♪ >> i don't think the fed at this point is in any need nor are they meeting compelled to move rates in any direction. >> the hawkish case for the near term is do nothing on the dove is cases anything different than that. >> we could get too much easing before inflation makes its way down to a more stable zone. >> it depends on how the data prints plays out. >> there is a little downside risk to this market and that's underappreciated. >> this is bloomberg surveillance with jonathan

farrell, lisa abramowitz and john -- and and reordering. jonathan: live from new york this morning, good morning, good morning to our audience worldwide. a decent close in that market yesterday but we can't say the same thing about the bond market. hawkish fed speak on repeat and we will talk about neil kashkari later with consumer confidence better than expected. just yesterday, the most important thing is bond issuance. the next 24 hours, more bond issuance for you. $44 billion of seven-year notes coming to market and the beige will be released and we will hear from the new york fed president for the first time a little later this morning. then you will hear from him again tomorrow. lisa: it's interesting after we heard from neil cash carry. he is more hawkish on the margins but as the reaction --

but is the reaction function changing given that confidence is coming in stronger-than-expected and auctions are the most important thing where there is a vacuum of data points. annmarie: to be fair on the auctions, it was after memorial day weekend and people are easing into the week. it certainly won't be more than two cuts said neil cash carry. we were talking about six or seven and he said is deafly not more than two. i'm more interested in williams tomorrow. maybe it's a place where he would want to shift, or change to tweaking the policy. jonathan: we should talk about the bond supply. we had to auctions yesterday. a little bit softer than expected and i think that move was reinforced by the bounce back in consumer confidence. ultimately a little bit softer than expected. lisa: that means the bond traded

at a lower price and higher yield after it was issued and dealers were stuck taking down more of the notes, other investors were not as strongly bidding is the actual dealers were which is usually a sign of weaker demand. it's true a lot of people are on the beach but you would think if you got yield close to 5%, suddenly people with this is a good time to buy and maybe they'll take it back to the higher for longer and people are not biting. that is indicative of a lot of feelings and a lot of fear of what higher for longer means. jonathan: the 10 year is at 4.56. let's talk about a single name in the premarket, american airlines getting hammered in trading, down by close to 8%. they've cut the outlook and adjusted earnings will be lower down from a previous expectation. they had an expectation of 145.

lisa: this has to do with higher costs and fears that maybe america's not doing as much to bring in the revenues. the chief revenue officer stepped down to questions about what their plan was and there were questions about maybe they are catering to a domestic base and ones that are more budget conscious which push them on a different plane compared to say delta variant annmarie: jeffries now says they have the stock as a whole no longer as of by. -- as a hold and no longer as a buy. jonathan: is it an airlines problem or an american airlines problem? it sounds like an american airlines problem more than airlines problem. lisa: that's with the reaction sounded like and it drags down other shares. maybe it's a buying opportunity for delta and united but people are not biting. jonathan: will we get

adjustments from those companies in the next few days. we are lower on the s&p 500 by 0.6%. you could just own nvidia with a three-day move of 20%. the market can't move, 466 billion u.s. dollars market cap added to this company. that's insane, that's more than to mcdonald's. you pointed this out before, with that kind of move in a $2 trillion stock, two point $5 trillion stock, it's amazing to see that and not see the entire market rally. it shows the gravitational force of higher yields and the threat of maybe higher for longer is pulling down everything else even with the secular story of artificial intelligence. $2.8 billion and that's bonkers. this is what's coming up --

we will talk about the growing divide between u.s. consumers. higher bond yields are pushing futures lower and comments from neil kashkari and some dead auctions. neil kashkari says this -- what did you make of that fed speak? is it anything new? what would explain the weakness we saw in the bond issues yesterday? >> good to see you again. i don't think we learned anything hugely new here. the latest fomc minutes really did suggest there were quite a few participants who are getting a little uncomfortable with the whole financial condition. i think it's reasonable that they do so.

this is a direct link between their policy-setting and their communication. it has been pretty weak recently. certain mega cap stocks have been on a tear and that provides some loosening of financial conditions and that's not what the fed wants to see. ultimately, the chances of hiking is fairly low and the fed would prefer to keep policy in a tight setting for longer as opposed to trying to tighten things because they could quickly lose control of the narrative and the financial conditions if they restarted hikes now. jonathan: people are consigned to the view that if we get a hike it will only be because the economy remains incredibly strong. i took a step back and thought is that the impression of

clients? is that your impression of things? >> from an economy perspective, it's not a big deal. for 30 years, we have overestimated the significance of monetary policy changes on economic activity. the lesson we should have learned over these past 12-18 months is monetary policy is not really the deciding factor for economic decision-making 99 times out of a hundred. there are myriad other factors that drive the economy forward. it can influence monetary policy at the margin but not totally. it might cause a few disruptions from a market perspective. it's a hugely consensus trade and what happens if there is only one hike potentially on the table? you have to cut whatever it's

not just one hike? what if it is two. you can quickly go from cutting one or two times to cutting seven if the date it was hot for a few months and we could start to price in considerable reset -- restarting of the hiking and i don't see that at all. lisa: you're saying if there were another rate hike, wouldn't materially change the economic outlook? with that massive move in nvidia, we still seen the market go nowhere. the market was priced in only right -- one rate cut by year end. are you saying the reason why stocks are so sensitive to any kind of iteration of fed policies because people are looking for an excuse to sell incredibly inflated valuations in stocks? >> i'm not sure that's true. i wish it were true because it was suggest there are more

fundamental investors out there but i fear there's more fundamental investors guiding the equity market. the fed made a commitment it would do one hike and no more and the market believes that. i don't think it would be hugely disruptive in the equity market could take it in stride. there's two sides to the coin and they both work in equities favor. either earnings are going up or the fed will ease and that will support the equity situation. that's the way the story works until unemployment starts shooting materially higher we have to face a recession close up. if it was just one hike, that will not really have an economic impact and it would be almost a sign of strength and a confirmation that the u.s. economy is strong in equities would enjoy that. they've had to consider potentially a more significant additional tightening of policy. it would have to raise the prospects for a much more rapid

and significant growth flowing and it should impact equity valuations by the whole discounting of future cash flow argument. one and done would not be a problem if the market were convinced of that and had to consider 4 hikes, that would be disruptive again and that's not what we are expecting. lisa: it sounds like you are frustrated by this stock market. everything is positive and it can never go down until it faces some sort of recession pressures is that where you are? >> i feel like it should be lying on a couch to have this conversation. jonathan: bond market therapist. >> it concerns me. it's frustration because i say that things are good but then they go on a tear. more about the confirmation of the fragility and they've

confirmed the economic activity and they are learning the wrong lesson. when this happens, you build up into the minsky moments, the dislocation. you build up these risks for the system that comes from the sort of throwing away fundamental principles in investing. the valuation you have paid for a given asset is on predictive for the long term. when you have a significant concentration as we do on participation in the equity market, not just from u.s. to mess degree till investors but globally, that raises the prospect that if that turns around, it can become a disruptive force in the other direction. jonathan: what are you doing in fixed income? >> there is uncertainty and i'm sure there is an certainty over

the growth in inflation. i would question whetherperiod certainty but is that reflected in asset prices? i think the bond market is currently compensating you for that uncertainty in a way the potentially the equity market is not. as always, we would advise diversification across asset classes and across geographies. we think duration is already attractive. we are quite happy to lean into some of the bond market weakness we have seen in the last few days and potentially we will see as we wrestle with the idea of wit -- of where the ped -- where the fed policy is headed. jonathan: good to see you as always. sounding like a frustrated bond manager. equity managers have an easy life, stocks go up until they don't. lisa: it's good news from stocks

until it's not and you look at the face of some recessionary increase and then it's over. he says there is a lot of uncertainty and he can argue that there is uncertain -- there is certainty in equity but bonds reward you more. jonathan: equity futures are negative by 0.6% so let's give you up to and other stories. dani: jurors are expected to begin deliberations today on donald trump's hush money trial after more than six weeks of testimony, closing argument wrapped up last month and the prosecutor urged the jury to consider what he calls a mountain of evidence that showed trump tried to influence the 2016 election by paying a poor and start to stay silent about an election affair. the trump defense said project is failed to true to prove the records were false or the president intended to influence the election. conocophillips is in talks with acquiring marathon oil. the all stock deal would value marathon at more than $15 and

would give conical control of assets in texas, oklahoma, north dakota and the permian basin. there is a deadline extension intake over talks for bhp para bob. the complicated deal structure was appose in the biggest concerns have not been addressed. bhp must wait six months before it can make another offer and that's your bloomberg reef. jonathan: thank you. this came from adam simon, professor of environmental studies. the conclusion in the paper is the amount of copper needed is essentially impossible for mining companies to produce.

this is a big factor in that story between bhp. lisa: they say 49 billion dollars doesn't come close to the value in its whether bhp will offer them more and they have until 5 p.m. london time. annmarie: jeff curry says the best trait he seen in his lifetime. jonathan: more on that later. up next, the white house holding the line. >> i have no policy changes to speak to, it just happened and the israelis will investigate it and we will be taking great interest in what they find in that investigation. jonathan: that conversation is coming up next. live from new york city this morning, good morning. ♪ [introspective music] recipes. recipes that are more than their ingredients.

