>> i think we are in a phony war right now, where it's just a lot of uncertainty on the data. >> i don't want to overreact the one-month number. >> you need to pay attention to valuations in a way that we haven't had to. >> the economy is chugging along. >> why sacrifice the economy to the altar of the 2% inflation target if you don't need to? >> this is "bloomberg surveillance." jonathan: we are starting right now live from new york city right now, good morning, good

morning. equity futures are negative by one third of 1% on the s&p. closer now to starting a new trading week. the nasdaq 100, just as the two day meeting kicks off with chair powell and the federal reserve. this morning's program begins at midtown west. its 44th street, manhattan, why are we beginning the program there? lisa: it goes with a bigger theme that we have been talking about, where are we in the reckoning? a new york city office building being sold for less than $50 million, compared to $160 million in 2018. that's a 67% discount that raises the question of -- ok, is this the beginning, the middle, idiosyncratic, or are we in the early stages of the reckoning? jonathan: this is less then what is left on the loan, right? lisa: correct.

jonathan: another example of this slow-moving rolling stress from one sector to another, one zip code to another. it started with the banks last spring and stumbled on. then we had a hiccup in the treasury markets. then we moved on. going to see a few things like this. i'm thinking of mark zandi yesterday at moody's, the sticking cluster holding on the system right now, is that what this is? lisa: duct tape and the idea of no mobility in the real estate markets? this is what people are hooking into. at the same time yesterday i spoke to an investor who said we were in the sixth inning of this reckoning and she spoke to analysts who said no way, it's third or fourth and we are just getting it. that is the uncertainty underpinning the question we have been asking for a long time. how do we get rates this high in a credit market that grew up out of very low rates. jonathan: household survey for

the label market, terrible. equity market, things are fantastic. commercial real estate, things are terrible. the bifurcation you are seeing in the economy right now, what on earth do you do if you are the chairman of the fed to set policy for nothing just the next couple of months, but the next 12? lisa: you don't do anything. stephen major at hsbc put out one of his bond letters and i thought it was compelling, he was talking about narrative fallacy. we hook onto any data point and create a narrative around it, which is why we've been creating a different one every day. saying basically that if you look at the big picture, inflation has been trending lower, the economy is strong but softening around the edges. it's a question for jay powell, when does the bias shift? that's really the tipping point that a lot of people are looking for. jonathan: a conversation we were having until last week when the job number dropped.

lisa: right. [laughter] jonathan: apple is down in the premarket, it was down yesterday by close to 2% at the close. unveiling long-awaited ai features. they've got a list of them. we reported that here on bloomberg. they are going to summarize text , create original images. it's called apple intelligence. did you like that? lisa: people were saying -- it didn't add much that was new. sort of a personal assistant touch with cross of messages and apps. i thought that it was interesting, samsung posted this on the twitter site yesterday, coming out snarky, adding apple doesn't make it groundbreaking. a little bit of snark. we've been here for quite a while. that said, wait until it comes out. the feature where you can share payments, that was pretty cool. did you see that? it was basically if you wanted

to pay a friend $20, you just had to put the phone near it and the light goes through -- through. jonathan: shoot $20 over? that's not new, is it? lisa: no, it's packaging, it's what apple does best. jonathan: late but better, but it doesn't feel this way this time around. lisa: that's correct. late but it feels like they've been playing catch-up. it's not like they are working on it to perfect it and make it beautiful and package it beautifully. there are concerns around security with elon musk and they will have to fight that on a broader scale, but to me this shows how high the bar is now to surpass expectations. jonathan: welcome to the program . s&p's are lower, yields are coming in. a bit defensive out there. more weakness on the euro. french bond yields, we will take

a look at them a little bit later, but they keep climbing and breaking out, spreading wider again versus germany and europe. coming up in the program, we catch up with blackrock as the s&p 500 holds onto a fresh high on the big ai reveal. and t. rowe price is looking ahead to the wednesday doubleheader. our top story, the s&p 500 is reaching fresh high bets ahead of the fed decision saying that they think markets are vulnerable to modest pullbacks on sticky inflation and pre-election trade in late summer. that said, we think the market can end of the year higher. russ joins us for more. let's start with the equity market pitch. you have been trimming since spring time. can you walk us through what you have been pulling back?

>> absolutely. we took it off the market in the spring but we think with the magnitude of the gains and the uncertainty around the bed, that sentiment is going to get a little more challenging towards the end of summer. this is the market deals with the uncertainty of an unusual election. jonathan: what about the election are you concerned about? is that how you and the team see things, that it's a bond market? jonathan: i think the biggest issue is -- russ: i think the biggest issue is the uncertainty, but on the market it's the wrong call. fundamentals in the market, strong growth with inflation moderated. though not in a straight line. the reality is investors are likely to deal with the uncertainty of our run-up that

causes volatility. lisa: it strikes me we are talking about the equity market as a monolith and risk exposure as if all of it were exposed to macro risk or any risk whatsoever. how much do you just hide out in certain cash rich companies that are left and basically just stay away from small caps and those that are interest rate sensitive and vulnerable to all the risks? russ: that's a great question. the mega cap trend, those companies that are exposed to these longer-term secular trends like ai and internet commerce, cloud computing, they have further to go. that's a part of it. you were talking to me about real estate and one of the best ways to add value this year is to avoid what i would call rigged data. segments of the market, whether we are talking about low income consumers or companies geared

towards spending on commercial real estate or smaller regional banks, these are all parts of the market that are generally more sensitive to the fact that rates are higher this year and one of the things we have done is try to minimize exposure to those segments. it's generally worked and you continue to do it even in a higher for longer environment. lisa: there is angst developing as everyone says the same thing in terms of crowding into the names that have been throwing off bucket loads of cash and staying away from rate sensitive sectors with the russell underperforming. at what point do you worry about crowding in the sense that you cannot avoid going into these stocks if you want to outperform, but it leaves the market more vulnerable to idiosyncratic shock in these companies. russ: it's a real risk and it's hard to argue. it's still a narrow market led by a handful of names, but you

are seeing some broadening out. utilities is generally considered a low bid rate sensitive sector. having a good year. why is that? many investors are realizing that one of the constraints on the ai revolution will be electricity generation and companies geared towards that and utilities in the grid, etc., many are having a great year. it's something we didn't see 12, 15, 18 months ago, but it is an example of investors looking beyond a few companies and thinking about what the beneficiaries are of the ai revolution. jonathan: does that mean there's a correlation between utilities and the high weight s&p 500 market, what am i owning in the portfolio? russ: still a big exposure to the megatrend, something along with rate data that you will have to decide, how much of that exposure do you want?

the reason these have become crowded is there are multiyear trends and the companies geared towards them, we know their names, they do an amazing job of generating cash flow and it is silly desired commodity. what's working in the market? things like consistency, consistent revenue, consistent margins. stay along those themes and i think you will do all right. jonathan: this line from yesterday was that the debt remains mixed, leaving the macro outcomes on the table. it's never easy. i always sit here and say that, what you guys do is never easy, it's always about looking back, but what about this moment is more difficult than the past? russ: i would agree with the premise, it's complicated. generally, the market is strong or in decent shape, we have had more evidence of that, like last

friday. but there are segments of the market under pressure. the low rent consumer is feeling the pain of higher rates. commercial real estate. if you look at the economy, strong growth is likely to moderate in the back half of the year, but think about the segments of the market that are going to feel pressure because we are in a higher for longer environment where the fed does not have the latitude of desire to rush and cut rates. jonathan: russ, always great to get your thoughts. breaking the equity market down for us. i will share the fuller quote with you from morgan stanley -- bottom line, all future outcomes are on the table this year, supporting barbells of quality growth and cyclicals with defensive exposure. a highly sophisticated way of saying, "we don't know what the future holds lisa: he's not

alone. a lot of people have been coming up with future analysis and a lot of people are looking at that for the fed themselves. how are you dealing with the input data rather than just saying that we look at two things or our data dependent, choose your own adventure. jonathan: it is frustrating for the reserve, we reduce it all down to the dot plot. lisa: we work with what we are given. [laughter] jonathan: that's what will do tomorrow. let's get you an update on stories elsewhere. here's the bloomberg reef with dani burger. dani: you guys mentioned that elon musk said that he would ban apple from his companies if openai is integrated, he called it an unacceptable security violation. yesterday apple announced that customers would have access to the chatgpt service through siri with a new profile later this year. musk had a fallout with the

company and is currently working on his own competitor. golden goose and its shareholders are seeking to raise 500 million euros in the luxury sneaker brand euro with a value of 1.9 billion. bloomberg had reported that golden goose was seeking valuation of 3 billion euros, valuation that at the time we were told the ceo was happy with. the main shipping channel into the baltimore port has been fully reopened since the march collapse of the francis scott key bridge after a massive cleaning operation with workers removing an estimated 50,000 tons of steel and concrete from the water. the wreckage left the ports of baltimore effectively closed during the cleanup and officials say they hope to rebuild the bridge by 2028. jonathan: what a fantastic effort. more from dani in about 30 minutes. the apple ai let down, coming up in the program.

>> recent developments in generative intelligence and large language models, they are powerful opportunities for taking the experience of apple products to new heights. jonathan: that conversation, just around the corner. good morning. ♪

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jonathan: happy to confirm, tk will be back around the table tomorrow, our bloomberg special kicking off at 1:30 eastern time, don't miss it. as the two day meeting kicks off in washington, d.c., s&p futures kickback with yields lower on the 10-year. foreign exchange, the euro, 107 .45. the apple ai is letdown and under surveillance this morning. >> recent developments in generative large language models offer powerful opportunities to take the experience of using apple products to new heights. introducing apple intelligence, the new personal intelligence system making your most personal products more useful and delightful. jonathan: here's the latest, share sliding after the long-awaited announcement on

artificial intelligence with tim cook saying that chatgpt will be coming to the operating system later this year. elon musk saying that he would ban apple devices from his companies if openai is integrated, calling it a security risk. dan, let's separate the stories. the complaint from elon musk and what was unveiled. you are right there in cupertino. tell me how impressed you were about yesterday really -- yesterday's release? dan: it's historical for apple. as much as we talk about it from the enterprise perspective, the consumer story will go through apple. i believe that this will be a catalyst to the ai driven super cycle of the next two years. jonathan: we started the program by talking about apple always being late and better. it feels late. is it better? dan: i think that's exactly

right. it's late, but you have 2.2 billion ios users. it can be light -- late, but the install base is unrivaled and that's what they are going after now. it's the services side, the monetization will eventually be a subscription service. if you don't have iphone 15 or later, you won't be able to access apple intelligence and i think that is the key. the headline here is the long-awaited operated -- operating cycle that we talk about on the show, now in front of us. lisa: if we don't see material uptick in sales in october, november, december, are you basically going to retrench your bullishness, or do you think it could come next year and be valid? dan: if that doesn't happen i will come into the studio wearing a black sports jacket. [laughter] i believe it's us -- the start of a renaissance of growth.

