel. i think that the weather is the wildcard. no one controls it. even in the middle east there are some certainties even if they are unreliable. mother nature has question marks all over it. will we get a storm in the gulf of mexico? will it be a harvey and doug one or two feet of rain and shut down refineries? will the hurricane season turn into what everyone is talking about? the national weather service issuing its most active early forecast ever for hurricane season. the sea surface temperatures are rising and it's quite concerning.

dani: another thing keeping people up at night who are on their way to travel is the headline after headline about bullying and concerns about that plane. you couple that with what we are expecting in the airports, it will be busy and chaos. you see that translating into folks wanting to travel via car rather than going to the airport? patrick: we know that americans have an affinity for their cars. keep in mind the headlines over the singapore airlines turbulence is getting attention as well. but once you buy the tickets, especially with some of the fares now, you're stuck with it. often airlines have restrictions back in place. to your point, america still has an obsession with the fact that cars are mobile and you can leave whenever you want. you don't have to do security. americans who haven't yet figured out their travel will probably skew more to using their vehicle, especially as the summer wears on. we expect the gas prices will be highest on memorial day, lower for july 4, and pending mother nature even lower for labor day.

that will open the door for last-minute road trips. as our survey points out, memorial day is the most traveled holiday. july 4 and labor day, plenty people hit the road, they just haven't planned it yet. those who haven't planned ahead will probably gravitate to gasoline consumption. we could see a rebound. lisa: can you put numbers on that in terms of what price you expect things to be heading into labor day? patrick: you know, again, a wide range of possibilities. we have the national average potentially as low as $3.29 but as high as $3.90. august and september are the months that we have the least certainty out of all 12 months. august is up in the air. you get a lot of late-summer demand. will we get a hurricane season that is more active before? if we don't get any hurricanes we will skew to the lower part of the forecast range, maybe

$3.50. but we have seen the impact that something like a hurricane harvey can have on gasoline prices and we could skew to the $3.80's.a spat of refinery issues had the west coast and the plains at once and caused a late surge to $3.90 a gallon. we are mindful of what happened last year. lisa: there is a theory that the president can empty the strategic petroleum reserve and drive down prices. is that valid? patrick: that is what so many americans forget. we stare at the price of oil. there are a lot of couch analysts who say it should be this but we forget about the middlemen, the refinery. covid reduced refining capacity. you can have all of the oil in the world, you can release the whole thing, but that doesn't translate to usable products.it is still subject to the bottleneck of the refinery.

that is where the president is relatively powerless. the oil reserve will not necessarily equate to lower gasoline prices. when it comes to the gasoline reserve, it costs $200 million to maintain over the 10 years it has been in existence. the street value of that gasoline is $103 million, so it's probably a good idea we are shutting down that reserve. that is something even president trump tried to do in 2020. lisa: this is one of the key metrics, consumer spending. essentially the higher that prices go on gasoline typically the less disposable income and a lot of families and vice versa if prices go down. coming up next, durable goods data nationwide. ♪

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lisa: we are still talking about work from home versus the office. welcome back. this is "bloomberg surveillance." a lift to equity markets after yesterday's declines. we do see it replacing some of the earlier gains, but still around that 5300 number. the nasdaq is up .2%. just minutes away here from durable goods data. why does it matter? it is the latest read on airplane orders, among other things. but also at a time of better-than-expected data more broadly in the manufacturing sector. michael mckee here to break down the numbers. mike: surprisingly

better-than-expected, because boeing had not done well in the prior month in terms of orders, with their orders don't always match up. we get a 7/10 gain for durable goods orders in the month, after a nine tens gain the month before. it had been revised significantly lower. transportation up .4%, and capital goods orders up .3%. that is the one that matters to economists and the fed, because that goes into gdp. up .3% after a negative .2% in the prior month. orders for capital goods up .4%, which is going to be an -- in addition to gdp for the quarter. we have good news there as well. lisa: you actually are seeing something of a reaction in bond markets, considering the fact that this is not often that significant of an event. i know you are laughing, but i'm