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♪ jonathan: live from new york city, equity futures are negative by zero .6% on the s&p 500 with a teasing close to the

session yesterday. not in the bond market that with yields up again by a basis point or two. more on that later. the white house is holding the line this morning. >> i have no policy changes to speak to. it just happened in the israelis will investigate it and we will take great interest in what they find in that investigation. it's not in israel's best interest and is not in our best interest for israel to become increasingly isolated on the world stage. jonathan: the white house sang a deadly israeli airstrike in rafah cap joe biden from sending arms shipments to the company is international condemnation against israel continues to grow. elliot ackerman says this -- elliott ackerman joins us now

for more. great to catch up with you. let's play the what if. what with this conflict look like without u.s. support? >> if makes the margins for prosecuting the conflict much more tight for the israelis. it also would further isolate them but also further make it more difficult for the u.s. to influence conditions on the ground. to me, it seems a divided administration is appropriate when it comes to israel and the fact that we've had another incident of civilian casualties. annmarie: what do you view as the president's redline that comes to israel? >> i'm not completely sure that there is some hidden redline here. if there is one thing president biden probably has learned from his time during the obama administration it's actively telegraphing redlines is not strategically wise. i'm sure there is a lot of

frustration behind the scenes and sometimes the frustration spills out into the public view about israel's prosecution of the war with casualties but up to this point, israel's inability to clearly articulate on the world stage what the endgame is. where is this all leading? the biden administration in the world can see the offramp is the purpose. annmarie: israeli forces have three susceptor of gossett so is this the start of a major ground invasion? >> it most certainly is. we have seen multiple incursions by israeli forces but what we are not seeing is a clear vision of how those incursions lead to a cessation of the word ultimately to whatever israel considers a victory. because it is not being clearly communicated, is become increasingly difficult to see where this is leading.

that is trying the patience of israel's allies in the patient's of public opinion in the world. annmarie: i'm wondering if this is going to irk the white house because yesterday, kirby said we won't support a major ground operation in rafah and the news overnight is that they were there in the center of rafah. could this potentially be giving a final straw for the biden administration? >> i would be surprised if it was a final straw for the biden administration. often times what is said publicly is different than what is said in back channels. u.s. support for israel is very deep. although we are seeing an increasing -- an increase in optics, everyone in the white house continues to remember who started this war. the strategy that hamas has brought since the war started october 7 which has been one to

take the entire civilian population of palestine hostage to create situations in which civilian casualties are not likely in order to turn global opinion against the israelis. lisa: how much do you see an increasing divergence between the united states and europe? we sought norway and ireland recognize the palestinian state. with respect to the ukrainian conflict as well as iran, we've seen a real discrepancy between the european view and the u.s. view. do you see this is something materially widening in the past few weeks? >> i do and i think by design, the attacks on a tovar seven were made to elicit a certain type of response and part of that response was to place strain between israel's allies. it was to show where there was daylight.

as much is this is a war that's being prosecuted locally in gaza, it's also a war that's happening on much broader stage. we've seen the strain that exist between the u.s. and its european allies. there are also fears that have existed since there's been a regional war in the middle east. jonathan: you can see clear and pleasant -- clear and present daylight and the electorate as well. i want to talk about iran as well. wall street journal reported that the biden white has a pressing allies not to confront iran on their nuclear program. what is the policy of this administration towards iran? is there one? >> it would certainly seem to be a rather interim policy now. you are also seeing the incoherence follows on many years of appeasing the iranians. the iranians have their

fingerprints all over israel and gaza. right now it would seem a stronger hand against the iranians would probably be the better course particularly considering the weakness that exists within the regime. sometimes we set up i ran as a -- as 10 feet tall and they are not necessarily in we should treat them accordingly. jonathan: thank you for that final word. that's the latest in the middle east. you asked the question yesterday -- annmarie: we also reported that iran increased its stockpile of near bomb grade uranium. the united states doesn't potentially want to go to iran and put more sanctions on them, very different policy than the europeans want to see now. jonathan: they are unwilling to take a strong position on this because they are unwilling to disrupt the global energy market.

many people might say possibly you would agree with them that this is about the oil market going into the election in november? lisa: that's why people are drawing a parallel between the stance in iran. their stance with ukraine and not going after assets in russia, energy related assets in russia diverging from the european allies on that front. jonathan: brent crude is $84 90 cents. coming up shortly, we will catch up as there is the toughest election since taking power in south africa. that conversation is coming up next. from new york city, this is bloomberg. ♪ (traffic noises) (♪♪) the road to opportunity. is often the road overlooked. (♪♪) at enterprise mobility,

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jonathan: there is a new hi from byd. the range capable of traveling 2000 kilometers without recharging refueling. this is like new york to miami without recharging or refueling. lisa: you could say if you are committed to the transition to electric vehicles, you would welcome be why d2 come in and you would go poop. jonathan: it didn't even get to the price, $13,800. this is what we will talk about

later this morning. should we be embracing china's comparative advantage to deal with some of these climate associated risks if they can manufacture a car that goes 2000 kilometers without recharging or refueling and do it for 13,018 dollars. annmarie: do you care more about climate change and union jobs and are there concerted concerns when you look at electric vehicles in the data potentially in each of these cars? lisa: the chief economist of the world bank who would celebrate the idea of internationalism and global trade talked about how there is a necessary pullback in trade because of how much globalism was executed before. question i have is what are the correct lines considering how we way different goals. if you want this transition to electric vehicles faster, maybe you have to give more on this idea of what competitive advantage china has an oversupply. if you prioritize the way we get

there, how much do you have to push back provisions? jonathan: the answer you will get from a politician is everything all at once. it is clear there is a hierarchy of objectives. the number one objective is getting reelected in november. if you embrace the $14,000 vehicle, you will not get elected in november. lisa: if you think about michigan, that's the key state to cater to and it's watching this carefully and does not like the idea of a $13,000 electric vehicle that can go from new york to miami without being recharged as being subsidized by the chinese government. annmarie: the angst of china, where's president biden? jonathan: this story is top of the agenda big-time. welcome to the program, we are posited by -- negative by 0.6% on the s&p 500.

nvidia has been an island. we've had three days of gains and up 20% area massive company, $18 trillion of market cap and we've added 500 to that in three sessions. if i told you that, you have -- would have said the equity market would rip alongside but it hasn't. lisa: the nvidia win has been alone. they are a winner take all story and they are not necessarily a harbinger of the transition to artificial intelligence saving the other industries. front and center, the reason why i was emphasizing bond options because front and center's pet -- is fed policy again. it can shift around the equity market really tells you how much uncertainty there is baked into a lack of conviction. jonathan: in the bond market -- i'm not sure how many people had

nvidia up 10% on tuesday. i didn't think it was plausible and he said it happened. he said it makes me wonder about market participation and liquidity. lisa: especially when everyone is at the beach but it raises another question. there is fake liquidity in the market especially with expiration trading and especially with etf's. there is this feeling that there is volume but not liquidity. people are trading but will step away if there is true volatility that leaves people uncertain about the outcome. a massive move on nvidia. it's shaking up the bond market as well. here are the bonds with the two you're getting closer to 5% and pulling back a little bit this morning. going through yesterday, it was four days of yield shifting

higher at the front end of the curve and that tenure is getting close to 4.60. if you missed yesterday session, we had a couple of soft options and we will get another one later, 44 william dollars of seven-year nose. at a time when the long and is a point of questioning. we've seen the sell off at the front end but the idea that maybe the fed will have to remain higher for longer but that will ultimately bring down inflation. what happens of people talk about structurally higher inflation and a yield premium based on the deficit or whatever else you want to throw in there. dealers were stuck if they were the highest -- the second-highest percentage of notes since september, 2022. you can get this feeling people have uncertainty on the front-end, in the middle but what about the long and? it speaks to nervousness. the seven year will be interesting later. you want to watch german cpi later today at 8:00 a.m. eastern time.

the euro going in a bit softer at $1.08. this has been quiet but dollar yen is getting closer and closer to $1.60. the move with the end versus the pound is been extraordinary. it's the weakest going back to 2008. there is a feeling right now that japan does not have a lot of oxygen to move and maybe they will hike rates later but moving slowly. at what point do they worry about it when it's a slow grind back to $1.60? are they ok with it or do they have to step in as janet yellen has angst hanging over that. one dollar 57 $.25. shares of american airlines are falling in the premarket and the company cutting its profit guidance heading into the crucial summer travel season. it set for an announcement with its chief commercial officer leaving the company. some people are suspicious as to

whether these two things are connected and that stock is down close to 9%. this is the person who is the chief revenue officer. how do they get revenues that are commensurate with their increasing costs? other airlines arguably had done a better job and that's the reason why the revenues are coming in lower even as many people are talking about a robust travel season. i think this is the crucial question, how much is this an american airline story or a broader airlines story in general? guidance from united and delta will be important on that front. jeffries says management is in a strong situation when it comes to cost management. their topline legs their peers and it comes on a day when we looked at tsa and people are still out traveling. they screened over 10.5 million people over the weekend around the united states and that's up about 8% from last year's memorial day weekend.

shocking to hear those numbers and then have american airlines come out with their outlook. that's where the stock is in treasuries are slumping after dead options for two and five year notes due limited and test interest. mucus carries as rate hikes are still on the table and you'll get more fed speak later today. the beige book and auction for 44 alien dollars of seven-year notes so three things are on the table. williams volume one, beige notes and seven-year notes. i think seven-year notes will be most important based on price action. the new york fed will be fascinating because of what mike said. when it's a new york economic club speech, this is where they often issue a policy shift or a broader statement. i am curious about some kind of new framework they used to analyze economic data. it could be codified by

williams. it's got to be the double dip, second inning of williams that i'm interested in at the new york economic club but pce is friday. we waited to see what it drives and it's coming out friday so what does that data say to the fed? i want to turn to china briefly. the i am of raises growth outlook for the country to 5% for the year from 4.6% after a better start of the year and added government support. this comes despite an ongoing slump in the housing market which is wing on domestic demand. there is a hope that maybe this continues next year. especially with eight from the government in terms of buying up empty homes to cushion the housing market. we heard that from the first deputy. she is one of the heads of the imf. it's still early. what is the title?

we did an interview like a month ago. she was wonderful and i look at her as the interest -- as the intellectual leader. let's hope she's not watching. in south africa, vote voters heading to the pole in the closest election the postapartheid era. the african national congress facing its toughest fight since taking power in 1994. we go to durban with the latest. it's wonderful to catch up with you. help us understand how big this moment is for the country you are in? when we think about the position of south africa as africa's most industrialized economy but take a look at what the past few years have been. this is shaping up to be an election were voters will cast their vote for an economy they believe they need to see in south africa. if we look at where the economy has been, 33% unemployment, much of it amongst the youth.

there have been issues around electricity port and rail infrastructure and its hobbled any sort of economic growth in this country. where i met in durban, it has the busiest port in sub-saharan africa but you wouldn't know that based on the growth projections and the numbers we've been seeing lately. just saying all that to contextualize it how frustrated south africans feel but at the same time, the african national congress has been the majority ruling party here in south africa since the end of apartheid back in 1994. that's been 30 years. this could really be a seismic change for this country if this is the first time they will have to form a coalition with another party. what would it mean if the anc loses its parliamentary majority given the fact they been in power for more than 30 years? there is a few scenarios that we

are playing out when we think about this. the anc could potentially retain the 50% majority and is not so much of a change. they could be marginally below that. they could potentially team up with some of the smaller parties and not necessarily having to concede to a lot of demands from a smaller party. what happens if they dipped below 45% majority? in that case, they would have to find a way to team up with some of the bigger opposition parties who could then potentially demand some ministerial positions or other positions. that's what investors have been focused on in the lead up to the selection. if we see the dip below 45%, we could really see a change in terms of fiscal and economic policy moving forward. if we take it look at where the rand and the bonds of been lately, it's not the base case scenario to see the ruling party team up with a populist party

like the eff which is trying to nationalize the reserve bank. how are voters actually going to vote today and how will that affect the economy and policy moving forward? good to catch up and we are looking forward to the results over the next couple of days. south africa do something interesting. the president basically gave the new term to the south african reserve bank. he wanted to insulate the election from the economic cycle. things are happening in south africa that maybe people would like to see the in the united states and that's not happening. they want to have a more developed economy. they said you had to move -- do a move like this. people are speculating that maybe there would be a reserve that uses the this that lose the independence.