i think that what's important now is with apple unveiling the ai strategy in their, openai being significant, ultimately for most consumers, 25% of the world, they will access ai through an apple device. lisa: i'm curious about the idea of a subscription service. what will people be subscribing to given that there is apple music and a number of other services. will they subscribe to apple intelligence? dan: first, it's free, the key for any apple user. this is essentially ai brain in the iphone. eventually those developers that were there yesterday that i saw, they will be building hundreds of apps based on this technology stack within the apple ecosystem, which is where more and more consumers are going to interact with it. this is just of the start of the

ai party coming to cupertino. as much as they are late to the party, it's still nine in this party that i believe goes to 4:00 p.m., 5:00 a.m. -- 4:00 a.m., 5:00 a.m. jonathan: why does elon musk not want to attend the party? dan: it's sour grapes. he's had a beef with openai for years. this is essentially apple in our -- in the castle saying it's our data, our customer, you won't have access. this is elon musk with stress. he will not ban iphone. jonathan: super simple terms, can you explain his complaint? dan: he's basically concerned about apple and openai having access to the data if everyone else has access to it. when he speaks -- what he speaks to is a broader concern among other tech players because apple has a castle that no one else

has. they have the devices. one point 5 billion iphones worldwide. they are saying that it's mock -- our house, not your house. jonathan: let's look at the stocks were the names of fall under your coverage. you are constructive on apple. where are you on tesla? dan: they've gone through a category five storm but are starting to turn the corner. in terms of what we see later this week, i think the compact passes and removes the overhang. then it is all about stabilization in china. economists are going forward. right now the risk group -- risk reward is positive with the stock hanging in, even though they are going through some tough times from a demand perspective. better days ahead despite the white knuckle for the shareholders. lisa: when we talk about the ai super cycle, that's the reason apple sits in a castle with a

party that goes until 5 a.m., but the question for tesla is elon musk, you called it sour grapes about not having it first, he wanted the castle, reportedly diverting chips from tesla to some of his other efforts because he has no place to deploy them. does that concern you at all in terms of the tesla valuation as a technology company and not just a car company? dan: look, the ai initiatives have to be under tesla. when he made that threat, and it will come out in the shareholder meeting this week, taking ai out of tesla, it does raise some concerns, but i believe that at the end of the day it is all going to be under the hood of the tesla ecosystem. muska right now, it's a balance. it's a pivotal time for musk to prove that ai will be under

tesla. he re-commits to being ceo in the next three years to five years. and then we have better days ahead. but right now it has definitely been turbulent and he doesn't help that. lisa: on a bigger level, this is the first day of a two day fed meeting and a lot of people are wondering how long this can continue where the ai early starters basically accumulate all the cash and are the big winners and accumulate all investments that we have from different investment managers, leaving most people behind. how long can that continue before something has to give? dan: i've been in the valley for two weeks, i've seen 20 tech companies front and center on the revolution. this is a 1995 movement, not a 1999 movement. the stronger get stronger. i don't see any slow down like we have seen in terms of the supply chain in asia. this is able market that

continues to go forward for the next 18 months, but many of them will be in the right lane, 45 miles per hour in the minivan, worried about valuation. i think that this tech party will be left lane, 100 miles per hour. jonathan: i've got five second -- single word. pre-iphone 15, 1 word, one recent upgrade? dan: apple intelligence. i'm going to have it, you don't, you want it. jonathan: trying to work out the function. [laughter] more with tom later. lisa: join the party. get in there. jonathan: it's the black suv. lisa: that's what it is. ♪ vanguard's retirement solutions can help all your employees be well on their way to their financial goals. that's the value of ownership.

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jonathan: tuesday, all-time highs on the s&p 500. the nasdaq, looking like this this morning, negative by one quarter of 1% on the s&p. the nasdaq, the russell, negative by three quarters of 1% . i mentioned mike wilson at morgan stanley earlier this morning and this is what he had to say in the small caps. headwinds, small caps, but skeptical the lower rates will have a comparable benefit and it is the key reason we are overweight large caps. lisa: this has been borne out in the moves of yields in the

markets. when the moves go up, the russell hangs in. that's what he's saying. before the low yield in the slower growth, those are the stocks that will be hurt the most. jonathan: two-year, 10 year, 30 year, looking like this on the two-year to 484 on the 10 year coming into today. yields have been higher for three consecutive days, lower by four consecutive basis points. looking at where we have been, looking at where the 10-year yield opened up two mondays ago, are we below those levels right now even with a big adjustment on friday? lisa: it speaks to the point that stephen major was getting at. there is a downward trend, although it is slow when it comes to inflation going lower, disinflation on the price gains. the question is -- how quickly and what will the response be.

this is the reason he was talking about a pivot point between inflation and growth. we have been talking about that for months now, we haven't got there and that is why people are trying to sniff out why there is so much volatility in bond yields. jonathan: felt like that until friday. remember the services that came in better than expected? everyone was focused on the subcomponents and everyone said it felt like a stretch but that that is where the market was and it flipped back just like that. lisa: how do you get the analysis on the market like this? at the end of the day, purchasing nvidia. that's the subtext everything that i read in the reason you saw the 26th record close. 14 for the nasdaq yesterday. jonathan: you are still counting and we will keep counting, just needs to be a bit higher today. turning the page. if it could get harder, just introduce european politics. the euro, negative by 2/10 of

1%. things have not settled down in the french bond market. yesterday we were up by another six. france versus germany, wider on the year. lisa: widening yesterday as people perceive a risk of emmanuel macron introducing himself to a snap election. a lot of people saying that it isn't as big of a risk that it seems. he tells his staff that you need to be bold and take risks. but there was going to be a vote of no-confidence, that would have neutered his ability to do much for the remainder of the year, so this is trying to get ahead of that. there's a lot of turmoil that's crystallized. jonathan: don't you love european politics? this came out of the u.k. this morning out of the newspaper, the candidates complaining that doorbell cameras have stopped people from answering the door to people trying to canvass them

for their political parties. so if you see a leaflet, they just don't open it. they reported that one person started carrying the parcel package so it looked like a delivery. [laughter] lisa: oh my gosh i feel bad, but also -- hello, do people want those calls? nobody wants to answer that door. if anyone answers the door, they will only stand there and listen to them out of social guilt. jonathan: some people do. there are two types of people. you know those kinds of people, they love that stuff. open the door, labor is here. love a good debate. lisa: i have a family member who is over interested in spam calls. my response -- you have too much time. jonathan: they try to get money out of you, play on. lisa: ask about the question. ask about the person. jonathan: is that a family trait? [laughter] lisa: i don't have time.

jonathan: no time for that, either. apple, looking to catch up and ai, the iphone maker announcing a integration with chatgpt. the feature is called apple intelligence and it will roll out later this year but more advanced talks are not until next year. down one quarter of 1% this morning. going through those features, we did this 30 minutes ago. i'm trying to work out what is going to give me to upgrade. revamp siri that i don't use? subtext that could be useful? additional images question mark zero interest. lisa: you never like that? jonathan: and i haven't used any ai tools to do things like that. annmarie: you probably have -- lisa: you probably have an you don't know it. tim cook used a word that i thought was interesting and very apple, delightful. they are looking for people to play on their phones and use them as a tool that is addictive

and that kind of delightful way beyond just sort of a personal assistant. they had that personal assistant aspect where things talk to each other to fill in your sentences, but features like being able to exchange money in a cool way where it zips up and it looks like an old fax machine going from your phone to their phone. some of the pictures. i can see a certain cohort who would find that very exciting and a social setting and it's a kind of pure pressure like why can't i get that. jonathan: but you said it earlier, its packaging. we already have that. lisa: 100%, but is that what they do best? even the packages of the iphone are kind of cool. they are brilliant at packaging. can it get them over the hump? van nuys think so. jonathan: seems like you do, too. annmarie: i know that it's -- lisa: i know that it's bad to be skeptical of these advancements. people line up to spend

thousands. i understand that. on the flipside, i don't know if this is what people were hoping for on a broader level when you talk about artificial intelligence. is it a personalized bit moji? i think that people were hoping for a different kind of productivity boost. jonathan: more time on your phone, maybe less time on google search, a conversation we will have later this morning. antony blinken is looking to gain support for the biden peace plan between israel and hamas, saying that the israeli prime minister, netanyahu, is committed to the proposal after today's meeting. this is his eighth trip to the region since the war broke out in october. we know what hamas wants, we know what israel wants. a postwar commitment that israel doesn't want to give. lisa: the more i learn, the more comes -- confused i get. the u.n. just passed a cease-fire with one abstention.

the u.s. voted for it, saying that israel was on the same side. now the question is that hamas. it's unclear what's going on. details are not clear. benjamin netanyahu rebutting the concerns of the u.s. and it's very difficult to get a handle on. everyone is hoping for a sooner resolution. jonathan: tough meeting for blinken, for sure. claudia sheinbaum is vowing to move ahead with reforms of the judiciary system, erasing fears on checks on the ruling party. the peso moving stronger. steve englander joins us now for more. these other worries that people have. you worry about things like judicial reform. how important is politics going to be to emerging markets and more broadly, foreign exchange this year? steve: looks like it's getting

increasingly important because in part the market underestimated how important the shocks might be. you know, the max is getting pounded in part because it was everybody's favorite trade one month ago. if there were long positions, they may have been short on low yield with those positions and they have been unwound and if they haven't, they are getting unwound. lisa: how much do these elections, like in mexico, india, the eu parliament elections, how much does this just sort of underscore the preeminence of the dollar as a haven, despite political dysfunction here in the united states? steve: well, we have an election of our own coming up. shocks that we have seen abroad make the u.s. election, make the differences look relatively minor. i think that the -- it will come

into play later on, the policy agenda of trump and biden becoming more clear with divergences becoming more clear, implications of the elections becoming more clear. everyone sees a colossal difference between them, but in terms of practical politics and practical policy, it's not exactly clear what one would do that the other wouldn't and i think that will become more clear as the election approaches. you know, we have had massive shocks. with the euro, i think that everyone kind of went in complacent. european elections, it's a headline that kind of puts you to sleep and all of a sudden you find sort of the right wing sort of really picking up and it has implications for what the eu can do is a block and for what the ecb can do to respond. implications because we don't

understand how it is going to play out. lisa: unprepared is the word i want to key in on. you say this shows how unprepared our kits were for these outcomes being more dramatic than expected, though frankly these outcomes, a lot of them have been expected. how unprepared is the market, going forward, compared to other political catalysts coming down the pike at a time when we are coming off a stagnant time for the major currency pairs and it has led to leverage and carry trade and all sorts of other things that could be unwound in the face of the catalyst? steve: i'm going to put on my nerdy hat. i inflation goes up and down 1/10, moving it up or down a little bit, there's political shock, going from one state in the world to the other and it's a much bigger shock. it doesn't happen that often, but when it happens you have to sit back and say wait a second, is this really kind of the marginal move we are seeing when

cpi comes at point to inset of .3? is this a big deal? the market is trying to digest it. jonathan: the dot plot, how big of a different is there if the median shows one versus two for 2022? steve: i think it would be massive. one cut trends down to zero. i think it would lead the market to think there's a real chance that the cutting agenda with all the talk about making progress and it takes time is off the table. you know, there might ba.1 in three chance they go down to one, but it's not going to be like everybody in favor of two and no one in favor of one. it's going to be very close. if one of them wins, i think that we will see the dollar probably break near highs. we will see yields go up

significantly and sort of serve markets that look at these sort of reluctant cuts that are so far priced into the end of the year, june and july. kind of saying -- are these going to -- what are the chances of these manifesting themselves? we think the fed will avoid that. because you know, there is no reason for them to throw that kind of message into the market right now. i don't think that they want to send that signal. but if they do, you know, it's not going to be unintentional. it won't be the message of saying that we are at one and things happen. jonathan: if i can jump in, how does that work on the committee? how do you get everyone to coalesce around the idea? do they look around the table in go neil -- bump it up a little bit? go with two for this year? want to make sure the medium comes in right?