not wrong. mike: i'm laughing because they had to come into the office before they head to the hamptons, so as long as we are here we are going to train on something. lisa: there you go. that means selling off treasuries. 2-year yields, four point 5%, not necessarily a dramatic move, but a direction after being directionless. -- four point 9%, not necessarily a dramatic move, but a direction after being directionless. can you give us a sense of why people were so surprised business activity, accelerating at the fastest pace in two years with good prices, accelerating beyond people's expectations? jonathan: keep up -- mike: people are looking for direction. there has been the stock of the economy slowing, and then you get these numbers that say the economy is going to be faster. in the absence of anything else that is going to drive the bond market, people reacted to that. it is interesting is, the reaction in the equity markets to what was happening in the

bond markets. the equity markets have largely ignored the economic data, whether it is going up or down. and now all of a sudden they are taking a hint. is this the start of a change in thinking about the economy and what profits will be going for? >> stocks dropped, and now they are back to where they were before this data cannot print stocks this time around apparently don't care. you look at durable goods orders, better-than-expected. when you look at the data yesterday, better-than-expected. you. that with some of the week survey data for businesses in general, does that make us say, we need to discount that weaker data for surveys more? mike: it just makes it harder overall for the federal reserve and people and bond trading desks to get a clear picture of where things are. the soft data has been soft, although the small business numbers went up a little bit last month. we get michigan sentiment today.

we will get -- we will see if that changed at all. it is possible that gasoline prices falling and the weather turning nicer may have people in a bit better mood about the way things are going. lisa: and buying airplanes, maybe. we are looking at some serious downward revisions to the previous month's data, which might be why you see tempering of expectations of this sort of feeding into some of the positive economic surprises. just to give you a sense of the scope of these revisions, the prior month was a 2.6 percent increase for durable goods orders. that was revised down. we have seen is, these numbers that come out, how reliable are they, given the fact that they are is biased -- they are revised considerably? mike: durable orders are not particularly useful because they are volatile and driven so much by borrowing. because airplanes cost so much money that a couple of orders

can skew everything. you look at these trends and you wait until we get to the end of the quarter to try to put it all together. lisa: michael mckee, thank you so much. stay you going to be speaking with you throughout the morning. also at the michigan sentiment survey coming out at 10:00 eastern, including those key inflation expectations. can talk about methodologies, but nonetheless people do take a look at it. joining us now, i'm pleased to say nationwide's kathy bostjancic and alberto gallo of andromeda capital management. kathy, what do you make of yesterday's data in particular? i want to start with that and how much that has forward-looking indications of goods prices starting to really, i don't know, we accelerate? kathy: good money. happy to be with you. i think that is something that is quite interesting, because goods prices have really been

the positive factor in the inflation story and have actually the latest data suggested, when you look at cpi that is, that we had further deflationary pressures. that starts to temper or we see uplift, that could really change the story here. goods, gasoline prices, obviously headline inflation very sensitive to that, hand the reason that matters is we still have this ongoing stickiness in the service side of the economy, whether it is core services, or also looking at rental inflation. lisa: this is the reason why people are talking about whether it there is some sort of restrictiveness in the system. alberto, you wrote a fascinating note about this, just how restrictive that policy is and how it sort of is a mirage. that they are using front end of the yield curve to seem like they are restrictive, but they are really not so much. please explain, because to me

this is fascinating at a time when people are pushing back expectations of a rate cut. alberto: good morning, lisa. we are talking about is the fed trying to perform a magic trick. they have focused the audience's attention on the front and right and have raised front in rates by 500 basis points. on the other hand what they are doing is reducing the base of tapering and they have reduced it by more than expected. the fed balance sheet is still very large and it has not really fallen sense the peak. at the same time there is also a lot of physical and indirect qe. for example, the bond funding program has allowed banks to buy treasuries. they are hiking with one hand. they are not hiking with the other. the result is that there is record financial conditions -- loose financial conditions. don't see any restrictiveness in financial conditions right now unless you are a weak household