you are right, a lot of people are looking at this as a bellwether. let's get you an update on stories elsewhere. u.s. pharmaceutical group marcus reportedly buying a drug start up in the deal is worth $1.3 billion of an upfront payment with a further 1.7 billion dollars depending on certain milestones. merck declined to comment. short seller jim is being sued by one of his partners is being accused of taking $10 million in loans from the company and using them as a piggy bank. the lawsuit accuses him of selling a miami luxury apartment for $17.8 million and using his girlfriend as the sales agent to get her more than half $1 million in commissions. the lawsuit is public, puzzling

and baseless. ex ai startup has locked in arc venture funds. the stake represents about 2% of the fund holdings and last month, the fund disclosed a position in openai made up of about 4% of its holdings. ai foundation models will be worth multiple trillions of dollars by the end of this decade. that's your bloomberg brief. jonathan: thank you. up next, a divided consumer -- >> we are bullish on the consumer. there is nothing that suggests we are in any kind of approaching a cliff or the consumer. jonathan: t is positive on everything. -- he is positive on everything. that's next on the program. you are watching bloomberg surveillance. ♪

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jonathan: the s&p 500 is pulling back just a touch, negative by 0.6%. a divided consumer this morning -- >> we are bullish on the consumer. we think there is a fully employed workforce, wage gains and we are not believers that the consumer will have a problem either in here or europe or elsewhere. there is nothing that suggests we are in any kind of approaching a cliff or the consumer. jonathan: the u.s. consumer confidence unexpectedly rebounded with the latest gauge of sentiment despite the increase with confidence trending lower in recent months.

amanda joins us around the table. we talk about the contradiction in economic data so how is that showing up in markets at the moment? >> from a broad perspective, you've got the top 20% of consumers generally doing 40% of spending and 87% of them are homeowners. at the lower end contribute in a lower percentage of spending, likely to rent. in certain markets, that matters less but in this market it matters a lot because you had on prices up 49% using the case shiller index since 2019. you have borrowing costs for consumers that are in a deposition pretty elevated in terms of credit cards and you have equity market gains for the consumers that are in the asset position. the bifurcation has always existed. there is always a high and low end but in this market, we believe it matters more. how it shows up in corporate credit ironically sectors like retail have been outperforming

the broader indexing high yield. it's a little bit of a different retail mix in ig because you have mass merchants and home improvement so it's not discretionary spending but you got leisure, retail outperforming in high yield. there is definitely a cyclical tilt to outperformance and corporate credit especially in high yield despite this. i think it speaks to the bifurcated consumer where you have the low end in a net borrowing position so getting squeezed and in the high-end at a net asset position. jonathan: for the low income worker, they will not be saved? we are not seeing credit stress. >> in credit where we are not banking on significant interest rate relief, we are not seeing that in the consumer as well which would be the same policy rate. the fed has told us as much on the fed speak i think and swing the narrative day today but in general, i think there is not an urgency got.

even when there -- there is not an urgency to cuts. lisa: they will not be saved so how long can this divergence keep going where there is a cohort that's feeling pain and struggling with an increase in delinquencies and defaults in an inability to rent and being locked out from the housing market without there being some material distress that causes a policy response? >> the new york fed data gave some data on this a couple of weeks ago. a significant portion come around 18% of u.s. consumers are using 90% or more of their credit card availability limits. it goes to show you that they are stretched and a higher than normal share of those are traditionally to delinquency. 30% of that is transitioning to delinquencies that speaks to the stress. banks are telling us they expect consumer related net charge-off to peak in 2024 and decline in 2025. some of the banks are reserving

for a 5% on a climate rate for example so higher than where we are now. i think the bar is high for fed intervention or policymaker intervention due to run-of-the-mill credit stress. where we saw the fed step in in 2020 was when capital markets were freezing and there was a concern about credit availability at any cost. i think that's kind of the dividing line. lisa: strategic said yesterday that they think inflation pressures will return next year and are of wage negotiations. i think about the lower income core hope -- cohort that's on that path and why wouldn't they ask for bigger raises? why wouldn't they say we need higher costs in order to survive in this environment? if you are earning so much from the top percentile of earners, you can afford to pay us more. why wouldn't the that be what happens? >> one of the interesting data point you often hear is that the share of the u.s. economy is not

that heavily weighted toward unionized employees. that is true but if you are working at a competitor of unionized employee and you see unionized employees get wage gains, would you not start to check your own compensation? i don't think looking at the share of unionized employment as many do a representative of if there is a cap on wage pressures. i think it's more translatable across the water economy. the pain point in europe is -- as well as domestic services inflation largely driven by wages. i think they've just been slower to normalize. they've definitely improved but probably still running ahead of the fed's 2% target even if you bake in an expectation on productivity. it's part of the reason there is not the sense of urgency to cut from the fed given some of these tail risks on inflation but also in general a strong growth

backdrop. annmarie: what about the middle class? has policy whittled out the middle class? >> if you look at the top 40% of consumers, they generate 61% of spending. they are still more likely to be homeowners. it really is the highest of the high end consumer driving disproportionately the spending. in general, you kind of have this bifurcation of being in a net borrowing position or saving position or asset position and that's the driving factor in terms of the consumer hell. annmarie: where do you proceed potential -- where do you proceed potential cracks? the consumer confidence report was better but people are talking about they are struggling with higher food prices. >> it's in the lower end contribute into the dispersion you are seeing in the credit market.

dispersion even across sectors but with -- within sectors is picking up. it matters if you are a retailer. what customer are you targeting? all of those things really matter but it's those customers in those -- and those consumers in a net borrowing position that cannot rely on equity accumulated in their home and can't rely on savings. they don't have the financial cushion to handle an emergency expense. those are all things to watch. jonathan: what do i do with my money? >> for choice, we are still preference and floating-rate exposures over a fixed rate because i think that long and of the curve is a wildcard. within ig, i like moving into bbb's which have outperformed their counterparts.

they are not chasing triple c so there are pockets to put money to work but in buying credit, you need to buy for income and not total return. jonathan: good to see you as always. you either own a home or you don't. is that what it comes down to? lisa: especially at a time when rent is going up dramatically. ultimately, you are sensitive to the rising rates if you don't own a home. if you own a home and you blocked in 3% mortgage rates, it's potentially a different story. jonathan: if. lisa: i knew you were going there. jonathan: coming up, we will catch up with victoria fernandez. also rbc, all of that and a lot more in equity futures down by 0.6%. yields on the 10 year are getting closer to 4.60. we are up one single basis

point, from new york, this is bloomberg. ♪

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>> this rally is about earnings growth that's been remarkable. >> the mecca cap growth trade is so expensive and quite crowded. >> being overweight tech is 30% of the index. it's a most reckless. >> utilities have been under own for a very long time. >> the whole thing that ai will lift everything, i think that story has run its course. >> this is bloomberg

surveillance with jonathan ferro, lise abramowitz and anne-marie order in. jonathan: the second hour of bloomberg surveillance begins now, live from new york city, good morning, good morning. equities are pulling back by 0.6 percent on the s&p 500. a little bit later on, the beige book will be released. you will hear from the new york fed president john williams. $44 billion worth of seven your notes are coming to market after twin options yesterday came in soft. lisa: the fact that they are short and up the yield curve, short-term bonds, the fact that people did not clamor for to your notes indicates a bit of exhaustion or lack of clarity around what fed policy could be. maybe the idea of a rate hike is not the base case but having that openly discussed by fed officials makes people nervous. jonathan: it wasn't just the soft auctions, it was also the economic data that may be traditionally you wouldn't put a

ton of weight on like the pmi last week. it was the consumer confidence number that started to show a bit of a balance. i think that reinforces the hawkish fed speak. there is nothing new from the all caps carried when you say it and the data backs it up, it turns the volume up a little bit more. annmarie: consumer confidence unexpectedly on the rise for the first time in four months when you look at the chief economist of the conference board, consumer cited prices for groceries as having the impact of their view of the u.s. economy. this theme is not abating. this is the idea that prices are still too high for many people for their basic needs. lisa: we were talking about s&p global pmi's shaking up the market. this could really dictate where people are at.

people are susceptible to anything even if it's listless. jonathan: let's talk about the deals from conoco to buy marathon oil in an all stock transaction. this is what they have to say -- the deal is 22.5 billion u.s. dollars. we've seen this a few times already over the last 12 month or so. exxon, pioneer, chevron hess, and here is another one. lisa: there is no debt in this deal. in 2014, it was driven by leveraged finance market. now this is driven by fundamental strength and by stock. this is a much more financially stable industry that is gearing up for even more production later on. yesterday, someone said there is no limit to the production of shale.

is producing with a greater degree which means $13 billion now, what could it be in a years time? annmarie: it expands in domestic shell and it's a resurgence of american oil and gas under a present who once called them stranded assets. north of 13 barrels a day for a president wants to be the cleanest and most pro climate president in history and we have record u.s. production. jonathan: conoco has been inquisitive through the pandemic. they took the shale assets in the permian as well. conoco will buy marathon oil and this is what they have to say about buybacks. buybacks would be 20 billion dollars in the first 30 years. they say the deal would add to earnings and cash from operations. the stock is down by about one point 9%. lisa: we were asking how much of this we would end up seeing and

it looks like quite a bit. conoco is down to touch in our early market trading. this indicates how much more of this tie up you can expect given this administration would be more amenable to allowing these transactions to go through in order to create the resilience in the face of some of the geopolitical threats that remain. jonathan: more on that story this morning. we want to get to the broader price action. we are negative by zero .6% on the s&p 500. the 10 year is slightly higher. we will catch up with victoria fernandez as stocks fall on hawkish comments. tom stier with an optimistic view on climate change and amy wu silverman on the market uncertainty around the november election. we are stuck in the fed waiting game with stocks falling on the back of hawkish comments from neil cash carry.