how do you do that? steve: from what the fed chair has said, they don't do that but they are all aware of what the implications might be and powell has reiterated several times that they can change it up to the wednesday morning so that there is -- i think that some of them kind of go out and say look , is this the optics that we won and we can find one or two to change it. yeah, it doesn't happen as a formal request, but it happens organically. jonathan: got it. steve, thank you. ultimately the difference between two and one tomorrow is "massive." lisa: yeah, at a time and potentially it could send a signal they don't want to send, so then they take a straw poll that basically engages with p or pressure. come on, just push it up a

little bit. jonathan: that's not fair, i'm not saying he's susceptible to peer pressure. lisa: he's probably less susceptible than most. jonathan: i think that is where the dot might be. we will cover this tomorrow. that will be the show at 2 p.m., when the decision drops. [laughter] going through the dot plot. here's your bloomberg brief with dani burger. dani: bill gross says that europe is the place to look for opportunities. he said that to bloomberg the day after two of the most influential leaders suffered surprise defeats in sunday european parliamentary elections at the hands of the far right. >> in terms of the attraction, the german 10-year, the french, those spreads have narrowed significantly in the past month or two relative to treasuries. today as well by a few basis

points. so, there does come a point where european bonds are more attractive than treasury bonds. dani: he went on to say that recent market reactions from other elections offered a guide for how u.s. campaigns might impact assets in november. a new york city office building owned by a related affiliate is set to be sold at a steep discount. they agreed to purchase the park -- property for less than $50 million according to those familiar, a roughly 67% discount from the original 2018 price tag. singapore airlines has offered payment of $25,000 to passengers who sustained serious injuries during a flight that hit extreme turbulence last month. the payment would address their immediate needs, the carrier said.

singapore air is also offering $10,000 to passengers who sustained minor injuries. several thousand of the passengers and crew on board -- several dozen passengers and crew on board were seriously hurt and they were forced to make an emergency landing in bangkok. jonathan: shocking. up next, a losing game. >> guessing the next move by the fed, it's a losing game. jonathan: we have all missed. that conversation, up next.

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year, 442 point 76. under surveillance this morning, a losing game. >> trying to guesstimate the losing -- the fed, it's a losing game. they are not moving on wednesday, that's no secret. big deal. the bigger story of cpi, it doesn't change the chance and a meaningful way that the fed could cut this year. jonathan: treasuries rebounding ahead of the doubleheader with cpi and the fed on deck. writing that given the resilience of the labor market, things are skewed in a hawkish direction in the dot plot could have only one cut this year. steve englander moments ago saying that the difference between shoving two cuts and one this year is massive. do we agree? >> i think that the consensus view is that we are probably going to end up with two cuts in

the dot plot, but that risks are skewed towards the one and the distribution and evenly split fomc between one and two this year. that information in hand, the market has been able to absorb this and at the end of the day, what is happening here is the medium of the fomc and most of the members, including powell, they want to keep optionality on cutting interest rates as early as september. that is what the two dots is all about. i think that with that in mind, they will let the data increase or lower the probability of a cut in september. from my perspective, the direction of travel is that we keep pushing back the first cut, because the signal from the labor market is going to be that resilient. it is loosening.

labor market conditions are not as tight as they used to be, but the labor market is resilient and it will come down to how fast you can bring inflation to 2% for the fed in this environment of strong demand with resilient labor markets and we figured out this year that progress is likely to be slow. picking up on the labor market point, how conclusive is that view, particularly the data we just got on friday? i think you are alluding to the mixed messages and the jolts, where all of us have created the labor market. vacancy rates are down, the churn in the labor market has slowed down significantly. look at something like unemployment numbers, they are not increasing a lot. the unemployment trade has picked up slightly. but when you look at payroll growth, the rate of job creation in the economy remains pretty

resilient. a bit of mixed messages. what i am reading from the mix of labor market data is yes, there is some slack being created because demand for workers is not as strong as it was maybe two years ago. we also have more labor supply to fill the vacancies. partly because of the strong migration flow we have seen over the last two years, but demand for workers has not collapsed and we are not seeing firms lay off their workers. this idea of labor market hoarding, it was so hard to fill those vacancies post-pandemic. many firms got burned, they will hold on to workers for longer than they would in other business cycles. it strikes me that people are -- lisa: it strikes me that people are not sure what to focus on. shoemaker saying it's not a big deal, then steven lindner saying that it's massive and a huge

shift. others saying that the economic data shows employment is weakening, others calling it a revival under the hood. what would you have to see to materially change your view? is there a data point or a data set you are watching carefully to understand the cracks that could underscore the landscape of that dramatic uncertainty? blerina: what we have looked at in past business cycles is the labor market data. by that i mean -- the weekly claims. are we seeing signs that workers are losing their jobs in large numbers? let's look at the challenger job cuts. are there signs there of widespread layoffs? late in 2022, the tech sector was laying off workers. maybe a few in the finance sector. but it was not raleigh-based. to start this recessionary cycle that people worry about, you need more broadly based layoffs with >> -- cracks in the labor

market. the data monitoring here, we are looking at company reports with consumer spending. the data is giving, broadly speaking, i think a message that conditions, fundamentals are still strong. lisa: are you concerned about a financial accident given that the system is an engine that is just rattling with duct tape and patched with fed policy? his description. blerina: we had our financial market stock with spv. we also did a lot of balance sheet cleanup after covid. when you look at the assets overall of the banking system, it is strong. there is always a question about how opaque is private credit, private equity. it doesn't seem from looking at the macro data that it's large

enough to post a systemic risk so far. the federal reserve board talked extensively about this in the financial stability report that they publish every quarter. so, there is always reasons for concern and i think that vigilance is important, but i'm just not losing sleep over that right now. jonathan: appreciate your time as always, blerina. catching up with steve englander just moments ago, many in the market might see a single cut as backing away from the policy rates of peak view and opening the door to the policy rate hike possibilities. could that really come back to the table tomorrow afternoon? lisa: it takes so little, that's how uncertain everyone has become. i could see that. jonathan: in the second hour, we catch up with omar, aaron, tom, and ian.

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>> it is not obvious to us that there is urgency for the fed to ease. >> they will continue to say they are dated dependent and that the data is murky. >> trying to guess the first move of the fed is a losing game. >> obviously the market will take any cut as the start of an easing cycle. >> i don't bet the market really cares whether we get 12 or three this year. >> this is "bloomberg surveillance" with jonathan

ferro, lisa abramowicz and annmarie hordern. jonathan: the second hour of "bloomberg surveillance" begins right now where we will play a losing game. "i don't think the market cares if it is 1, 2 or three cuts this year." 10 minutes ago we asked him whether the difference between one or two and he says massive. some people say what matters, other people say it is a big deal. lisa: really, not understanding the market reaction. we have gotten a couple of different catalysts whether we see parliament recollections -- reelections or data points where nobody could really understand what the market response would be. we have jp market -- jp morgan saying whether there is an upside or downside surprise, it

could be a massive move that could be undone by the fed. jonathan: the word that i keep hearing is optionality. they want the flexibility to do whatever they need to do. i've seen that from goldman sachs too. we think two baseline cuts to retain flexibility, how can you get them to put individual projections to come up with this beautiful perfect, showing two cuts for 2024. can you construct that around the table? lisa: it sounds much more top-down than it actually is at least from descriptions from those on the committee. going forward, the question is how much of that two cut baseline is representative of the schedule. if they put two cuts and the data softens considerably and they cut in july and september, they are less exposed to accusations if they already have

two cuts penciled in. in terms of value, that could be behind that. jonathan: you have to space through it from two to one later this year. september is curious to me. people will point to the fact that we did qe3 mark ronson number 20 throughout -- we did qe3 in september 2012. lisa: the bar has gotten higher in terms of justification for cutting especially at a time where this is a peripheral data point but we've got small business optimism that cayman stronger than expected -- that came in stronger than expected. it raises questions, what are we missing? can we discount everything and cherry pick the data that shows weakness or are they looking for something else? jonathan: yes and you knew that

was the answer to that. lisa: it is a losing game. jonathan: equity futures on the s&p, pulling back by 0.3%. a record high close yesterday on the s&p and on the nasdaq. this is from the team at bank of america, no lending is back in debate. that is not bearish. i am you saw the same thing. lisa: yes, this idea that no lending is a positive going forward and that we can grind out some kind of growth. one of the bigger fears is the longer this goes on, how much crowding in the winters continues -- crowding in the winters bang could -- winners could continue. the other consistent theme i'm seeing in the different notes is we could see a pullback in the next couple of months. there could be some volatility but buy the dip. we have heard this repeatedly and there have been no dips.