and funded with credit cards or auto loans. depending on the front and right. for large firms, for whoever funds in the bond market or long-term mortgage borrowers, funding conditions are still pretty good. that means persistent inflation. that means there is rates volatility and we are a lot more worried about re-acceleration in the economy, or persistent inflation hurting the rates market rather than the recession that every economist has been thinking about for the past three years. annmarie: we got a fresh call from goldman sachs this morning. most recently they were talking about july. what do you view in terms of the timeline, given what you are seeing about the policies not being so restrictive? alberto: i think here the trade is for next year. yes, we might have one cut this year. our focus is still for zero, but the reality is there is still a

lot of cuts priced in for 2025. i think that is wrong. especially with outlook we have for elections. we are going to have a lot of physical stimulus next year. regardless of who wins. there are some scenarios where there is even more physical stimulus and the cbo is expecting, so we have persistent physical, and the mist cuts we are seeing in the market for next year are not going to happen. we might have a cut, but it's going to look like a policy error, and even other central banks are starting to change the narrative. so, we need to learn to live with higher for longer, and there is a lot of asset allocation that has been centered around the expectation of lower rates, and that is going to have to reprice. annmarie: kathy, i know you think cuts could be delayed until 2025. but alberto is talking about potentially the fiscal impulse we will get in 2025. how much harder is not going to

make the fed to year? kathy: yeah, you know, i'm not so sure we get a lot of physical stimulus next year. certainly if we do and that would delay or dampen a fed rate cut, but i think, you know, from my perspective we are seeing some moderation in economic activity. right now it is just the first step, and there is a long ways to go in terms of economic activity and also inflation. but we are still hopeful that we do get some for the drop in inflation, particularly if we think rental inflation. problem is, it may be reef. we see some signs of rental inflation picking up in home prices picking up. the problem is, there is long legs. typically it is about 12 months. this time it seems to be longer. but, you know, we are hopeful we do get further cooling in inflation. i think that is what matters most to the fed.

and i would agree with roberto, there is a tale of two economies going on right now. if you can come to capital markets, you are a large corporation and you turned out your debt, you are in a pretty good situation. if you are a small business or middle income household or lower income you are feeling the pinch. i think higher rates have had an impact. look at the housing market. the existing home sales market has been essentially stalled. dani: that is potentially part of the reason small caps have not kept up with again. roberto, in this idea that policy is uneasy because of qt, the fed would say that they are slowing the drawdown of the balance sheet not because they want to ultimately not draw down as much, what it allows them to do it for longer, and potentially ultimately get to a lower level because they can keep drawing down without the risk of any financial accident. what would you say to that? alberto: well, the first phase

has been very easy for central banks, because inflation came down thanks to an easing of supply constraints, and also we had a very strong inflow of immigration, of relatively cheap labor. these one-off positives are going to fade. the first phase of disinflation has been much easier. now the hard part is what is ahead of us. we have less flow of immigration and we actually have still supply constraints that are persistent, and there are some feedback loops. so, the idea of keeping the balance sheet very large and, you know, making it come down very slowly in theory looks good but in practice what it does is, it keeps financial conditions loose for large chunk of the economy. there is no tightening for mortgage borrowers that are long-term. i think that the result of higher front end, but also

persistent larger front balance sheet means that financial conditions are not as restrictive as the fed thought they would be. the narrative is changing. i think some fed presidents are already taking that into account, which means you will not be able to do a lot of cuts. but the other consequence is that eventually some central banks will have to choose between price of and financial stability. it is true that it is good not to cause any issues in the financial market. no one wants it ahead of elections, but the mandate is also price stability. i think there has been a lot of micromanagement of volatility from central banks. we see it in the allocation of risk assets. we see it in the love her credit that there is in the market right now. we are at record-high spreads and investors are essentially ignoring this front and 5% rate because long and is inverted.