victoria fine and as -- victoria fernandez writes this -- victoria's with us right now. let's start with the sustainability. are there questions around a big move in the most important name in this equity market? it's nvidia and the equity market is done nothing. >> i think you are right. nvidia is playing a game mode by itself. you look at the rest of the market and there are some concerns. look at the diversification and the difference between the dow and the transports. that's worrying to us. transports have been coming down significantly which is usually a key indicator of what we will see in the markets. we are seeing the divergence there and we are seeing cyclicals no longer being leaders in other names start to come up. cyclicals are becoming

leadership oversees a we are starting to see a pickup over there. a couple of weeks ago, when we were talking, you asked where the weakness was in the market. we started to see that now since we spoke last time. you are seeing weakness in the consumer. look at retail sales. we are flat with real retail sales over the last four months. regional pmi, regional manufacturing reports are weaker as well. there is different weaknesses we are seeing and housing as well. we got a 5% gain in the housing and all of this feeds into the idea that the fed is going to be very uncertain in its path forward. i think that's why we have a volatile market going forward. jonathan: it's difficult to draw a distinction between a single name issue and a broader sector problem. the great example is american airlines down by more than 8%. how would you distinguish between a single name issue in

that sector and a broader sector problem? >> you have to take a step back and look at what's going on across the board. we are not strong holders of airlines in our portfolios but when you look at american, they have had some idiosyncratic issues. we know they have a key individual leaving and that person was responsible for some of the revenue generation especially around the credit card issues they were having where they had not succeeded like united has done or delta has done. there are some issues specifically for american but you also have to wonder if that travel sector that had such a huge comeback after covid, if that will pull back as we see the lower and middle income consumers really struggle. in the montage you played, there were different voices in regards to whether consumers are doing well or not but we are seeing the lower and middle income consumers struggle in the

balances they are carrying on their credit cards, almost 60% of those lower and middle income consumers carry balances and now they are turning to the buy now pay later which doesn't show on their credit reports. that's a whole another issue. almost 10% of those people are using it to buy necessities. it tells me we will be struggling with the consumer. that will flow through to the sector as a whole going forward. lisa: what does it mean to be cautious? how do you determine what that is? do you just buy nvidia because they own the world or do you go into utilities? is it to go into the oil patch which is thought about as leverage to the consumer but it seems to be dancing to its own music. how do you view caution in a new world? >> i don't think it's a specific name or sector when we say we are being cautious. and we look for high-quality names, that's in regards to the

dependability of their earnings, the quality of their earnings, the cash flow on the balance sheets. look at the energy story you were talking about with conocophillips, they can do these deals because their cash flow is so high and so strong. it gives them the opportunity to make these acquisitions like marathon. you want to have companies that have that cash flow and those earnings but it doesn't have to be in one sector or another but i think it means you have to be stockpicking. you can't just pick a sector like say tec is doing great let's go in. you look at health care, it's been down pretty significantly but you can find a specific name like gilead that we own or you've got a stock trading at less than 10 times price to cash flow with him was a 5% dividend and you've got strong earnings. those of the types of names we think fit into that cautious scenario. annmarie: it seems a lot of

cylinders in the united states are working for this. we are talking about oil and oil prices are going up and that's not necessarily so negative for the united states but it's becoming an increasing exporter and more self-sufficient. lisa: you are looking at some of the drug innovations launching from certain european countries. from your vantage point, is the u.s. till the place to be cautious? >> we want to see some exposure in our client portfolios to international. we are seeing some of the cyclicality in the market and some of those discretionary names are doing better outside the u.s.. maybe you start to dip your toe into the international markets that are doing well. when you look at the u.s., i think you have to take that cautious approach. doesn't mean you are not invested in the market. we are in the market 100% but you have to be careful as to

where you put your money to work. doesn't make sense to dump anything into the mag seven names? probably not because we will probably see deterioration over the second half of this year. other areas like utilities and health care will start to pick up. being cautious just means be careful where you put your money to work. we do think being in the u.s. makes a lot of sense, dipping your toe in other markets starts to make sense as we see cyclicality pickup. annmarie: when you look at the hedge fund exposure to big tech mother make mickelson -- the magnificent seven, 20.7% of hedge funds exposure to single stocks is what they account for now in these magnificent seven. is that way too much? >> it seems really strong. the top five names in the s&p 500 are almost 30%. you look at semiconductors, that's 11% of the s&p 500. it was only 2% a couple of years

ago so it had a tremendous amount of growth in those names. it's one of the reasons why we remain cautious. we do have exposure to those names but we are underweight versus the benchmarks he want to take advantage of some of the gains there also be a little underweight because we think we will see a pullback. it gives us some dry powder when we trim those names to go into other areas of the market. it seems pretty heavily weighted and as we all know, there is a difference between the weiting on the market cap in their waiting on earnings. you have to look at that difference in the side where you think is the best place to be. jonathan: a busy morning it's good to catch up as always. the broader market is -0.6%. here is your bloomberg brief. dani: conocophillips is buying its smaller rival marathon rival in all stock deal in the

enterprise value was 22.5 billion dollars and it will give conoco control of assets in oklahoma, north dakota and the permian basin. it's expected to close in the fourth quarter of this year. you unmask's ai startup is locked in another investment. it's the ark venture fund and purchased a stake which is about 2% of the funds holding. this is a month after it disclosed a position in openai that makes up roughly 4% of its holdings. the purchase means that now the ai foundation models will be worth multiple trillions of dollars by the end of this decade. byd unveiled a new hybrid powertrain that's capable of going 15 -- 1250 miles without a recharge. the automaker announced it will use the new tech into sedan models that will cost under

$13,800. for now they are in chinese cars but they are likely to get exported soon. that's your bloomberg brief. jonathan: thank you. that story presents the perfect question for politicians now. should they embrace that or not? lisa: if they want the transition to electric vehicle futures, you don't have range anxiety and don't have the potential negatives people are talking about and it's affordable. if you really do believe this is a new era of industrial policy, it's problematic to embrace a chinese vehicle. annmarie: even if it's 100% tariffs on this car, it's $14,000? jonathan: i'm not sure that will make a big difference. we will have more thoughts on this. up next, the white house holding the line on israel. >> the president doesn't make decisions and he doesn't execute

on policy. it's not based on public opinion polling or popularity contest. he bases his decisions on her own national security interests. jonathan: that conversation is just around the corner, live from new york city this morning, good morning good morning. ♪

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safety and security at home and abroad. sometimes what's on the best entrance of your alliances to be candid forthright and even top with your friend which we have been able to do with israel. jonathan: the white house as it will continue sending shipments to israel despite the deadly strike on an encampment in rough up. president biden mopping -- opting to stand by his role even as he faces increasing pressure. henrietta joins us now for more. it makes you wonder how relevant what's going on the middle east is to what's about to take place in november. >> that's exactly the right way to frame it. when you are watching a protest on tv, it feels all-encompassing

and you are about to go off to columbia, it's an important component of your decision-making process. for the average american, this is just not a factor. americans are famously not attuned to foreign policy. the present commitment to israel has been pretty unshakable. the last major bipartisan legislation that will pass until november was to provide aid to israel. it's a battle the president biden fought for seven months with the house republicans. the commitment to israel is claiming american supports for the protests in any kind of effort to denigrate israel domestically is at 23%, small subset of the united states and the bigger areas of concern are plainly from your polling data and others on other issues. one big one that will supersede this narrative this week will be the conclusion of the trump trial. a few weeks ago, 22% of indiana voters decided they wanted nikki

haley to be the nominee, not donald trump and that was in suburban white affluent areas. the disparity between support for trump, between men and women was 10 points from men favoring him and seeing more favorable news cycles from him and maybe tuning out the court trial to 10 percentage points more of women seeing bad news about the former president in the last week. those are some of the data sets that is a really stand out as opposed to the israel-gaza conflict which will continue to receive an voters minds especially in the summer months. it will pick back up in october and november. the present line is pretty plain here. annmarie: it could take time until we know what the conclusion will be of this trump trial but can you map out just what the strategy will be from the trump and biden camp if trump is convicted? >> i can't really speak to it.

i think the biden team is actively trying to be more fly by the seat of your pants, let's see what happens. they throughout robert de niro yesterday in the press conference. i think that will be the design it to tie this into the decision about the debate, the designs to break the media cycle. they have largely been ignoring the trump trial and i think the fox news audience has a different narrative around the trump trial and the biden team is acknowledging with their debate is that we are not breaking free. they want to appeal to moderates and maybe adverse republicans and rfk voters to -- and even youth voters to get up this message whatever it may be in a way that breaks through that they have not been able to do for the last year. annmarie: we see the president trying to break her when it comes to the blue wall. they say this is biden's third

trip to philadelphia and 60 pennsylvania just this year alone. is it working? >> this is exactly the issue the biden team needs to work on. it goes back to the question earlier -- the nevada-arizona contention is so much further underwater for biden than the blue wall of michigan, wisconsin, pennsylvania that it is playing a good campaign strategy to focus on the rust belts. the tariffs in china are extraordinarily popular. whether they are effective or not is another question. the import control band would be highly effective even if it's a one time payment. if you are going to pay for that electric car, you could pay a 100% tariff and you want the certainty of it. the path to the rust belt and winning for president biden is straight through those loop wall

states right now. that's what they need to concentrate so i expect to see biden there more than nevada, georgia or north carolina. lisa: on the electric vehicle question, we talked about how it's difficult to get a handle and how we rank the priorities of this administration. if inflation is the number one issue for many people, the idea of a $13,000 car that can be charged once from new york to miami is pretty good. how strong is the support for tariffs at the expense of higher inflation? >> i think you have to focus on what the tariffs do especially if you have the inflation conversation. if the tariffs have components that are more inflationary as opposed to this new flash in the pan vehicle coming and that's not tested, how many people have tried to do this on their electric vehicle? the tariff on imports of

vehicles which they are not many is different than the tariff on components. it continues to be our view that the export control restrictions around semiconductors and investment and what components can go in and outside the united states that potentially travel to china is far more punitive than any of the tariffs they could put on. when an investor puts together an administration effort on challenging china, you see it in sanctions, export control restrictions and tariffs but not just on the final vehicle. it's a small fraction of components. they put a tariff on steel but it's only 2% of the imports we have in the u.s. i think the export can stroll -- the export control restrictions are much more impactful. jonathan: bramo was going to

drive us from new york to miami. lisa: don't you drive, annmarie? i have a license. annmarie: i will be driving. jonathan: hence why i said you would be driving. don't miss the u.s. deputy treasury secretary. why shouldn't we embrace that car? lisa: especially if inflation is a problem and you want to make this world a greater world that embraces electric vehicles, it's an important question. jonathan: more on this in a moment. annmarie will go away for a while. annmarie: it's jury duty so i hope i will be back tomorrow. jonathan: from new york, this is bloomberg. ♪