jonathan: coming up, omar aguilar of charles schwab. why apple's new iphone could create problems for his customers with tom forte. and iain stealey as politics shakes up european bones. omar aguilar of charles schwab writing this, "we expect a slowdown in consumption and we expect growth and inflation to subside opening the door to fed easing. "' good morning to you. how big of a difference is there between one and two? omar: it is always what the fed thinks and what the market thinks. it is a matter of how this gap works together. we believe that the data will show at least it will be one. the question is september or

september. it will be two things. one will be unemployment and the other will be inflation. the two are competing with each other. we see inflation exactly where the fed wanted to be. we will get that data tomorrow where the trends continue and the lag effect will allow them to have the ability that they seek. the question becomes whether or not the economy will be stronger than what they expect and potentially have them under one cap. jonathan: this is complicated matters for a few reasons. managers and strategists have been joining us for a number of months making the argument to get out of cash and go along the curve because the yields will not be there in six months because the fed will start cutting interest rates. we all heard the argument. how successful have you been

getting client out of low feepaying money market funds and doing other things? omar: not very successful yet. the time lags of getting people to deploy cash has begun. we started to see that at the end of the tax season in april where you see movement because of taxes. we are starting to see people look for opportunities to deploy that cash. the big question becomes do you hold on for six months until you get that increase in your risk, which in many cases clients are willing to hold on for at least the next three months to start increasing duration and the bigger question becomes whether or not that comes with credit or without credit. credit exposure relative to what they want to have, we don't believe that is necessary. they can increase duration, enjoy higher yields, but still

stay in the high-quality part of the market without having to extend credit so you don't have the asymmetric risk. lisa: i understand why people would want to clip a 5.5% coupon for the future especially without a clear path to fiscal responsibility and potential lack of volatility and treasuries being sold today at 1:00 p.m. all of these issues give people a level of concern. how do you make the argument that it is a valid trade to be made at a time where it does not seem like the economy is falling off a cliff or long-term expectations are going down dramatically. omar: in the end it becomes what is the opportunity cost. if you believe risk premium stays in areas that become attractive, as we see real rate increasing with inflation coming down and the fed not moving, it will be a real opportunity cost

so investing in cash becomes difficult to sustain. the second thing is reinvestment risk. there is no question that with one or two or more rate cuts in the next couple of years as markets become more normal, the ability for reinvesting at 5.25 on the short part of the curve will be -- not be available. lisa: essentially everybody comes out and they say our equity exposure and our credit exposure, nvidia. that seems like the take away that i get from a lot of people who have very complicated macroeconomic frameworks. it comes down to nvidia and clip your coupons. what is your argument against that versus these macroeconomic trends that seem like a black box? omar: it comes down to what is your sense of invasive -- investing. investing in equities in any part of the equity market, you

have a long-term view of what you think you are doing. if you believe that any of the top seven names in the index will continue with the level of earnings power that they have, that is a long-term investment and you are putting a long-duration bid on it. on the other hand you are looking at the curve on fixed income which is the shorter piece. as i said earlier, it only matters when there is a risk premium that you want to take advantage of. jonathan: pre-pandemic people gave up on bonds for income. there was no income there, particularly for europe. have we reset things? have you seen attitudes reset over the last few years? omar: not the lessee years. i think it has been the last six months where people are starting to realize that there is a great set of opportunities to be in fixed income that we did not have for 15 years. now you actually have a return in fixed income that becomes attractive relative to what we

used to have pre-pandemic. jonathan: pemco might be talking in the book but i am sure you saw the argument, the new 60/40. what do you make of things like that, this generation reset of yields going forward from here is really quite good? omar: i think the different parts of the risk premium that you actually have will suggest that it's still 60% equities, 40% fixed income. it is difficult to change that make up given the next five years where we will probably see real rates stay in that 1.5% to 2%. when you think about that and the notion that we will go to more normal times and that is part of the process where the economy will grow at a normal pace we will see business cycles more normal, we will have less of an impact of the pandemic or the big financial crisis we had in 2008.

now we are going to a set up where there is enough investing opportunities including fixed income, cash and international where for the longest time has not been a possibility because the u.s. has performed better than any international markets. lisa: we inferred from people in the past six months -- we have heard from people in the past six months that you have seen a swing in sentiment from investors to a more bullish tilt. is that what you are finding come of that they are looking to take more risks, more open to reinvestment concerns and not interesting in the mattress -- not just staying? in the mattress omar: investing continues to grow. whether it is availability of information, or has to do with that. it is interesting because generations came. when we see generation x and baby boomers continue to be invested in the market and younger generations are still

going into the process but they are starting to invest early. they are not as bullish or as optimistic as the earlier generation but they started investing earlier in their lives. jonathan: this is great. it is good to get an update from you as we wait for those people to get out along the curve. lisa: this idea of what reinvestment risk, i think omar put it well. until they can actually understand that there is a reinvestment risk, what is the problem? right now, there is not much. jonathan: lisa might mention 10 year, how much? lisa: $39 billion. you noticed. yesterday was interesting. the option was actually compelling. jonathan: do you want to tell us why? lisa: because it was soft and it was a three year auction and it really had a negative take. it had on the lowest nondealer take ups in a while. it showed a certain degree of skepticism. jonathan: more buybacks for you little bit later.

the board of general motors approving age $6 billion share buyback. they are growing and improving profitability of the ev business. this evo says they are focused on profitability of the internal combustion engine. they are up by 0.9%. lisa: they're playing catch-up in a really big way. a car company that was almost left for dead for a while. they have some catching up to do. tesla with losses of 30%. jonathan: i will bring the actual number. second-quarter final results july 23, that is the latest from general motors. it's get an update on stories elsewhere. here is dani burger. dani: donald trump will meet with senate republicans on thursday to bring up his priorities if he wins in august. senate republicans hope to win the majority in november.

trump has a busy schedule. he will be participating in a meeting with ceo's hosted by the business roundtable. bill wong faced blistering testimony on monday. he told the jury he was told to do the opposite of what a normal fund with duke including committing financial crimes and lying to banks. he went on to say that he told traders to maximize the effect on share prices at all costs. he and his codefendant have pled not guilty and are in the fifth week of testimony against them in a trial in no -- lower manhattan. pemco says more bank failures are on their way. the real wave of distress is just starting and lenders have a very high concentration on troubled commercial real estate loans on their books. more than $200 billion of loans will mature through 2025. which he says we will struggle to refinance with higher rates. that is your brief. jonathan: just getting that

confirmation, -42% to be precise. lisa: i appreciate the clarification. jonathan: you knew that already. lisa: up next, the u.s. waiting on one vote. >> i met with prime minister netanyahu last night and he reaffirmed his commitment to the proposal. everyone's vote is in except for one vote and that is hamas and that is what we wait for. jonathan: that is the conversation we will have next. live from new york city this morning, good morning. i can't believe you corporate types are still at it. just stop calling each other rock stars. and using workday to put finance and h.r. on one platform. tim, you are a rock star. using responsible ai doesn't make you a rock star. it kinda does. you are not rock stars. (clears throat)

okay. most of you are not rock stars. oooh. data driven insights, and large language models. oh, that's so rock roll. it is, right. he gets it. yeah.

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jonathan: this just in, one of my favorite statistics from bank of america and the bank of america institute. the statistics on bank balances and savings. this month they looked at balances by households through the lens of age cohorts. every age group is up at least 44% since pre-pandemic levels. big outlier, gen z, up more than 137% of pre-pandemic levels. lisa: because it was a low bar. they were probably right out of college. still, those jobs saw the biggest wage gains. we saw that during the pandemic. maybe that is why they are the entrance into the new market. jonathan: pretty amazing.

savings and checking balances for all age cohorts, every age group up 44% from pre-pandemic levels. equity futures slightly negative. we are done by three basis points on the 10 year. the u.s. waiting on one vote. >> all of the hostages, especially our eight american families with loved ones in gaza, we are determined to bring them home. the proposal. president biden put forward is the best way to do that. i met with prime minister netanyahu last night and he reaffirmed his commitment to the proposal. everyone's vote is in except for one vote and that is hamas and that is what we wait for. jonathan: international pressure growing on israel and hamas after the un security council unanimously passed a three-phase cease-fire plan for the gaza strip. it calls for the release of all

hostages in exchange for palestinian prisoners in israel. the return of displaced gazans and the withdrawal of troops from gaza. joining us now is aaron david miller of the carnegie endowment for intl peace. secretary blinken makes it sound straightforward. we wait for one vote, that is hamas. how do you see things? aaron: traditionally, there are only two speeds. slow and slower. this is not a normal negotiation. the principal decision-maker is in egypt, across the border. you have indirect discussions going on, each with their own motives and then you have politics. the sequence is clear but we will see where it goes. hamas will either produce a clean yes, unlikely, that may force the israelis to look at

additional and or no. it would make it much easier for the prime minister of israel who is really not interested in a complete implementation of the president's proposal, they are basically continuing to maneuver to buy time and watch this play out. lisa: let's say the answer is yes. do you think benjamin netanyahu would go through with it? aaron: if it is a clean yes and it is hard to believe that a clean yes would, assuming hamas says yes, it has already been endorsed by the war cabinet which may or may not exist. it will go to the full israeli government and the two most extremist parties basically have said we will not accept any part of this proposal. if it is presented to the government and they say no, then

there are two possibilities. either he was already agreed to give benjamin netanyahu a safety net to go forward or alternatively the government falls, presumably and you end up with new elections in three months. lisa: on a broader level you have been covering the middle east for decades. you have been watching events transpire. it strikes me that this is an intractable situation that has changed the social fiber and the political dynamic in ways we have not seen before. how do you understand how the conversation has changed in the middle east and around the united states around this issue? aaron: in decades of working with the state department, never have i seen any middle eastern issue provoke the kind of controversy and domestic turmoil

that this one has. i think in an election which could be contested by three states and under 100,000 vot es, any impact, including gaza, those who will not vote for the current president or will not vote at all could have an impact. the domestic climate politically is very fraught. you have a republican party that has emerged as the israel wrong party and you have a party that is deeply divided. what kind of progressive democrats are prepared to support. you have the prime minister of israel do to address a joint session on july 24, addressing churchill's record of three addresses to a joint session of congress. it has become a political issue,

a fraught one in a way that it has never had this impact before. lisa: there has been a lot of focus on a number of big companies on the role that universities have had. in a minute, can you give us a sense of where you continue to expect universities to produce some of the protests we have seen recently? aaron: it is hard to know. these protests came out in may or the end of semester is. will they have the sort of impact again in september? it is tough to say. you have a situation where the israeli-palestinian conflict has created an opening for any number of complaints and ideologies. i think that is quite dangerous because this conflict is not a morality play between a force of

goodness on one end and a force of darkness on the other. both sides have competing needs that need to be met. it is the definition of a tragedy. two competing justices. i only wish that the political dialogue in the united states could reflect that sort of pragmatism and balance. maybe we could create the kind of political consensus that could help resolve this rather than exacerbate it. jonathan: thank you. aaron david miller of the carnegie endowment for intl peace. more still from new york, this is blg.