dani: cassie, would you say that alberto is wrong because it is a lag? not that that policy is not tight enough? kathy: i have some sympathy to alberto's comments. certainly financial conditions are part of it. the equity market continues to rally so much and we do have the crown inverted curve, but long-term rates are higher. i think in terms of mortgage borrowers, they are still looking at 7% rates. that is quite your coney and, especially compared to what we were. i think some corporations, you know, if they have to come to market and rollover their debt, they are facing higher refinancing costs. but in general, yes, if you are an asset holder and you are a corporation that has a lot of cash and you turned out your debt, the short-term interest rates are not biting as much as the fed had thought previously. that is key, and i can see the fed holding rates higher for longer.

possibly if need be would raise rates higher, so i have sympathy to that. i think it really does depend on inflation. if we start to see inflation trend lower, then the fed will have the green light to start cutting rates, especially next year. lisa: couple of minutes ago we were talking about deflation when it comes to gasoline prices. in particular we had a discussion around the average price going down to $3.29 in the united states. michael mckee is still with us. i wanted to talk to you about how important that is from an economic perspective. consumer spending. what this does to the household budget that can go to other things. how stimulative would it be if gasoline prices go down significantly? mike: the change we have seen so far is not that significant. what you have seen is when they go over the previous high that is when people start to pull back and get nervous, because it is something they really notice.

either way they are more on the upside. but it has not had an impact overall on spending in a wild because gas prices have been in this range for some time. lisa: a lot of people were looking at this expectation that we were going to end up with a crimped consumer, where you had savings running out and some of these inflationary pressures. people talking about a commodity shot. none of it materialized. where are we on that checkup we have a consumer that has run out of savings and is increasingly strapped or a consumer that can tap leverage, and particularly at the higher and still tons of money? kathy: i would say more the former camp. i do think we know, large portions of the consumer sector is tapped out. they have run down the $2 trillion worth of pandemic-related savings.

they have ramped up consumer credit card use and we are seeing, if you look at the federal reserve survey, 10% of credit card holders are now seriously delinquent. and you see that also with auto loans, delinquencies are rising. he typically don't see that when the employment -- unemployment rate is less than 4%. that is usually a recessionary sign. i do think we are hitting some roadblocks. what is going to matter most is employment growth and wage growth. i think now the consumer is really dependent on current income stream to fund spending, and the savings rate to 3.2%. there is not a lot of extra buffer for the consumer to run things down. lisa: alberto, final word? alberto: i think there is some weakness. there is a little bit of cracks opening, but it is not enough to create the conditions for a lot of cuts. in the meantime, outside of the u.s. we see china stimulating,

europe spending, and global financial conditions are very loose. commodity prices are going up. you're still much more worried about the right tale of things going too well versus the left tail, which is the typical recession risk. we are going to see more rates and maybe we will test the highs in yields throughout the year. lisa: kathy bostjancic and alberto gallo. both of you, thank you so much. have a wonderful long weekend. let's get you to stories elsewhere this money. it is your bloomberg reef with a went to cats. -- yahaira jacquez. yahaira: jp morgan will settle a multiyear probe into the banks train monitoring. jp morgan failed to properly monitor feelings of client orders between 2014 and 2021. staff at the bank found significant gaps in its surveillance of trade data that were not monitored across at least it's 30 trading venues.

jp morgan said, "significant remedial actions have been taken ," and surveillance gaps were resolved by state. a good day for jen-hsun huang. his net worth growing by a most $8 billion to 91 billion dollars as a shares of nvidia rallied 91 percent after reporting better-than-expected quarterly results. a majority of his network -- net worth comes from nvidia. a company he cofounded in 1993. jen-hsun huang is now the 17th richest person in the world according to the bloomberg billionaires index. goldman sachs is pushing back expectations for the fed's first rate cut. now betting the fed will cut in september rather than july. a new note to clients says recent pmi's and jobless claims will not give fred officials the confidence needed to lower rates. the note went on to say a second cut is expected in december. that is your bloomberg brief. lisa: thank you so, setting your

week ahead for the day, for the week. we get a sense of what is going on. you are watching "bloomberg surveillance." ♪ ♪ should i? normally i'd hold. but... taking the gains is smart here, right? feel more confident with stock ratings from j.p. morgan analysts in the chase app. when you've got a decision to make... the answer is j.p. morgan wealth management.