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jonathan: live from new york city this morning. good morning. equity futures on the s&p 500, down by .70%. the nasdaq is down by .74%, the wrestle down by one full percentage point. -- the russell down by one full percentage point. a move in the market cap is something like 166 billion u.s. dollars in one start, one company. lisa: can we fairly say that

stopping with the magnificent 7, 6 and five, we have gone through the range. there is one big winner. jonathan: what about the other 499 of 500? lisa: especially that the seymour susceptible to higher yields. people say they are rising for the right reason, and that seems to have been challenged. the idea that maybe suddenly it doesn't really matter why they are rising but at some point, it will bite if the fed doesn't respond to any weakness by cutting rates. jonathan: here's the bond market picture. the 2, 10, 30 year, the two year at 4.96, higher by two basis points. on the 10-year, and closer to 4.60 at 4.56. you pointed towards the auction that takes place this afternoon, a test for the market. lisa: $44 billion, seven your

notes, after softer than expected. everybody was bullish on the belly of the curve. the medium term be positive, no way we will really have 5% interest rates the next five years, well, maybe not, and now it just paved the way for that much messier of a seven year note experience. it is important. it isn't a liquid market right now. everybody is away, but i'm still watching it. jonathan: coupled with better-than-expected data on the pmi's. under surveillance, fed speak today. let's look at the facebook. that follows comments from neel kashkari. the fed has not taken a rate increase off the table. i think he is kind of stating the obvious. that is what they have told us repeatedly anyway. lisa: they cannot take anything off the table and i think maybe the tenor of it will move the

needle and the consumer confidence at 102 versus the 90's, i am with you. it is not that significant based on prior rhetoric. jonathan: a quick update on the latest in the middle east, the white house saying israel's deadly airstrike in rafah did not cross president biden so-called redline. it comes as condemnation pros all of the attack with leaders calling for an immediate cease-fire. the takeover were to create the world's biggest carbon reducer at a critical time. momentum is seen as the energy transition with demand set to double by 2035, according to a study by s and p global. joining us is tom steyer, co-founder of alvarez climate solutions and author of "how we will win the climate war."

how are you? this is a hopeful book and constructive. watches through -- walk us through the essence of what i'm holding this morning. tom: sure, i'm saying the news from the natural world about climate change is worse than most know, and we read virtually every day there is a new study saying, you know what is happening in the amazon or antarctica or what the temperature is around the globe? would people do not know and what i see all time as an investor is the technology response, and what we are seeing is an amazing response in terms of the ability for clean products to win in the marketplace. that is what i call the book "cheaper, faster, better," that people choose the products at their own volition and that happens across the globe. what we see in the climate response world as we are not looking for a silver bullet but

a silver buckshot. hundreds of ideas, hundreds of companies that will in fact solve the problem in the marketplace. we really have to keep that momentum. jonathan: do you think government is helping or getting in the way? tom: i'm sure your question is mostly focused on the u.s. and i think the biden administration past a series of legislations that most americans do not know about but are designed to make clean technologies, the production and sale of the much faster, so in that way, u.s. government has helped a great deal, but what is true is this is an international problem and we need international cooperation between countries with america in a leadership position so we have the same rules, standards and measurements around the world. jonathan: let's talk about one industry in the headlines every day, ev's. the new byd hybrid with a range

of $13,800 and the policy of the administration and the next one with donald trump volume two will make it difficult to buy the car. do you think china has comparative advantages to tackle the things you are concerned about and that we should embrace? tom: i think china has a very troubled economy, and they are using the power of the government to try and win in the clean energy arena to create jobs and some economic momentum. do i think that byd gets advantages that it is unfair competition between byd and american carmakers? sure. joy think of $13,000 car that you can drive to miami from new york is a game changer in terms of clean energy? i also think that. do i think you guys have been talking all the time about inflation?

it sounds like the 1980's in this room. lisa: 1970's. tom: paying attention to every single bond auction, you think of $13,000 car makes a difference in terms of the inflation equation? absolutely. this is a global problem that requires a global solution. china is the biggest bidder by far, and it is the country focused on winning this from an industrial standpoint. in terms of solar panels, dvds, and everything else. from an american standpoint, we have to compete in this. this is critical for us, game on, everything we do and that will in fact help save the earth and solve the crisis. lisa: there is a question about industrial policy in places like the u.s. and europe and is less efficient than having it in a specialized place that is perfecting it. it is not advantageous competitively but it could advance the aim of trying to get

to a cleaner world, and everybody has their separate industrial policies that are duplicating the processes. how much do you embrace the cheap goods and say, no, national security trumps some of the environmental concerns for now? tom: i get that. at my heart, i'm a believer, maybe it is from a economy 101 courses in the sense that, yeah, the world produces the products in the places where it is best to produce those products, and american consumers get the advantage of that, and we do the things we do best, and the issue is, that is why china is giving us the very, very cheap. from a consumer standpoint -- inflation standpoint, that is a

gift to the world. lisa: do you think that right now is a moment to lean into it, even at the expense of the advancement -- tom: when i talk about silver buckshot, that is hundreds of companies doing hundreds of things, and all of them growing like a weed and creating lots of jobs. i know we can compete, and when i look around the world, let's just take a step back. cars. you would like to talk about cars. what is the car company in the u.s. that has grown like a weed and worth hundreds of billions? lisa: tesla. tom: so if we are trying to protect the status quo, as i hear you guys say, that is really hard to do. the companies that are going to succeed are the companies that will be on the cutting edge of the cheaper, faster, better. ok, let's produce those

products, and foot we are saying is we need to protect these jobs for companies that are not evolving fast enough, you save better industrial policy -- excuse me for saying this -- but, really? i look at the economy and say, they have really messed things up. lisa: how much can this be done from central planning, especially through subsidies for electric vehicles, at a time when people say hybrids are the more ecologically from the vehicle? tom: that is my point, i say cheaper, faster, better, how will we win the climate work? in the marketplace. letting people make their own decisions. i think markets are smarter than any planters in the world, including washington, d.c., and that is like american people of capitalism, it is dispersed decision-making. human beings get to make their own choices for their own reasons. and that is how we are going to

win and save ourselves, and that is what we have traditionally done. jonathan: we have heard automakers compare and complain about what you are talking about. automakers are saying we would like to leave it to the marketplace and the government is setting targets we cannot breach because the infrastructure doesn't exist yet, but what would you change about the policy towards ev's in the buildout? tom: to be fair, you are really focused on ev's, which points to three companies in the u.s. that are really old that do not lead the ev revolution and try to push back on it for a long time. in the company that actually leaned into it was the one that sells many more ev's than any other in the united states. is that making my point that in fact it is about innovation,

change, being in the front with the product that is inferred cheaper, and faster and that is how we win? and trying to protect people from those forces, you know, people say, this will happen if there is a republican administration. you cannot stop people from buying the good, cheap product. it is the old story about kim knute putting his dashcam couldn't putting his throne in the middle of the waves and telling the waves to stop coming in -- king knute putting his throne in the middle of the waves and telling the waves to stop coming in. good luck. you cannot do it. jonathan: so should it matter? tom: what i'm saying is economics trump. this is a question about global response, not american response. you are seeing it through american eyes and this leads

international cooperation so that chinese companies are held to the same standards, so that around the world, ok, china is trying to win this and they are by far the biggest emitter of greenhouse gases and they went up 5% last year. there greenhouse gas increase was more than the world's. we do the international cooperation, that is how to get a level playing field. if we measure emissions so people know through their supply chain, that is how we get every company on the same playing field. do i think that will happen under a republican administration? i would be very skeptical that a republican administration believes in international's traditions and standards and in building the information systems to make all of that possible. lisa: i remember being a 12-year-old in learning about the deforestation of the amazon and not being able to sleep at night, and as i got older,

reading about global warming and the overall people contributing to the rapid destruction and it made me tune out for a while because i wanted to feel like i could have a normal life and it was hard to pay attention. how much of that is making it difficult to get people engaged in the investment strategies to continue with ecological sorts of focuses? we have seen a lot of pull back from the. tom: that is what i broke the book. jonathan: to have lisa sleep? tom: to say that i got paid for it -- it goes without saying, that is why. my thing is there are two big things in america about energy, decarbonization and climate, and one, we are in oil and gas driven society, that will always be true. that is not true. every single country in the world has agreed that we need to get off oil and gas and

fossil fuels. and we are destroying the natural world and cannot stop ourselves and all these terrible things will happen. the point of my book is, no. this is a huge struggle that we all need to join in on, and we have the tools and abilities to win it, and we will inevitably, but we have to win it as fast as possible to create a safe society to avoid almost unimaginable suffering and to have america lead a new century in terms of doing the right thing. so in terms of the amazon, the amazon has been -- amazon has been providing a service for the rest of the world for free, it is called the lungs of the world, but if we have the international measurement systems i'm talking about, a system to measure the value being created and trying to move

money through and compensate people that they are doing for free and charge the people that they are doing all the things to hurt people for free. that is what we are talking about. jonathan: hopefully we can catch up again before november. and have a bigger conversation about the election. tom: remember, we can and will win this. we should keep our chins up and let america do its job. jonathan: tom steyer, thank you. let's get an update on news this morning with your bloomberg brief with dani burger. dani: shares of american airliner falling, 8.5%. it cut its profit guidance heading into the crucial travel season. the pandemic has given way to a more cost-conscious traveler, and american airlines said its chief commercial officer is leaving the company. a drug startup will be bought by

merrick, and they will be a $1.75 billion future payment dependent on certain milestones. mark declined to comment. officials in iowa detected the biggest outbreak of bird flu in two years. the disease was found in a giggling chicken flock and has affected over 4 million birds. it is the first detection since november, and the country is the top a producer with 20% of the egg laying hens. this disease has also affected dairy cows across the u.s. jonathan: next on the program, the fog of november. >> there is a lot of fog and clouds out there, and we are stuck talking about the fed. jonathan: that conversation next. live from new york, this is bloomberg. ♪