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jonathan: equity futures on the s&p 500 negative one third of 1%. on the nasdaq down one third of 1% also. the russell underperforming. in the bond market, here are your scores. on the two year down four basis points. on 10 we are down three. this from andrew hollenhorst. dovish risk going in tomorrow. that is not what we have heard from the consensus. andrew saying powell may lean

dovish. an upward revision from 2.6% to 2.9% core pce inflation, what could be seen as a hawkish backdrop. he goes on to say that a rising unemployment rate, including what they project to be .26% means we see more dovish risk at tomorrow's fomc meeting. lisa: to comments. -- two comments. there gas given that we have seen jay powell code of -- a fair gas given we have seen jay powell go dovish. there is also this point that andrew hollenhorst and the team did push the cut back to september from july. their base case has not changed. they think there is going to be significant weakening in the labor market, we just have not

seen it. jonathan: depending on where you look. parts have seen it. lisa: i like this idea of narrative fallacy where everyone is trying to create a bigger story around each individual data point. that is the reason we are running around like chickens with our heads cut off. jonathan: let's keep running around like chickens which is kind of like the show at the moment. the euro is weaker again by one third of 1%. french equities down 1.2%. bond yields down another nine basis points. this has not settled down from yesterday in france. the trend has continued. lisa: ny. the cut -- and why we were not surprised by the european elections. it is in line with the polls. there is a realization that politics matters. as much as people do not want to

think about it, it is something with profound implications. what i find interesting is italian bond yields as well as french bond yields are surging relative to determine bond yields. why, given the fact that germany is seeing the same kind of wave, if not more so? there are questions in the data about what the knee-jerk response is to this feeling of uncertainty. jonathan: consensus view, they have to ignore the politics and what is developing in november. i wonder how close we are. you are putting your hand up because you are one of them. i wonder how close we are to saying i do not they we can ignore it anymore? the deeper we get into summer. the end of this month the debate start. lisa: people are not ignoring it but what you do with it? how do you hedge? that is why you are seeing more hedging. we have people on to talk about

that. amy wu silverman has talked about there is a gap out to deal with the nervousness. how do you understand what the market reaction is to potential policies? jonathan: you know at the conclusion is? t-bills and nvidia. investors looking ahead to tomorrow's doubleheader. cpi followed by fed decision at 2:00. investors also looking towards the so-called dot plot. elsewhere crude holding steady. opec releasing its monthly report, expecting strengthening oil demand. the same time claim it plans to hike supply. crude lower .2%. apple's big day reveal revealed leaving a sour taste in the mouth of some. the company announcing chatgpt is coming to its devices, elon musk saying he will ban apple

devices from his companies if the openai is integrated into the system. "consumers feel like they have new phones when apple updates its mobile operating system to the extent it rolls out ai efforts that breaks the bond with the consumers that could result in backlash for the company." tom joins us now. how would that break its bond with consumers? tom: there are two risks to apple's with apple intelligence. one is what i wrote. when you buy an iphone you get the new iphone feeling every fall when they roll the mobile operating system. if apple is saying this apple intelligence is really cool -- it remains to be seen if it is -- you need to have an iphone 15 pro because the chip on your iphone 15 is not adequate to do it, then you did not get the new iphone feeling every time you

upgrade the software and they are breaking a bond with the consumer. the other risk is they named it apple intelligence. if you use siri as a guide. siri has kind of been a failure. i use siri as a glorified egg timer. i think there's a lot of brand risk for apple. jonathan: we caught up with dan ives and i wish we had formed a panel with you. dan ives was saying this is going to be the thing that unlocks that elusive upgrading cycle, that make upgrading cycle we've been looking for for years. dan says it is just around the corner. why is he wrong? tom: he is wrong because i think artificial intelligence is not ready for prime time. when you think about

hallucinations you think about the many issues google has had and now integrating with chatgpt. consumers will get a lot of bad information. it may not be include the blue when you make pizza to make the cheese stick, and it may be. i understand why dan thinks this is the elusive upgrade cycle, but i am not convinced we are there yet. lisa: basically we heard from dan ives he will wear a black suit if they do not get the increase in sales. will you wear dan ives wardrobe if they do see that increase in sales? tom: i will wear his most obnoxious colored outfit. lisa: we will be there for that. you said something i found compelling. this is breaking a bond with the consumer. there is but a feeling that if

you had an apple phone you would be a subject of what other new advancements were coming out for the phone. you think this will cause people to turn away from the iphone. or just keep their old ones? tom: there is real risk the consumer will be less enthralled to continue to buy smartphones from apple if they do not get that new phone feeling every fall when they upgrade the software. that is a real issue. lisa: where did they go? this is why we saw samsung trolling apple, saying adding apple does not make it new or groundbreaking, welcome to ai this was samsung's official account putting it out on social media. you think samsung wins out if they introduce something more polished and more advanced and diverges from what is currently available? tom: i think samsung could win out to the extent of consumer

dissatisfied with the apple experience, they could gravitate to samsung. at the same time i think ai issues are industrywide. i think you might see some switching gear if this bond is broken. jonathan: the relationship with google is interesting. you are one of the few talking about it. i assume we will be spending lots of time doing other things and less time on google search. i'm try to figure out if that is good for apple in bedford google or bad for both? lisa: i think bad for google -- tom: i think bad for google is a fair interpretation of yesterday's news to the extent there integrating chatgpt although they did leave it open to other large language models. the challenge for google search is to the extent microsoft integrates openai technology and

the extent consumers lean into artificial intelligence to advanced search despite the challenges, that could be a real issue for google. lisa: not just google, there is an issue for a lot of apps and app creators, i'm thinking of grammarly and others, there was a list of all of these different apps trending as people took a look at what would be rendered obsolete by this technology. you think there will be a real tension with apple's dominance in the app store between the app providers and the fact that they have been rendered obsolete overnight? tom: absolutely. the number they send out is there is only 2000 native apps for the vision plover. -- for the vision pro. that seems like a low number one year into the product. it reminded me of a flashlight app. there was a point of time that if you wanted to use your iphone as a flashlight you had to get a dedicated app, now it is a feature.

there is a lot of risk of irritating the developers. jonathan: we would love your view, we want to hear a low bit more from you on elon musk and that complaint. what you make of that? do you think you will follow through? tom: i do. i admit i am only halfway through the book on elon musk, which i'm enjoying immensely. i think while he may crave drama, there is a lot of validity to his comments. i worry about the consumer who flip-flops between apple intelligence and chatgpt, one that is supposedly privacy protected and one that is open and does not know better. there'll will be a lot of fun stories. the good news is that we have apple strategy and we could see how it works out. jonathan: looking forward to the results. tom forte there. lisa: i cannot wait for this. jonathan: dan ives and a black

skinny type. i am dressing him. lisa: you will give him something and he will come out with a feeling of shame. jonathan: what this makes obsolete will be interesting and how quickly that happens. lisa: at a time when you hear washington, d.c. dialing up the pressure on apple. there will be more discussion about that. we heard that just now from tom forte, the idea of the flashlight app. i do not remember that time. who doesn't use their phone as a flashlight? jonathan: the flashlight comes on on accident all the time. lisa: i know. jonathan: what you put it on deliberately? lisa: for looking at things. taking splinters out of people's feet. jonathan: it is like a household device for children. for sons getting in trouble.

let's get you a on stories elsewhere. here is dani burger. dani: general motors shares up 1% in the premarket. they announced a board approved $6 billion share buyback moments ago. gm also said it is focused on improving the profitability of its eb business. results for the second quarter, july 23. donald trump has met with his probation officer for the first time yesterday virtually. it lasted for about 30 minutes. the meeting will help a judge decide how much time, if any, trump will spend behind bars for falsifying business records. sentencing is set for july 11. trump and his legal team are already taking steps to file an appeal. a new york city office building owned by related affiliate is set to be sold at a steep discount. the property was agreed to be purchased at less than $50 million according to people

familiar. that is a 67 discount from what was originally paid in 20 -- that is a 67% discount from what was originally paid in 2018. jonathan: thank you. up next, taking on risk in europe. >> there is a point where european bonds are more attractive than treasury bonds. jonathan: we will talk about that opinion, next. live from new york, this is bloomberg. ♪

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4.4335. not getting that rally in france. yields are much higher. taking on risk in europe. >> in terms of an attraction, the german 10-year bunds and the french 10 year, their spreads have narrowed significantly in the past month relative to treasuries and today as well by eight or 10 basis points. there is a point where european bonds are more attractive than treasury bonds. jonathan: quite a take based on the price action of the last 24 hours. french bonds tumbling, biggest two day loss since 2020 as the fallout from emmanuel macron's decision to call an election rattles investor confidence. in steely saying french bonds

have been impacted with uncertainty and would indicate other parts of europe like spain will become seen as better credits. iain is with us. can you explain in simple terms what is it about calling the snap election in france that is leading to a reaction like this over last 24 hours? iain: what we saw over the weekend is we had european elections. we had a swing more to the right than expected, particular in france and now emmanuel macron has come out and said let's have an election on this. the concern from the market is the right wing actually do gain more seats and ultimately they are tax cutters, they want to spend money, this is a france that had a deficit of 5.5% last year. debt to gdp well north of 100%. the market is concerned, saying if that is the case why we look at other parts of europe? jonathan: where's the deficit

now? close to 5.5%. iain: under european legislation they need to start bringing it back close towards 3%. jonathan: if you look at what is happened -- if you look at what is happened over the last couple days you see tightening. spain was 18 basis points higher than france. that is tighter than it was not that long ago. lisa: does it make sense that the yields on french bonds and italian bonds are jumping up relative to german bonds, where essentially they are facing the same type of threat? iain: they are but germany has not called the snap election and you still see germany as the safe haven asset in europe. it has been impacted by being dragged around by what is happening in france, and also italy is a very favorably positioned market because of the additional spread and yields you are getting on the markets. lisa: to zoom out to where we

began with bill gross, he sees european bonds as a better buy than u.s. debt, a lot of people have been arguing that europe looks more favorable because the ecb cut first and they seem to be on a rate cutting cycle before the federal reserve. do you buy into that more broadly despite the issues we have seen? iain: it is an interesting question. if you look at what happened last week, the question is what the ecb have cut rates with the data set they were looking at have a not preannounced it a few weeks ago and that is a good question. christine lagarde says yes, i'm not so sure. if we look at the european data there are green shoots, and if you look at the u.s. data you could argue you have seen a sign of softening. i do not know if we will have a massive divergence between the u.s. and europe if you take a longer 12 to 18 month period. jonathan: convergence or divergence? iain: i think over a period you

see convergence. the fit is late to the party and sitting on the sidelines, fashionably. they are going to come to the party. jonathan: what does that mean for u.s. bonds relative to europe? iain: the bonds will be dictated by the central banks. we are back to data watching, checking out inflation prints. i see u.s. yields looking reasonably attractive on a 12 month time horizon. jonathan: you say data watching. that is not what we are looking at. we are looking at a building in manhattan. pimco, what are they warning? lisa: they are warning regional banks will fall apart because they are massive lenders to a lot of commercial real estate and office space that has yet to fall out of bed. jonathan: should we watching inflation or commercial real estate? iain: in the near term you