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lisa: welcome back. this is "bloomberg surveillance." on the last day before long weekend, counting you down to the opening bell. setting you up for the day and the week ahead. at 10:00 a.m. we will get university of michigan consumer sentiment data. the treasury market, closing early ahead of the long memorial day weekend. u.s. and u.k. markets are both closed on monday. we are still trying to figure out why in the u.k. tuesday we will get consumer confidence data, head of u.s.

gdp and core pce on thursday. personal consumption very much front in focus. jay polaski of tp w this morning, saying don't sweat the details. >> most people talk about us being weight cycle going into recession. that has been this -- the thesis for the last 18 months. our feeling is that we are early cycle, we are in the beginning of a manufacturing pick up, we are in the beginning of a boom to build out all of the things we spend time talking about early this morning. and that leaves us constructive. we don't sweat the detail. lisa: he has gotten a lot of calls right this year, talking about artificial intelligence and try polar world. annemarie, you picked this out in particular. he thinks geopolitical risk is a buying opportunity because it never comes to pass in markets. what are you looking at on that sphere? annmarie: i have to go back to what happened with russia's

invasion of ukraine. this sentiment, that the more you integrate potentially adversaries into your economics and finance the more likely there could bp's. fink of europe's on russia. but in 72 hours we saw a lot of that fall apart. that is sometimes why i pick holes. lisa: he was up for the debate. he said, have me back in six month and we will discuss once more. after all of the conflicting views we heard there, we heard some people talking dooming gloom, rate hikes really torpedoing some of the strength we have seen in stocks. we heard jay polonsky going full bull. what stands out to you? annmarie: i'm looking ahead to the university of michigan sentiment. i want to know where the american electorate is on inflation. this sparked my attention today from paul donovan at ubs. politicians weaponize economic statistics. to paraphrase that iconic economic resource, the princess

bride, the voter's response is, you keep using that data. i do not think it means what you think it means. economic data does not win votes. people are not feeling good about the economy even though earlier biden will come out and say data is showing the economy is doing well. lisa: which is a reason you heard janet yellen saying inflation is too high to understand how people feel. we have to do more, we are doing our best. have made some progress, trying to toe that line between heralding progress and talking about acknowledging what people are feeling. what is your take away? basically we are hearing that ai is going to save the world and every robot is going to make us rich or better and thinner, and then you have other people saying, we have not killed the business cycle. dani: it is clearly not going to save the stock market if you can get a day when nvidia rallies, and the rest of the market is down. it is this philosophical debate i think is interesting. is ai going to give us the productivity boost the 90's saw?

even here we had two very different opinions. have ian shepherdson saying, no it is not, because the rollout, it is not like one can sign up for website. it takes time to incorporate ai. shape lasky is basically saying, the infrastructure is there and it is being built up rapidly, and we are underestimating the impact it is going to have. lisa: chatgpt, what is the argument to have me come back to the office? maybe that can help productivity. dani: stay home, because i want to take your job, lisa. [laughter] lisa: coming up on tuesday, jane foley, michael purves. dani burger, thank you so much for spending three hours with us. have a wonderful weekend. annemarie, danny, -- dani, you can report back. annmarie: and tsa. you have to have both. lisa: you basically walk in, here i am. this is bloomberg. ♪

>> from new york city, i'm katie greifeld in for matt miller. you take a look at the s&p 500, trying to rebound from yesterday's losses, but still on track for a weekly decline. the countdown to the open starts right now. coming up, features edging higher as stock split with their first weekly decline since april. another equity strategist founds the alarm all another economist pushes back there rat