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jonathan: equity futures -0.6%, the bond markets, yields high yesterday and again this morning up two basis points, 4.5718. under surveillance, the fog of november. >> u.s.-based investors are struggling to come up with the salience interest between the two candidates. we would like to be forward-looking. there is a lot of clout and clogs. we are stuck talking about the fed. -- there are a lot of clouds and fog, and we are stuck talking about the fed. jonathan: president biden reading former president trump, his largest lead since march 2. historically, markets tend to run up during u.s. elections, one exception is if the outcome

is unclear. however, there is no help baked into the idea that we could have a prolonged 2000 style situation where the results are not immediately known, and amy wu silverman is with us around the table. are you suggesting there should be a hump further out? amy: potentially? yes. a lot of it is the complacency we have seen in the markets, in particular the left tail, and there are scenarios with the election where there are so many unknowns of what is going to be placed out, that the idea that that extreme structure should extend a little further is worth exploring. lisa: are you actively pitching that to clients, that this is something they should think about? or are you worried about being perceived as political in any way, shape or form when it comes to trading? amy: one good thing about options is you can be a little apolitical in the sense that you are talking magnitude and not

necessarily that we say one or another outcome happens, but maybe that it is prolonged. that said, it is tricky to pitch something long dated and part of the reason is investors would like to know what happens 30 days in. this is exacerbated by zero daytrading but actively, we are talking about the short and thinking about the long-term. lisa: do you think people are not pricing in the election at all and it is a cover your bases moment, and people have not embraced it in a real way because it is like staring into the sun? amy: it is, and we speak with investors a lot, and the same investors who i would tell you five years ago would prepare for something like u.s. elections, their horizon has shrunk down to one week, now trading cpi and pce with three days left to go, like turning in your home superlight. in the market structure is

allowing you to do this, so i sit there and burn the premium? i think that we are going to get to elections and be like, holy cow, what do we do to prepare? jonathan: do think that explains why we have seen some of the price action we have seen, like pmi's last week? do you think everything has become short-term focused? amy: it has. one thing i will tell you is when you look at the after money, straddle break evens, they have gotten larger when you look at historical quarters. one, because the fed continues to say we are data dependent and, two, because people are trading them with one or more days to go, exacerbating these type moves foot not the longer moves. jonathan: there is another move we have struggled with, nvidia. one of the biggest names in the market, lisa and i talked about

this, if you said that a week ago, we are up by 3%, 4%, it has not happened. do you have an explanation on what is going on? amy: i think i do because this is something we have talked about ad nausea at this point, but prior to nvidia, we are not seeing that right tail sentiment anymore, so the tailwind in the options market has been stepped out. we saw this exuberant speak, and in the market as a whole, that right tailgate we saw all of last year and the beginning of this year, has gone, and even after nvidia earnings, which were quite good, we did not see it reignite. there are still left tail really, but that momentum on the right side has really, really flagged and that is important. lisa: does that indicate there is more downside risk in light of the greater macro focus and the idea there was a more

negative response to the possibility of higher yields for longer in the past couple of days? amy: it is a little nuanced in the sense that i think there is less upside risk because the right tail has really flagged we will not get the exacerbation of llama, but the left tail remains inexpensive still and i think there is safety in the kind of traits now where you can sell that upside safely to sell downside, whereas nvidia and adjacent names were roaring, you could not do that because you could have been blown out on the right side. jonathan: the stock is up against this morning -- up again this morning. amy, wonderful to hear from you. coming up, here is the lineup, we will catch up with scott devitt, neil dutta, tony rodriguez, and they all have thoughts on the bond market. we have heard repeatedly that that is where the risk is from equities. and then the options of

yesterday, more emphasis and attention on the auction little bit later this afternoon. lisa: especially at a time where shorter dated bonds have not really sold that well. how much risk is there in the equity market from higher yields from longer and where? is it going to the ongoing consolidation in small caps or does it broaden out for the rest of this 499 days? jonathan: yields are starting to pick up, two basis points the 10 year, the two-year getting closer and closer to 5%. four days of yields rising. make it five, up a single basis point on the two year yield. equities are pulling back a touch on the s&p 500, down by 0.6%. in a moment, german inflation. from new york, this is bloomberg. ♪

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>> i don't think the fed is, at this point, in any need or are

they being compelled in any direction. >> the hawkish case for the near term is do nothing and the debit cases anything different than that. >> we could get too much easing before inflation makes its way down to a more stable zone. >> perhaps they will find the ability to look at how inflation will play out. >> there is inside risk to the market and i think that is underappreciated. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from new york city, good morning, good morning. for our audience worldwide, very focused on auctions the last 24 hours. lisa has edited the script this morning, $44 billion, the main event this afternoon, following those two soft auctions, and about $69 billion. lisa: i love pulling this

string, i feel like i'm orchestrating in the back of the room. i did think this was the most important moment of the day when they came out, especially with consumer confidence numbers in the hawkish tilt for the fed rhetoric. the key question is how much of the auctions and the indigestion and uneasiness around them comes back to the deficit? we have talked about, why the deficit? does it ever matter? if you seek a than expected options with the expectation that inflation keeps coming in, what gives? jonathan: the big test later this year, november. i think that is the time in everybody's diary and how does the bond market respond from proposals from the two candidates? this is what they are concerned about. they believe trump is the bearish candidate, directly because of what he thinks will happen in the bond market. the risk for equities is in

bond, and it is about if they resist this projection. when the economy rolls over, do you buy? treasuries. if we are in a 6% now, what does this come out to? we will see. and i think most people conclude that we will but the risk is we will not. lisa: we are not hearing we will fund it from any candidate. nobody is talking about how we care about the deficit. it is, we will create a stronger economy with more productivity, and we can grow our way into the deficit as it grows at a faster pace than the economy. here is the question, at what point does the bond market care? is it already starting to care on the margins? maybe it isn't a liz truss moment but do you see the premium creep in slowly and slowly, get more difficult to fund the deficit on the margins as a result? jonathan: what did they say lastly?

there is a clearing price and the rate will be higher. it does not like long data treasury, specifically because of the reason. he is certainly getting more company is the week goes by. lisa: i thought it was fascinating that the bully of the five-year notes we normally see quite a lot of foolishness around, actually saw -- bullishness around, we actually saw something else. jonathan: the next 10 minutes of the program dedicated to lisa. coming up, we will catch up with sunol design -- sonal desai. we will also talk about on my economic nirvana is still possible. stocks are falling and bonds retreating as people die just speak. policy remains restrictive but rate hikes are still on the

table from the all caps party. -- from neil kashkari. did you make of the auctions yesterday? is there something to be concerned about on the margin? sonal: you cannot take the auctions and then take it all away that this is the beginning of something longer, but i do think that longer-term, we have to start building in more risk premium. the extent to which i do not agree with bill gross, who you just mentioned, i don't see it as a trump versus biden issue. with the cbo was talking about is over the next decade, it doesn't matter. that is the way i see it, it doesn't matter. jonathan: lisa talked about the liz truss moment in the u.k., would you put any weight on that? sonal: if you had it, it would

almost be better because i think that might be the only thing, which could bring the democrats and republicans together to have more monetary policy in this environment. we should have already been there. when we care about promises to keep the trump tax cuts for everybody making less than 400,000, that, people should be aware, is almost two thirds of the cost of the package, and that comes just from there. lisa: what is the cost of clearing? how much are you baking in an extra premium that you would like to see on the longer duration bond before you are willing to buy it? sonal: i think about this in two pieces. i think about the many cycle of fed rate cuts, which makes some duration attractive but for a limited time because i think rate cutting cycle is going to be short i'm going to end early and then the market is going to

connect to that longer-term environment, and it looks a lot like the fed short and is looking at around four, and the long end, fair value, build in on 130 basis points, premium, even before the deficit. lisa: you are talking about structurally long-term 10-year treasury being north of 5%? sonal: absolutely. lisa: how do you arrange now expecting that you think short-term there will be a rally and long-term, yields higher than expected us to mark -- expected? sonal: right now, i think we are closer to neutral than actually being along because we don't think a massive rally will be forthcoming. essentially, you will get your clipping coupons. i'm not anticipating that massive return coming from rate

cuts during the cycle. lisa: there was a belief that the economy could not survive with a 10-year note north of 5% and you would see pockets, particularly, corporate borrowers who borrowed at low rates. we have not gotten an answer as to why we have not seen that distress. will we see it over time, or has it been worked out through private credit, i nancy in general growth? -- or just through general growth and financing? sonal: i think it will push the maturity toward what we expected for the next year and year after. i think that is definitely contributing to what we are seeing. ultimately, yes, at some stage, if we start seeing a narrow channel to richford currency --

to richford currency is operating, some growth -- channel to the fed at which it is operating, i think we will get some -- jonathan: is the phrase no longer relevant given what you just said? sonal: i don't think that is relevant. this is definitely an imperative -- jonathan: where we can live with 5%. sonal: we can live with 5%. it is not a post financial crisis period we got used to ultra low rates, and it all worked. even averaging a percent of gdp deficits, we have no idea how much this economy can bear, but they can bear 5%, 5.5% when there is no outlook for

reduction. jonathan: basically had two options if you wanted income, you go further down the curve or you go to quality. what has changed for you? in terms of your approach was the bond market offering real income now compared to 10 years ago? sonal: spreads are incredibly tight, so one thing that has changed his versus 10 years ago, you are not going to have everything rising together because you have little margin of error at this stage. certainly spreads being as compressed as they are and in high-yield space, it implies you have to be extremely careful in picking your spots. that was perhaps less so 10 years ago. lisa: you are a bond gal. i get it. every argument you are making speaks more to stocks at a time when you see growth and the idea of inflation and the idea of 5% yields not curtailing corporate activity but maybe eroding the

fiscal profile of the united states. how hard is it to argue by bonds? sonal: i would say bu bondsy relative to what you've done the last 15 years, not outright to equity. i'm not an equity person. it is hard for me to argue know that bonds will give you the types of returns people have become accustomed to with incredibly easy policy and fed rate cuts and all this lovely stuff that just got handed out. i'm not talking about that. having said that, it is a good diversifier. it gives you balance to your portfolio. hopefully, we will not see the type of volatility once the market settles into recognizing what the fed is going to do, as we have seen over the last -- jonathan: one of the last points, you still think the bond market retains risk mitigation characteristics? sonal: taking into account everything in the fact that yields will probably be somewhat higher, yes.

i think they will offer you that. jonathan: thank you. good to see you in person. sonal desai of franklin templeton. we will continue with your bloomberg brief with dani burger. dani: german inflation numbers edged up again, underscoring a challenge facing the ecb as it prepares to cut rates next week. consumer prices rose 2.8% from year ago, higher than estimates, up from the 4% recorded in april. it is unlikely to deter policymakers from cutting in june. it may serve as a deterrent for subsequent moves. conocophillips is buying marathon oil, with the enterprise value of $22.5 billion, and that will give conocophillips control of assets in texas, north dakota and the permian basin. it is expected to close in the fourth quarter of this year. abercrombie & fitch up more than

1%, the remarkable comeback from the teenaged fashion graveyard. revenues rose for the six straight quarter to $1 billion and the stock is up 73% this year, an all-time high. that is your bloomberg brief. jonathan: more from dani burger in about 30 minutes. next, the morning calls and scott devitt on his airbnb great as summer travel kicks off. that conversation around the corner -- airbnb as summer travel kicks off. that conversation around the other. this is 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.