should be watching inflation. in the longer term, they are still concerned about these long invariable lags. they have been longer and maybe more variable than people have been expecting but we have still had 525 basis points of rate hikes and we do not know what the impact of that will be. jerome powell is saying we have done a lot. at some point there will be some tracks coming through the system. lisa: this goes to the broader question. the reason we bring up commercial real estate is because a lot of people said it is improbable if not impossible to raise rates this much in the united states and europe without something breaking. a lot of people have said we see the all clear come and if you piling to credit, at what point is there a credit risk at a time we have not seen those cracks and it seem like a lot of the bigger companies have done just fine and refinanced. elsewhere there are signs of serious stress. iain: there are. definitely the lower credit

qualities. there is been a big divergence in the high-yield market. the high-yield spread looks low but they're still a 5% market where the market is saying there's trouble in that space and they are trading over 1000. i think high quality investment grade yields are looking pretty decent, even though spreads are tight. fundamentally we see corporate's in that area is very robust at the moment. i do think people are focusing on the all in yield and not so much the spread on that part of the market. lisa: you're in new york, normally in london, are you here for the quarterly meeting where you discuss potential investment moves -- how much conviction do you have this time around? iain: there is a lot of conviction in my mind we have a very reactive central banks at the moment who at the first sign of weakness will be looking to effectively ease policy. that is what i've heard from all the central bankers since the

pivot in december. they have done enough and feel they are in restrictive territory and they were to ease policy back down and they're waiting for the green light to do that. jonathan: this might sound like a silly question but to some people it might sound relevant. do you think the first sign was friday at 8:30? do you think we look back at that and see that is the first sign of weakness in the labor market? iain: the headline number is very good but if you look at a lot of the survey data over the last few weeks, whether it is jolts, whether it is the small business hiring, whether it is service out of the york fed over people concerned about losing their jobs. these are all signs. weakness is too soon. softness is the right word. it will be key as to whether we continue with these headline prints or whether the data it will show we are starting to see softening. jonathan: michael gapen said the same thing at bank of america.

pulling but not cool. lisa: which is the reason we did not see a rate cut until much later this year and he felt pretty good on friday. jonathan: what was the last time we had a job sprint this strong and saw such widespread skepticism? usually there is someone in the corner -- now is everyone i've spoken to asking the same question. lisa: completely conflicted the household survey versus the other. second, we are conditioned by experience. a mailer downward revisions have received in the past year or two and this is messier data? that is what is creating the skepticism borne now to be somewhat correct -- not necessarily conspiracy theory stuff but this is been a tough nut to crack. iain: you know what -- jonathan: you know what tom keene would say. there be a sheet of paper for chairman powell that will have

the answer to any question and he will read it verbatim. this is where there could be trouble, his interpretation. lisa: i think to iain stealey's point, this is a central bank that wants to cut -- jay powell is a man who wants to cut rates who is concerned about the k shaped divergences we have seen that consistently when he is supposed to do hock and cannot resist the dove. jonathan: lagarde wanted to cut so much they cut and that we're not sure if they should have. iain stealey, this was good. the next hour, alicia levine with bny balance. this conversation with bill chappell of truest will be interesting. krispy kreme. lisa: krispy kreme and ozempic. people will go back to krispy kreme with the partnership with mcdonald's. mark mccormick ntd and stephen stanley of santander joining us as well.

this is bloomberg. ♪

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her uncle's unhappy. i'm sensing ant to howunderlying issue.an go. it's t-mobile. it started when we tried to get him under a new plan. but they they unexpectedly unraveled their “price lock” guarantee. which has made him, a bit... unruly. you called yourself the “un-carrier”. you sing about “price lock” on those commercials. “the price lock, the price lock...” so, if you could change the price, change the name! it's not a lock, i know a lock. so how can we undo the damage? we could all unsubscribe and switch to xfinity. their connection is unreal. and we could all un-experience this whole session. okay, that's uncalled for.

>> i think we are in this phony war right now where there's a lot of uncertainty on the data. >> i do not want to overreact a

one-month number. >> he really need to pay attention to valuations in a way we have not had to. >> the economy is still chugging along. >> why sacrifice the economy to alternate 2% inflation target if you don't need to? >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: live from new york city, good morning, good morning. the third hour bloomberg surveillance begins. at some point this morning chairman powell is waking up and getting ready for a meeting. tomorrow morning cpi. i spoke to a lot of people saying 8:3 tomorrow is bigger than the fed decision at 2:00. lisa: mike schumacher is saying that, if we do see stickiness to inflation you can see a big move. if you see a downside surprise we would also see a big move. we are all playing the narrative

fallacy, looking for how to keep the tea leaves together in a way that gives us an edge. jonathan: there is a belief that it 8:30 when the cpi never drops it shapes the decisions they will make and the information they will put out at 2:00. we could have a difference between two cuts signaled or one based on what cpi looks like. lisa: we will be live on the ground tracking their progress and we will get to leaves. -- we will get tea leaves. we will not but that is what everyone will do to try to get inside their heads. they have been talking about several months of data and not one print will alter their views. it is not as if they will suddenly hike rates of inflation goes to 1% month over month. they will look at the data and say what skewed this?

the bigger question will be the balance of risks. his jay powell waking up this morning to say is it one dot or two dots? i don't know. jonathan: it is stressful for him and not for us. we just ask questions. he has to answer them. in the news conference he has to answer how he views the labor department based on the data from friday. i think they'll be tough for the chairman based on the two stories telling you. lisa: especially because it is not just those surveys. we were talking about how even some of the soft data was conflicting with itself. we see signs of labor market softening and the small business optimism come sit at the highest level. which is it? it raises this question, where's the balance and how you get a morning? i did get a note saying we need to keep watching the treasury auctions closer. jonathan: who was that note from? lisa: it was mohammed.

i am on board with him. we'd to be on gauge for the price action we get. jonathan: a memo to mohammed who will be joining us tomorrow. no encouragement is needed. lisa: it is another one. there other people named mohammed. jonathan: usually it is mohamed el-erian. usually if it is someone and it is not a friend of mine use the full name. lisa: i do not want to blow his cover. jonathan: thank you to the other mohammed. there are two of them. equity futures shaping up as follows. yields down four basis points on the 10 year. the euro a little weaker. down one third. coming up this hour we will catch up with alicia levine of bny mellon on why she is constructed with the markets. bill chappell of truest saying

ozempic is no threat to krispy kreme and stephen stanley of santander. stocks hitting new highs the of tomorrow's doubleheader. alicia levine saying "market surprising in a soft or no landing with a cutting bias at the fed. we agree with this view and are constructive on markets through 2024." alicia joins us for more. what would you expect from chairman powell? alicia: ps to thread something interesting, because we are already at 4% unemployment which is where the fed predicted for the end of 2024. we are only barely halfway through the year come into to move from a three cut to a 1.5 cut, let's split the baby and do 1.5 cuts. to go there, something has to change in the data that is consistent. either gdp has to be ticked up a little bit or the inflation has to be moved up a little bit.

it does not have to be for 2024 or 2025 and maybe pce moves to 2.3. it has to be consistent if they will go from a three cut to a 1.5 cap. it is the story slower growth higher inflation or is it a growth is ok and therefore inflation is little bit higher so we will go from three to 1.5%? that is the circle the fed has to square. how do you tell your message? is it stagflation or is it a growth and therefore inflation is coming down more slowly? jonathan: you have a two-part challenge. the first is what you just did, the second is to work out what the market will do in response. are you convinced either way? alicia: talking about the labor report on friday, i find it

confounding. i still don't understand it. i suspect some part of it will be revised at a future date. jonathan: which part? alicia: it is hard to know. it is really hard to know. it is hard to get -- fewer people in the labor market and therefore higher unemployment rate in nearly 300,000 jobs on the top line while the household survey is negative. the household survey is people working on their own, not at firms. we have seen businesses start of the greatest rate ever in the last year in the country. neither of those numbers make sense. i suspect that will be a little bit of revision. let's move that aside. i think you will hear higher growth and stick your inflation. not that we will get the stagflation story. lisa: what you do with that? alicia: stay long. lisa: stay long want?

nvidia? -- stay long what? nvidia? alicia: administrations running for reelection do everything to support the economy so we are fine through the end of the year. europe and mexico are examples of how elections could provide volatility and we are the granddaddy of them all. the origins of the marred -- the earnings in the margins keep moving up. as the fundamentals move higher you stay long. there will be -- as we've seen from the beginning of the year, more volatility in the bond market than the equity market. the equity market has been remarkably calm. barely a percent move the entire year. lisa: our bond still in the ballast? is it just cash and nvidia?

is that the playbook in a time you cannot rely on the data, you cannot gauge the macro economic backdrop and you cannot gauge the response of markets to that. alicia: bonds are still the ballast. i think the issue of supply in the issue of the deficit is real and will become more real as we move past the election season. this year we have massive liquidity in the system. the fed started the taper of qt. there is a lot in the system to support liquidity and markets. you have to get to 2025 in the conversation over what happens to the trump tax cuts. there are very different prescriptions about this, both of which will be inflationary. we are good for this year and then we have to start thinking about where does the puzzle -- how does it work after the election? jonathan: isn't this unconventional to forget about 2025, to leave it out there into

november and we may start thinking about it then? alicia: the fundamental side, we think tom is quite strong. what will wind up -- the fundamental side, we think is quite strong. it'll be less about the top line. we think fundamentally the growth is good. that is our bedrock for the story. it is which sectors will be more affected under which administration. lisa: i am struck by something been bowler of bank of america said, the longer this dynamic goes on the more investment managers lose out and lagged behind in terms of their performance if they are not overweight to a number of specific stocks and if they are not in highly consensus positions that are already crowded. how fragile does that make the market? lisa: stocks -- alicia: three stocks are 20% of

the s&p. think of that. i would not say it is fragile because these are the least fragile companies on earth because of the cash flow. ultimately you are looking at cash flow to provide the ballast and that is where the margins are as well. look at the dynamism in the economy. the top does not stay the top forever. we think for the near future, let's say we are in a cycle investment in ai. this is fine. at some point the market gets changed. it is rare to have the top 10 be the top 10 the beginning of every decade for five decades. microsoft bench do you back on it. that is the exception and that is why it is rare. lisa: if it does not trickle out the dynamic backdrop for other big tech stocks, will that unravel it? does it need to broaden alpine

people -- doesn't need to broaden out to keep the virtuous cycle or is it the winner takes all kind of moment? alicia: it feels like a winner take all moment but that is ok on the index level. the market is broadening out. we have seen industrials and discretionary moving higher. we have great innovation in the health care sector. think of the data we saw at the fda. we have innovation all over this economy. i think to focus that there are three stocks driving it and then moved to cash, you miss a lot of upside. you invested innovation come this is the greatest country for innovation. jonathan: alicia levine will stick with us. your equity market softer on the s&p 500. with an update on stories elsewhere, here is dani burger. dani: the main shipping channel into baltimore's port has been fully reopened following the

march collapse of the francis scott key bridge and a massive cleanup operation. workers removed an estimated 50,000 tons of steel and concrete from the water. that wreckage left the port of baltimore closed for several weeks. officials say they hope to rebuild the bridge by droid 28. golden goose ended shareholders are seeking to raise 558 million euros in the luxury sneaker brands ipo. that will give them an implied market value of up to $1.9 billion in euros. bloomberg has reported golden goose was looking for evaluation of about 3 billion euros, a valuation the ceo told bloomberg brief he was happy with. elon musk says he will ban apple devices from his companies if openai software is integrated into the iphone makers operating systems. he called it "an unacceptable security violation." apple said its customers would have access to open i chatgpt system through siri.