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♪♪ sandals jamaica sale is now on! with rates from $199 per person per night. visit sandals.com or call 1-800-sandals jonathan: we open in about one hour and 15 minutes, equity futures pulling back a touch on the s&p 500, lower by zero point 55%.

decent close yesterday. there was a gain towards the end of the session. lisa: at the time when we saw better-than-expected consumer confidence. we realize that this is obnoxious, but bad news is good news, good news is bad news, or do we really stand on this/ -- this? if rates are higher for the right reasons, it can be something stocks tolerate. jonathan: they basically said all news is good news for stocks until unemployment shoots higher. lisa: it was spoken in frustration of perhaps some of the price action, and maybe we should discuss this, but there is the feeling of a lack of understanding of how much is fundamental and how much it is something else. jonathan: a bond investor who thinks life is much easier. anyway, the price target raised,

the analyst pointed to strong first company results, the stock down about 3%. next, citi raising its price target on united airlines. the stock traded below its pre-pandemic, and united is on the focus list. that stock is down by 2% because of this, jeffries downgrading american airlines to hold with a $12 price tag. they cited a cut in the earnings outlook and expecting sales to fall behind competitors this year. down by more than 8%. we have asked all morning, is this american airlines or a broader airline story? lisa: their chief commercial officer left, and i have to wonder, are these airline companies or the credit card companies, how much is the revenue profile of the firms going to rise and fall based on how they can rub customers in with american express? jonathan: delta.

just say that you are not talking about american but delta. lisa: well, america did not do a good enough job with the credit card which is maybe part of the problem. jonathan: i don't usually go to terminal four or fly delta. but i'm trying to save the company money, i'm sitting in the lounge, and the guy sits there, and it's is reserved -- and i sat and it said reserved, and they said, this is reserved. i said for who? it was a roped off area. i said, wise terminal four such a mess? and he said, people love flying delta, so the terminal is really busy. is this an airline or a ult? lisa: if it is, do you want to buy stock? jonathan: because everybody loves it. ok. sticking with travel. bullish on airbnb.

it has been turned to outperform. note the long-term growth's catalyst. scott devitt joins us for more. the floor is yours. let's start from the beginning. by the upgrade and why now? scott: the upgrade is premised on the pullback in the stock post earnings of airbnb which has always traded at a premium since it reported first-quarter results, the stock down by 10% versus looking at 10% and the nasdaq, so that valuation gap has tightened, and the prospects for the business is as bright as it ever has been. jonathan: do you think this is execution or about the country holding up better-than-expected? scott: i think it is very strong execution to a company that has created a category and in addition, we do need a company that is favorable.

the unemployment rate is low, wealth has been created through the boom of the housing market and that leads to travel. when and if that changes, it will be a problem for travel companies but that isn't the case now. lisa: with all due respect, i used to love airbnb, but then you have the add-on fees, the cleaning fee, you have to do more than one night to make it worthwhile, and then the taxes on top of it, you look at the comparison, and it is cheaper around a couple of rooms -- to rent a couple of rooms at a hotel in airbnb. how much of a competitive edge do they have when their rvs and restrictions that could -- when their fees and restrictions could maintain supply? scott: there are always restrictions, as you highlighted, and there are anecdotes that favor hotels and some favorite airbnb, about 60% over the hotel choice for a college football game coming up

in september. so i think that the gap tightens as the mainstream service occurs, which has happened with airbnb, so that the price delta that existed, think amazon in the early days, sales tax avoidance, leads to convenience and other reasons why consumers gravitate there. i think you are seeing that now with airbnb. lisa: how sensitive is airbnb and other players in the space to the consumer cycle and how do you identify what it is at a time when there seems to be a tale of two different consumer bases? scott: there is no detaching the travel industry now, no matter how well run a company has from this cyclical aspect of the economy and travelers tied at the hip with the economy. you have to pay attention to consumer trends, and that will ultimately drive the success of even the highest quality travel

companies. as i noted, things are still good, whether they will be in six months time will tell. as related to american, it is not one of the best run airlines, and you did have very positive commentary coming out of the cruise industry in recent weeks and in the travel industry, so not necessarily sure that what is happening and what is related to american is the canary in the coal mine so much as it is a company specific issue. jonathan: this is an important point and it closes the conversation where we started it, on execution. cooking holdings, outperform, expedia, neutral, trip advisor, neutral. when you think of industries now, what is it about the company's doing well and the ones you are not so constructive on? scott: we look for blue-chip leaders, and internet blue-chip

leaders create significant wealth. many times, they are founder led or turned over to a good operator, and in the travel industry, and booking, it has been a phenomenal performer and executed well over 20 plus years now, and airbnb has created a category and has executed well in its business for many years, as well. if you look at our broader list of recommendations, that is the case across the board. in my view and recommending stocks, one over the other, is benefiting from the compounding nature of differentiation and quality. jonathan: scott, appreciate the update following the upgrade. scott devitt and the execution you are seeing in the travel sector right now and why. i mentioned what american

airlines might be a problem. lisa: i'm not the coal mine, and when you look through the travel companies, i wonder how much of the haves versus have-nots and certain geographic locations that are skewed toward a certain consumer, if we are talking about a bifurcated consumer base, how does that play out in the leisure sector where you see ski resorts and other types of high-end vacation spots do really well? jonathan: go back to black rock and what they said, clear bifurcation with the consumer, because you don't see in the aggregate data, you don't see it shaping policy anytime soon, so higher for longer will stay. based on what we are hearing from a lot of people this morning, people will carry on suffering because it doesn't reach the surface, and until it does, it will not hit the same way. lisa: well what does this mean

for homeownership for lower income families? not going to happen. 19 will be expensive because of a lack of housing, and borrowing to get a car, expensive. credit for a credit card -- you start putting this together and wonder, how do you alleviate stress points for one part that is disproportionately affected while everybody else does so fine? i don't know the answer. jonathan: we will catch up with neil dutta and tony rodriguez, breaking down the economic story and why things can improve and get better and the more optimistic view. we'll catch up on the bond market perspective, as well. the bond market now, and the treasury market, going into the debt issuance later this afternoon, and more fed speak. yields higher by a single basis point. yields are creeping higher the last week on the front end of the curve. we are talking 5% again on the two-year that 4.96. lisa: it comes with

better-than-expected data in the u.s. and today, i don't know how much of the international story breaks into this but that played a role. german harmonized cpi rose 2.8% versus the estimate of 2.7%, so there is the feeling that even with the ecb cutting rates, there is the feeling that inflation is the harder thing to kill, not just in the u.s. jonathan: that ecb meeting is one week from tomorrow. full coverage on that right here on bloomberg tv and radio. still to come, tony and neil. from new york city, this is bloomberg. ♪

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jonathan: equities on the s&p 500 negative by 0.6%, the nasdaq down by 0.7%, the russell down by one full percentage point. amazing to see nvidia a close to 20% over three days in the equity market might run with it. the yield curve looks like this, 4.9539 on the two-year. on the 10 year, up another basis point. we add some weight, 4.5639 and

the euro looks a little something like this, 108.55, just about unchanged as year-over-year comes in a little harder than expected going into the ecb meeting next week. lisa: this does not change the rhetoric at all. you still have a rate cut, and the french head of central break talking about how you should not discount a july rate cut, as well, even though you have inflation running higher. this is the advantage you have of an economy not doing as well, so even still, they are still coming in at lopez. jonathan: that first cut likely to come one-week tomorrow. conocophillips bagged its smaller rival varathan -- marathon oil, giving them control of assets in texas, oklahoma, north dakota and the permian basin. the transaction is expected to close in the fourth quarter of the year, and we are seeing

conoco do this repeatedly the last few years. lisa: a lot of people have been getting into the shale consolidation. we have been talking about how a lot of mergers have been allowed to go through and that the antitrust regulators come in, not necessarily a question, it raises the question about the administration may not feeling that bad about tieups considering the fact that energy independence is a real attribute. jonathan: they welcome it but they don't like talking about it, depending on who you talk to. lisa: a necessity to get us to the next phase at a time of geopolitical unrest. jonathan: the merger continues. chevron looks to secure a stake in one of the biggest discoveries of the past decade, and it is a 30% interest in the fields. we have talked about that a few times. lisa: and how they get in at a time of questions about what

venezuela might want to do. there was a question of what other marginal producers and how quickly will we get there at a time when we are getting more efficient vehicles? it seems like the new idea is, you cannot get rid of oil and it will be part of this economy for a longer time, so you have to invest in solidifying that, so now there is more investment in fossil fuels, and it is a counterintuitive moment compared to where we were. jonathan: and can we find enough copper? when a study came out from professor of environmental studies, and if you missed this, i will share it again, about 40 pounds of copper and the amount of copper needed is essentially impossible for mining companies to produce for batteries. 10 years ago, they would get money, dig a hole, and then 10 years later, they were punished

for that and they stop doing it. when they were able to stop digging holes again, it took a long time to get the copper online and it will not happen fast enough. lisa: this is like copper has been a moonshot when it comes to pricing. when i think about the interconnectedness of the world and where the copper supplies come from, especially if there are visitors in the geopolitical order, how a nation will secure those supplies like in china, and how you get that competition, this will be the focal point of a new sort of soft war in a way, and we have seen that percolate with certain areas. jonathan: copper surging so far this year, we talked about the bond market with weaker than expected options. you will get the fed speak continuing today with williams on deck and again tomorrow, bostick, as well, followed by an auction for $44 billion in seven-your notes. michael mckee with a look ahead,

is this the appetizer ahead of the main course tomorrow? michael: it could be. he will be presenting a case for something to do with the u.s. economy, so we anticipate he will lay out more of his views on where we are and when the fed might do something. it is a roundtable commentary today up in watertown, so it may depend on what people ask you, which is kind of the way they get into trouble. jonathan: you said just yesterday that the economic news can be addressed to say something figure about the moment we are in. what can they say tomorrow? michael: probably not bigger than what we have heard, but he can throw his weight behind the idea that we will have fewer than three rate cuts because he has not put a number on it, and he will probably -- he would probably repeat what he has already said that we are not

taking rate increases off the table, nothing new from him. at this point, there isn't much they can say with the guidance they have given because they have pushed things out, so there will not be a decision anytime soon. lisa: they cannot really give us more information because they don't have it, but perhaps they set the tone talking about scenario analysis, and the idea that maybe the fed could do a better job of laying out the data they look at and how they put it in different models and structures to understand the threshold for cutting? or hiking. at what point does that gain steam michael: -- gaining steam? michael: they could gain steam quickly, given their policy framework starting in the fall sometime, and it will take six months to a year, with that is the thing they would be talking about. this scenario analysis would

replace this odd guidance to get from time to time that this or that may happen because the idea is if you tell people this happens, this is how we think about it and then the idea is that the markets have a better idea of where the fed is going when we get new data. lisa: yesterday, i try to get excited about the beige book and we wanted to impress conversation, is there anything to look forward to in the beige book? [laughter] tony: you do not -- jonathan: you don't have to say it if you don't need to. michael: some of the same things we have been getting from companies in their earnings report and from fed officials who say they talk to people, we will see what it says about inflation trends and whether companies are still raising prices and whether they are finding it hard to find workers, but this stuff has been out there a lot and and a lot of formats. that is why they call it the beige book, i guess. jonathan: michael will be

reading it. we promise. neil dutta back around the table with this, along with tony rodriguez. good to see you. let's talk about why you are so constructive on the economy, why? neil: i think the trade-offs are getting trickier for the fed, so i tend to think that, you know, we are still at the end of the year talking about an economy that is growing and how much will the fed be cutting? i think that's the name of the game, but to me, it is not as obvious that the fed goes around saying, we don't have to worry about things, but you never have as much time as you think in hindsight. we know the risk of unemployment is that they are linear in nature, so it is not just that it goes up a little, it goes up a lot. when i look at what the fed is doing and the data as it unfolds, all it feels like they are doing is taking the last few

months of data and extrapolating. and things can change. i think that is especially true of the inflation data and i don't think you can really make a fundamental story provide inflation perked up. can point to auto insurance, people talking about healthcare services, but, generally speaking, it boils down to what is going on with the labor markets, and the labor markets are cooling. i don't think that is a debatable point. if you look at average hourly earnings for all employees the last three months, it is up less than 3% at an annual rate, so if you believe inflation will remain sticky, you need to start worrying about a decline in real wages, and if they are contracting, then consumer spending must slow, and if it slows, corporate earnings will slow. i don't think -- i mean, in the

first quarter, you had strong inflation data and i think a lot of investors thought, ok, this is reinforcing this inflationary boom narrative, but the labor markets are not in the same place as a year ago. the costs are basically 1%, so i just wonder where the inflation comes from, so my sense is if you would like to be optimistic on the economy, you almost have to think inflation slows us down because if it doesn't, then you have to start raising inflation probabilities. jonathan: the federal reserve used to say we need to extend the cycle, and i think the vice chair at the time would say, and anti-protection is worth a pound of cure, but you are saying they should begin to reduce interest rates at the margin? neil: i think that is all we should expect. i think that they should be focusing on what is happening with the labor markets, and they are clearly moderating, so you are basically saying, you know,

we are waiting on? idiosyncratic factors? to me, and in many cases, things on one side of the equation have to equal things on the others, and certain things need to be true. from my perspective, compensation of growth should equal inflation plus productivity and what do we know about those? compensation growth has been slowing, the labor number is down, the number of people who have things happening in the movement, that's up. if you look at posted wage growth, that is moderating, so we have a good indication that wage growth is slowing. if you look at across the whole number of industries, whether that is professional and business services, hospitality, which growth in those hospitality's, particularly trade because those are the

folks with higher propensities to spend, those industries see wage growth at the low-end over the last year, so if compensation growth is the moderate and productivity normalized, you don't really get much -- i don't think you can really make a strong case for inflation other than, you know, it has been strong. lisa: i would love you to weigh in on this, tony, you believe disinflation of the story is true, and you expected to continue, but we are talking with nuance because if it stays sticky at a certain rate, it can lead to problems, so if you give us the margin of error for the fed at this point? tony: we agree with the idea that the labor market is softening and we think that will flow through to wage pressures declining. our view is that inflation will continue to decline and do it slowly, so it drags over the second half of last year and we

saw the spike in the year that was the surprise to us in the market that inflation was so hot. our views was it was at a 2.7 level by the end of the year, so flat to where we are now, it down one tent. and then we move slowly towards a 2, 3, and getting back to the target is more 2026, so that allows the fed to basically be higher for longer because the economy remains resilient, and we are seeing that in the labor market. it is not down to several hundred thousand jobs. it was in the 150 range at would have been a 250 range. lisa: what is higher for longer mean when you have adam pozen saying a fed rate cut here would be a policy error because of the inflation that it could fuel later on? tony: we think maybe one cut,

maybe two at the end of the year, that recalibration to us is not going to drive a spike up again in inflation. it will keep the real rate at a level that is not over restricted and putting the market at a greater risk that is necessary for the current overall environment. jonathan: can we talk about the supply-side story? i know you have thoughts on this. the economy can get bigger without getting tighter, and what everyone is pointing to is the amount of immigration. are we putting too much weight on the expiration of what is developing in the labor market? neil: this is a hot button issue read america is not the only place in the world that has seen rising population growth. look to our friends in the north in canada. they have had rapid immigration growth and it hasn't stopped there economy from not doing well. if you look at per capita gdp, it is in the toilet.

just because you have a lot of immigration doesn't mean your economy is strong. i think the immigration angle is something people are looking at as a way of going back. lots of places across g10 have seen rapid growth in immigration, but it is not clear is the strong growth. the u.s. in that respect is the one that stands out which suggests productivity in the u.s. is the primary reason why we have seen this outperform. lisa: a lot of people are saying it is not just strong growth but that the growth came without the inflation as a result of it not climbing as much is expected. do you buy that? neil: i don't follow. lisa: that basically because immigrants were coming to the country willing to work, even for wages that were lower potentially, it kept on wage inflation that otherwise would have been given the natural tightness in the labor market. neil: you have seen some slowing in wages, so maybe you could

make a labor market case, but generally speaking, there are other reasons beyond immigration. for example, we are less exposed to what is going on in ukraine and russia than europe, obviously. monetary policy transmits itself differently in the u.s. because we have so many people on 30-year fixed-rate mortgage debt. that isn't the case in europe. we had a robust physical response relative to europe. generally speaking, the u.s. does set, in my mind, the productivity frontier for the world, so we are on the leading edge of that, so there are lots of reasons for why the u.s. has outperformed. immigration ranks low on the list. and i think that has been shown in the fact that lots of countries across g10 have seen strong growth. not every country has enjoyed the economic performance that the u.s. has enjoyed. tony: our view is that

immigration is very well-timed. it will be a driver of growth and potential growth for the u.s. over the next five years given the immigration policy that the country is challenging, but at that timing of it, which was about expectations, that has helped relieve rushers on wages, but going forward, it will have to be more about labor force participation or productivity remaining very high, which is possible with ai, but it has to be more about traditional productivity or labor participation and the second is probably unlikely but we have to rely on productivity. neil: that is a great point that it could be temporary. a lot of the immigration we are seeing could be pent-up demand from the pandemic. the visa approvals were basically shut down, and now you have a lot of, you know, foreign-born workers coming into the workforce, but that should not sustain.

i think it is interesting that you have started to see the workforce moderate at a time when everyone is talking about it, kind of makes me think about what it means that everyone is talking about not being long-duration and thinking rates will be 5% and what that means for the next move. lisa: the idea that people are saying the reverse could happen and that would lead to a surge in inflation, do not buy that there could potentially be a postelection increase in inflation expectations that could challenge the bond market? tony: i think it is more likely to come from the tax changes that occurred and what happens with those changes of value, and immigration policy might take a little longer to work through, and we already have a labor market that is softening. so i don't think it will be from

the labor side, and you might get that inflationary impulse that is election related. jonathan: we are just about to see payrolls a, will we see the deceleration continue? tony: we will likely see a below number rather than move back to 250, so it isn't a weak labor market but it is one that is not overheated. neil: you mentioned immigration is taking pressure off the wages. that's be clear, access labor demand has slowed rapidly, so it is not just we have all the supply. demand has come down. businesses are trying to get the most out of their workers, not trying to go out and hire more workers and that is important because that is what keeps the labor cost in check, which will in turn bring inflation down. jonathan: the estimate on our survey at the moment, a sneak peek, 180 k, the previous number at 75 -- 175. thank you.

let's get you an update on stories elsewhere, here is your bloomberg brief with dani burger. dani: u.s. pharmaceutical group merck is reportedly buying an eye start up company in the form of a $1.3 billion upfront payment and then a further $1.7 billion payment depending on milestones. merck declined to comment. byd unveiled a new hybrid powertrain capable of going 1250 miles without a recharge or refuel. that is the equivalent of driving from new york to miami. in a livestream event, they announced they will use the newtek in two sedan models that will cost under routine thousand $800. for now, made in china cars will likely get the upgrades but will be reported -- deported soon. elon musk start up another

investment, kathy woods purchased a stake into the ai's -- cathie woods purchased a stake into the ai start up. the chief future so that after the purchase, ai foundation models will be worth trillions by the end of the decade. that is your bloomberg brief. jonathan: appreciate it. equities down about .75% on the s&p 500. the opening bell about 14 minutes away. up next, we set you up for the day ahead. you are watching "bloomberg surveillance." ♪ the future is not just going to happen. you have to make it. and if you want a successful business, all it takes is an idea, and now becomes the future where you grew a dream into a reality. the all new godaddy airo. put your business online in minutes with the power of ai. so, what are you thinking? i'm thinking... (speaking to self) about our honeymoon.

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jonathan: live from new york, here is the trending diary, setting you up for the day. presidents bostic and williams

later today at 1:00 p.m. eastern time. lisa is staying in the office late for it. if you go to bloomberg terminal, there will be a green dot next to her name. u.s. sells $44 billion of seven-year. if you would like to drop by the studio and have a chat -- she will be here the next five hours. and then she is sticking around for 2:00 p.m. for the beige book. a big event later this afternoon. lisa: let's not over blow the beige book. i try to make it sound exciting and michael mckee was like, no, but i do think the seven-year option could be interesting based on the other two options, as well as the fed speak. how much are they adjusting their viewpoint around the table? around this table, we have heard people say there could be a potentially policy error if the fed goes now in terms of cutting rates and people saying there is a policy error if they wait too long but either way, the vendor was narrowed. does the fed feel that way or do

they feel less pressure if the window was still long enough to make a decision? jonathan: it is fair to say that the market has moved way more than fed officials have. if you wanted to take the temperature of the market at the moment, i have a story, have you seen this? our good friend dan ives of wedbush, wall street's best dressed man. here is how i use fashion to navigate a high-stakes job. how this article? it is a series of pictures of dan wearing clothing. lisa: fashionable clothing. is that how they framed it? jonathan: moments ago, somebody said, i will just say that this is a sign of the time. lisa: i love him because he has his own style and he has that custom-made different places where he goes around the world and he finds patterns and other patterns that he puts on top of those patterns that are all bright colors. i love the idea that if there is ever disappointing earnings season for one of the tech

giants, he will come and promise to be dressed. jonathan: if you are looking for dan ives and his clothing to give you a sign of the top, like to hunt a percentage points going nvidia up, he would have told you anything. the big story out of byd with a hybrid of a 200 kilometer range, a big deal. a really big deal. lisa: raises questions about priorities. jonathan: the questions. tomorrow, coming up, your lineup. ♪ >> welcome to a special role in the garros update. arena salva linke blasted her way -- sabalenka has a victory over andreeva she took the

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>> from new york city for our viewers worldwide, i'm matt miller. rising rates mean lower stocks. the countdown to the open starts right now. matt: we begin with the big issue, hawkish fed speak on repeat. >> the chances of -- are fairly low. i think the fed would prefer policy tight