elon musk had cofounded openai and had a following out with the company -- a falling out with the company and is working on his own competitor. jonathan: apple down .2% in the premarket. up next, the morning calls plus truist's bill chappell on why he says ozempic is no threat to krispy kreme. more on that from the other side. from new york city, this is bloomberg. ♪

jonathan: stocks on the s&p 500 softer by about one quarter of 1%. on the bond market yields in the bit lower. let's get you morning calls.

davidson upgrading apple to buy from neutral. the analysts saying the new ai features unveiled will drive an iphone upgrade cycle. the stock a little softer this morning. oppenheimer lifting its price target on the video from $150 to $110. the analysts saying the company is the best positioned in ai. we are down a quarter of 1%. i've said that twice. finally, truist upgrading krispy kreme to buy. analyst bill chappell saying ozempic is not enough to weigh on the stock. the stock is up 1%. bill joins us now. i've been looking forward to discussing this with you. can i pick up on the last point you made. the overhang is largely played out? what has convinced you of that?

bill there are two things. today there is the 68 billion-dollar indulgence snack market. you think about how many snacks you've had over the past week and how many of them were indulgent or sweet versus better for you were healthy, and i think you will find it is a very strong market and people still like their suites. krispy kreme is only about a billion and a half of that. our belief is even if the hyatt does shrink, there still a lot of room for this company to grow. the second part, krispy kreme will say they are in the business of dozens. they are for parties, for office gatherings. while certainly gop will have some impact, you don't want to be on ozempic and bring

professional play to your kids nine-year-old birthday party. there will be a demand for the donuts because they taste so good. jonathan: you do not know me. that is i would be eating, carrots and broccoli. you said this relationship with mcdonald's is important. when we spoke with these companies they talked about diversifying healthier snacks. mcdonald's is not what i typically think up as healthy. why is the partnership so good for this company? bill: it is good for both companies. for mcdonald's they want to have something different on the menu. it is an indulgence, most like you would have an ice cream cone and mcdonald's. it does diversify what he cannot offer and we like to treat ourselves with something -- it does diversify what you can offer and we like to treat ourselves with something.

for krispy kreme it brings it into the major league. a lot of consumers and retailers think of it as a sleepy southern treat. if i'm in atlanta or charlotte i will stop in and try a krispy kreme. even though there are locations throughout the country -- l.a. is one of their top three markets. this makes it available to everyone. people do not worry about ozempic when they think of chick-fil-a. i think bringing him to the big stage will see more available, not just mcdonald's but national mass retailers. regional grocery stores not in the southeast like heb. this opens a lot of doors for the availability of krispy kreme. these are not your old seventh day old doughnuts. these are delivered fresh daily. lisa: this is killing me. my first assignment was in fargo, north dakota.

i was 22 years old and there was a krispy kreme doughnut store that opened up and people camped out for the privilege of being the first in the door to have the krispy kreme doughnuts. jonathan: you wanted to do an investigative piece and did not just want to interview people? lisa: i wanted to know whether was it, whether the finances were solid. jonathan: the lease for the store. lisa: you think the disruption from drugs has been borne out in the market or do you just love krispy kreme? bill: i cover several snack food companies and package food companies that i think you can look from last august until today and there's been overhang on the whole category. now it feels like that is fake in for a lack of better -- that is baked in for a lack of better puns.

it does not mean that will not have an impact, but now there is a decent amount of the population on gop-1's and you are seeing that in packaged foods declining. with krispy kreme, the stock is down despite the mcdonald's relationship, down 20% year to date. 60% from the high had right after mcdonald's announcement. that is where i feel like this seems overdone, you are throwing the baby out with the bathwater. jonathan: this feels like an ongoing conversation. let's do this again soon. bill chappell with truist on krispy kreme. alicia levine is back with us. we talked about ai and nvidia. glp-1's have been another massive feature.

i've see mark health care has been reduced to that. is that the right move? alicia: what you've seen with ai will be a boom with diseases that have been hard to treat. i think that is the second derivative trade in ai, which is drug discovery and drug targeting and molecule targeting. that is really exciting and is part of our excitement over ai and will filter a few -- and will filter through the entire economy in every business will have to incorporate it. health care is the prime area you will see great outcomes. lisa: i agree. i would rather cai create a new cancer drug that an amazing emoji. to the drugs, you think it is been overstated? we will all be skinny and we will all want to eat broccoli. alicia: we have an analyst. he thinks overall it is a half

$1 trillion market. $500 billion. that is not with massive assumptions. it works on not just obesity, but you get better outcomes in cancer, in kidney disease, and better outcomes in heart disease. obesity is a comorbidity for all of these diseases that kill us. it could be extraordinary. it is a huge market. to the extent you are seeing data and other disease indications, it will keep on going. that kind of margin we see with lily is every other companies opportunity into the market. the excitement is real, particularly in these other disease areas. if someone did a trial on alcoholism because it works on impulsivity, what would that do to the market?

lisa: a half trillion dollar, is that including the impact of other kinds of food items we consume in the united states? alicia: i am talking about the drug itself. to the snack issue, he sees a 1% calorie reduction which is not enough to affect any of these snack companies. jonathan: alicia levine of bny. when was last time you had a doughnut? kailey leinz set on this program she had never had one before. lisa: she also has not had dark chocolate or something like that. i've had donuts before. i used to get them for my kids birthday parties. i would bring them to the school and that i would be like -- jonathan: you are that mom. super popular. lisa: totally. everyone gets a doughnut. jonathan: people love coming to my house because we had italian food freshly made. i would still live with my mom if she was in america any day.

lisa: she can come over anytime. jonathan: private chef, i would love that. mom, i am sure you are watching. jonathan: coming up, mark mccormick alongside stephen stanley counting you down to cpi. tomorrow it'll be the only thing we are talking about. the fomc might already have the economic data because they have to plug it into their projections for the next couple of years. we will say with that have to say at 2:00 p.m.. after that is conference with chairman powell. the opening bell is 60 minutes away. ♪

her uncle's unhappy. i'm sensing an underlying issue. it's t-mobile. it started when we tried to get him under

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

jonathan: 60 minutes away from the opening bout. equity futures -- from the opening bell. on the nasdaq down about a quarter come on russell down three quarters. check out the bond market. yields lower at the front end. down four basis points on the two-year. down three on the 10 year. on the 30 year down a couple basis points to 4.57. a snapshot of your. french equity desk -- a snapshot of europe. french equity down.

the euro weaker. last week after the ecb we saw 1.09. back down to 1.07 now. lisa: a lot of it stems from the snap election. iain stealey brought up something that was important. france was just downgraded and there's a problem with the debt load that will get a lot worse if you have a government that wants to borrow it does not want to raise money. it is idiosyncratic on one hand but that is the increasing story. there is a market response to spending profligacy. we are seeing it around the world. this is the reason people are wondering about the political risk. jonathan: you think liz will make a visit to the french bond market? lisa: liz has been trying to reprise your reputation.

jonathan: the ghost of liz truss's government. lisa: that was a moment when of fiscal change could have that much of a significant to spur central-bank response. was that the width of something that was not the first? jonathan: could we see more of it. i know you're not seeing stress on that pension fund related stuff that took place in the u.k., but the bond market pushing back against a policy of government might suggest. lisa: especially at a time we have seen such volatility in the bond market. we were talking to alicia levine and she sees more volatility in the bond market than the stock market because of a lack of certainty aware policy is headed , a lack of certainty and fiscal policies and how they will be received by the bond market. jonathan: a lack of security as well. you will notice that the. pimco say more regional bank failures are underway.

"the real wave of distress is just starting in the lenders still have a high concentration of trouble mercil real estate loans on their books -- of troubled commercial real estate loans on their books." he says loans set to mature through trade 25 will struggle to refinance with higher rates. these are the very slow and very long lag see has been talking about. lisa: it speaks to the analogy of the system as an engine that is kind of shaking violently and as pieces duct taped around it in the form of a lot of fed policies. there is a real risk and it is clear according to data points we've gotten over the past weeks , saying there is can some concern but we haven't had the repricing yet. we even heard from bob diamond is just a regional banks. it seems like that is a risk.

we can know what will happen but will not have the response in markets. two people have the same trigger response? jonathan: we have a building in new york city owned by a related companies affiliate said to be sold in the steep discount. empire capital agreed to purchase the property at 3.21 west 40 worth treat for less than $50 million. that is a 67% discount and there's loan outstanding for far more than that. lisa: about $100 million. this is underwater loan at the time it is not the first, but we have not seen that many for sale. arguably as people try to unload some of this you will get actual price discovery and that can be brutal. this was p diddy's studio. there are a host of different

establishments around there of varying degrees. it raises this question of how far are we? what inning are we in in commercial real estate destruction? is it specific to office space and specific properties or is it more widespread with a greater degree of potential exposure. investors looking ahead to tomorrow's doubleheader, cpi, followed by a fed rate decision. we'll be looking for crew -- will be looking for clues from chair powell's press conference about when they could start cutting. good to catch up with both of you. stephen, i will start with you. i was speaking to an individual about when we will get the first rate cut and you said something like november and lisa and i looked at each other like this guy, a little bit crazy. start of tory 24, everyone is looking for march and you were

like november. it is still november, isn't it? >> that is still my call. jonathan: how you think they will view the labor market data from friday. stephen: chairman powell broke the link between the labor market and the economy and inflation earlier this year when they suggested maybe we could have the economy continue to grow and still get inflation down. i think that was an ill-fated shift on his part. i think the labor market only comes into play if things start to weaken dramatically is back to inflation. jonathan: mike mccormick, how important is the cpi print? mike: it is important but the key thing is progress on inflation. you also see the fed revise the core pce numbers in terms of the

target number they are looking at. when you think about whether inflation is moving in the right direction, it is. is it moving fast enough or markets to get on board with the certainty of how a times they could cut? i do not think we will see that tomorrow. the key is there is intersection of volatility that is the price in the markets, and the fact the markets are not prepared for any of this. lisa: you think the fed will respond by trying to keep things as stable as possible and on the balance of more of the dovish side of things than the hawk? mike: they cannot really project anything into september at the moment. they still need to see four inflation reports before the september meeting. the forward guidance, there's not much significance that comes from forward guidance because we are data dependent.

as we watch the data come in or if it is a hot month over month which is .28, we are talking about decibel points, and the fed cannot provide guidance for the markets to fill clear where we are going on this. most people are covering the market feel much clearer that we will see or volatility. that is the thing we need for markets. you should be trading in thinking about the surprises. -- everything has to go right to get to this path but you only need one or does good things that are wrong. lisa: we will get to the fx side and a second. stephen, this extreme volatility, is there a cost that when it comes to economics and market risk when we talk about how rapidly some of these yields are swinging, even if they end the day at the same place? stephen: it makes it very difficult as an investor in the fed does not like to cause volatility so they will do with

they can to give an accurate picture of where they are headed. probability if they are -- is the -- do you think this to lou financial positions are tight. -- jonathan: we heard from bill dudley, he wrote a great piece on bloomberg opinion and said maybe it is high indefinitely, not high for longer. stephen: the problem for them is there are tailwinds working against what they are doing at the rate level. one is their own balance sheet strategy where the balance sheet is still too big and that is a lot of excess liquidity in the system making financial conditions easier. the other one is fiscal policy which is continuing to stimulate the economy.

we are seeing certain billings and get priced at big state discounts. where you think that is on the radar for these officials? stephen: at some point the fed looks at the cre situation and says this is not something we can address directly but this is a secular changed in the demand for commercial real estate after covid. there's only so much they can do. this is a change in evaluation of the sector that needs to happen but more broadly are receiving the effects of a higher interest rates and we are starting to hear it or in the housing sector. the eye seminar manufacturing report. there were several mentions by respondents in different industries who were saying high interest rates or a negative for my business right now from that

perspective the -- financial conditions are not particular restrictive. lisa: a couple of months ago people were looking at property markets around the world to determine what currency to go with. that was one of the big risks and indicators of a central bank that would be forced to cut in order to preserve the sanctity of the economy in that region. you think that is still applicable? mark: that is something we track closely. we look at the effective mortgage rates and how it is correlated with interest rates and which currencies are most vulnerable. it is very clear this is on the bank of canada's radar screen and it is very clear this is not on most european currencies radar screen will step the primary case study was sweden worried look at mortgage rates the bulk of the mortgages were under one year and they were floating. sweden already took the pain medicine.

they've already had a massive move in the currency market. things are starting to stabilize. this is resilient relative to the u.s. against other currencies and how you would look at the housing market as an impact. the one on everyone's radar happens to be canada because they are mostly under the four to five year fixed and those fixed mortgages are adjusting from the covid period and you're seeing mortgages to from 1.5% to 2% up to 5% or 6%. that will feed into consumer spending, consumer slowdown. the fed may not be able to go quickly or go at all when all these other central banks to have to go. lisa: stephen, housing is one thing, commercial real estate is another.

you are seeing $200 billion of maturities coming up in the next 18 months. there's a question of whether we are actively pressing the risk which could cause the fed to respond anymore material way given that it has trickle-down effects. are you watching this to understand the risk? stephen: liquidity is still plentiful. this is not likely to lead to a broader credit crunch. the other issue is unlike the housing situation 15 years ago there is not a ton of leverage spread through the system that hinges on commercial real estate. the risks are very different than they were in lead up to the financial crisis banks are sitting with a lot of loans on their books that are in some jeopardy. i think there will be further adjustment going forward, it is

just a matter of how broader the pain gets and what the overall environment -- is it resilient enough to manage through that? jonathan: we will continue this conversation with mark mccormick of td. i wanted to get some details from you. november is when they move, that is your call. can we go to the dot plot tomorrow? stephen: i think the median is probably two. there will be a minority of people zero or one. jonathan: what will the forecast direction look like? stephen: not much of a change in growth and unemployment but probably going to need to go up on inflation based on what has already happened. jonathan: the difference between the federal reserve and the ecb is they do that and they're not cutting interest rates on the same day. lisa: there were not free committed. jonathan: can you imagine if the fed did with the ecb did? what would that look like? stephen: the fed has tended to have a hi barbara the first move

and the ecb locked in the first move early. the fed has never behaved that way. that would be interesting. jonathan: someone at bloomberg referenced a reverse -- a former ecb president did a couple of hikes at precisely the wrong time. a reverse tree shape being ultimately you've cut too soon but the cut is the mistake and not the height. scented dares stephen stanley breaking it -- santander's stephen stanley. let's check at what is making news with dani burger. dani: shares of apple down 1%. the iphone maker announced a new partnership with openai and

unveiled featured cold apple intelligence that will roll out later this year and more advanced tools that will not comment till next year. donald trump will meet with senate republicans on thursday to blot out his priorities if he wins a second term in office. senate republicans hope to win -- trump has a busy schedule and will be participating in a meeting with ceos hosted by the business roundtable. singapore airlines has offered payment of $225 dollars for passengers. the payments would be to address their immediate needs. they are also offering a $10,000 payout to passengers who sustained minor injuries. one person died in several dozen of the 229 passengers and crew on board were severely hurt on the flight that departed from london to singapore. it was forced to make an

emergency landing in bangkok. that is your bloomberg brief. jonathan: up next, we set you up for the day and the week ahead. looking ahead to tomorrow morning for cpi, tomorrow afternoon for the federal reserve. ♪

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trains that use the power of dell ai and intel. ♪ to see hundreds of miles of tracks. ♪ [vroom] [train horn] [buzz] clearing the way, [whoosh] so you arrive exactly where you belong. jonathan: the opening bell 42 minutes away. equity futures down just a little bit. down a quarter of 1% on the s&p. a bond market rally. 10 year four point 4355 after yields climbed on the tenure. pulling back on the two year. here's the trading diary for the week ahead. the fed kicking off its meeting

today, wednesday. u.s. cpi data, the fed rate decision, chairman powell news conference thursday and another round of jobless claims friday. university of michigan consumer sentiment and the boj rate decision. mark mccormick is back for final thoughts. rate decisions all super important. i want a word on politics. all the sudden politics come india, france, the united states , the u.k. somewhere in between. how important will that be is a dimension of foreign-exchange? mark: it is absolutely critical. it is one of the things we've been talking about for a couple months and one of the reasons we massively upgraded our dollar view. the big piece is that the market is focused on goldilocks and there are a lot of things that need to go right in their early a couple of things that need to go wrong. a big piece is if you look at geopolitical uncertainty and

geopolitical risk as an index and you overlay that to fx volatility, fx volatility is extremely cheap. the thing we are seeing is this works wealthier section of inflation, monetary policy, fiscal policy. what we are seeing from any government is they want to spend money. we are in an environment where inflation is high in what is very important for the fx market is there is inflation divergence and when you have inflation divergence and central-bank divergence that is a key ingredient that allows the markets to absorb what is happening in the market. that is working together and what the last week showed us is there is very strong cracks in goldilocks. we cannot have this little macro volatility with this bus disruption in this much potential change. one final thing on the effects side is the most important strategy people are normally purposed on is the carry trade. a lot of india -- have been the

darlings of em based equities or carry strategies. one thing that disrupts carry is volatility. lisa: you said you are massively overweight the dollar into the second half of the year. in the second half of the year with the election in mind you also see opportunity to be long fx volatility. part of the volatility for a second. what is the thesis behind massively overweighting the dollar? mark: a lot of it is the intersection. the dollar is the volatility trade for fx in my opinion. if you run any correlations of risk sensitivity to currencies there is no safe havens. the end is not acting like a safe haven. the interesting part is the mexican peso and the indian ruby were correlation -- were currencies -- the dollar is still the only place to go. the big piece is people have

been focusing on the weakness in u.s. data surprises. what we see is data surprises correlate very closely with our positioning model. i do not think data surprises are telling us about economic momentum. a big piece is the macro fundamentals, in spite of the dollar weakness over last six weeks have improved on the indicators we track. the adjustment we saw in the weak dollar has been more about technicals. positioning and short-term valuations, which is what we capture in our model. the second half story of the dollar is rooted in the macro story in the u.s. -- it is still better. they're still not certainty and whether or not the fed can cut. u.s. election itself can be very disruptive for the seemingly important trait everyone is focused on witches u.s. data converging with the rest of the world data. if we start talking about tariffs and fiscal stimulus and the potential for volatility,

that is something that can disrupt the non-us growth story. lisa: how big could this rally be and how disruptive to markets that have been looking for weakness on the dollar? mark: the way we look at it is idiosyncratically we believe the boj will hike more than expected. we look for them to start to talk about moving this week. we expect a hike in july. the yen can nuzzle itself away from the dollar. we are looking for the euro to break 105 and by the first quarter of next year get down to 1.02. that is the forecast we have had for two months. we are looking for significant dollar strength based on the potential evolution of that type of feedback loop where inflation is too sticky and creates conditions where risk starts to sell off. most of the currencies are heavily created with risk that creates a negative feedback loop. jonathan: as you are speaking in

talking about how regimes were changing, i was thinking about a few guests who were talking up the peso as a haven within e.m. and then dollar just had this 8% move and the weakness continues again this morning. if you believe we have that kind of dollar strength that takes the euro back down towards parity, where does it leave currencies like the peso? mark: i think the peso is unique. the big piece of the selloff is there was a massive surprise from the events and we have seen reform agenda is not exciting for our institutional investors. if you look at largest bond holding -- the most popular strategy and fx the next couple of years, the best-performing strategy has been carried many carry basket has a long overweight position. a lot of this there is an overreaction. there are still decent fundamentals in mexico.

the knee-jerk is you're talking about constitutional reform. essentially sheinbaum only needs to pull off two people to make constitutional reform. if you think about the direction that is less market friendly, that is something scary for e.m. investors, particularly as we look at what happened in india. modi did not get the majority he needed. these surprises themselves create adjustments in positioning. i think the peso will start to settle down but it will also have to realize the risks of the u.s. election, which is a major talking point, inflation and immigration in the peso tends to not do that well because usmca, the new nafta will be up for renegotiation in 2026. jonathan: appreciate it. mark mccormick. tomorrow bob doll, pimco's libby

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>> i am matt miller. we are looking to see if the fallout of apple can drive the market along with it today. the countdown to the open starts now. stocks pulling back from record highs ahead of tomorrow's doubleheader, the fed kicking off its meeting and apple's ai plan getting a lukewarm reaction from investors. cpi is up next. >> trends in inf