>> the market this week once better data. it wants to be reassured that the economy is strong. >> the incoming data has been unstable enough that that is reflecting itself in the market. >> you are not going to make straight a's ever quarter. you're going to have some weakness here or there. >> risk assets have cruised through this whole thing. >> in general, looking at this holistically, it's going the way the fed would like it. announcer: this is "bloomberg surveillance." lisa: is this what bullish looks like? good morning. this is "bloomberg

surveillance." today we have annmarie hordern. we have dani burger. jon ferro is still on his tour of a warm and wonderful place. i start by saying, is this what alyssa looks like, because yesterday we had the 30th record high for the s&p 500, yet it is still led by the same stocks. it raises this question. is this as good as it gets? is this optimism? dani: it is a discomfort in this rally. citi yesterday upgrades there s&p 500 target. traditional macro-determine target setting seems inappropriate. they are no longer using tried and true tests for this. in the past where we think we have come up with a newfangled way to discover this market, it was a bubble. lisa: i one in. the fund the survey comes down to sentiment. most bullish since november 2001 he won.

-- 2021. what are they bullish on? the same thing they have been bullish on all year. annmarie: the story hasn't changed. november 2021, 6.1 trillion dollars in assets, their long best trade is the max seven. 69%. this is the most crowded trade in history. what i think is more interesting is the funder survey when it comes to europe. remember, there was this window, maybe it is time we can get more exposure to europe? europe has shut the door on that and everyone is starting to stay away. the only game left in town is the united states, and -- and it is these max sevens. lisa: when we going to start to see her a -- to see a broadening out that leads to another boom in consumer spending? that leads to better consumer confidence? today we do get retail sales,

and this comes at a time where a lot of people are looking for some sort of turn in the labor market. basically saying, we are at a pivot point where something could weaken more dramatically. how important is retail sales? the innate impulse to shop? dani: it is important because it may be solves this conundrum. paul donovan has called it hedonism of the american consumer. because the sentiment surveys have been bad. if the labor market is starting to turn you would think you would start to see that in some of the retail figures. but how much of that will come head-to-head with all of these companies who have been slashing prices? the walmarts, the targets? does that seep into these pictures? it gives us these confuse data points we have no idea what to do it. annmarie: more companies may need to start slashing prices. mentioned paul donovan. this morning he had a great note. u.s. retail sales numbers are

due. consumers continue to spend money they don't have on things they don't need. anecdotal evidence suggests consumers are more price-sensitive and refused to spend in the face of price increases. that is why this retail sales numbers important. lisa: agreed, and something people are watching. especially when you take a look under the hood at what we are you today. today unclear because yesterday we started out on a softer note and through the session we saw that strike. year-to-date the s&p is almost up 15% on the headline number. equal-weighted gain is 4%, right? we you take a look at the russell 2000 it is down so further share. to me this highlights the lack of confidence that people truly have in the innate hedonism of the american consumer. dani: the irony of this is, you can do really well if you just buy the market index. if you are a fund manager, it is a stock-pickers market if you

know the three right stocks to pick. you can do well in this market despite the underlying be telling you something more pernicious. lisa: yesterday these -- the right stock was tesla. today we are seeing a bit of again. maybe this will be 31 in terms of a record high, although little change. are we inching toward that 6000 mark that julian emanuel and others are coalescing around for a year and target? the euro lower just a touch. really interesting. we are going to get to that. euro-u.s. divide and how that has shifted. 10-year yields up marginally after a significant selloff yesterday. more on that with respect to corporate issuance and how that affect things. crude, the highest level going back to april as people start to wonder what this increased bullishness does to demand and also the heatwave that is waiting over the united states. citi's b automate the on why she

is downgrading stocks to neutral. lara rhame and why she expects 10 year treasuries to retest 5% this year. and benedikt kammel on the latest troubles at boeing. or are more. global equities rallying. the s&p 500 posting its 30th record high this year. european stocks are rebounding in france. but be adamant he wrote this. near-term risks for european equities have increased. we downgrade continental europe from overweight to neutral and upgrade the more growth-oriented united states. thank you so much for being with us. we talked extensively about this yesterday and your call came out, and it really raises questions. what would it take to see the broadening out everyone has been hoping for and actually betting on for a good part of this year? beata: great to be here, lisa.

hello, everyone. we have been bullish europe since second half of last year, and it has been playing quite well for us. but, of course, this narrowing that has started to happen already in may had of u.s., the size in europe as well, narrowing is not necessarily a bear-case scenario. but the issue is that 50% of the s&p comes from growth. in europe it is only 15%, so narrowing into growth makes a difference, drives the s&p higher while not necessarily drives as much high for the broader european index. interment -- in terms of broadening, and that is really the base case for out performance of europe, europe is more cyclical, so it is a more conducive environment for europe to perform when markets brought in.

it needs to come from the data, right? perhaps some clarification about the political risks in europe. it will take a few weeks. a bit more narrowing into the mega-cap tech stocks or growth stocks overall and we will be looking out into the reporting season for signs this earnings recovery, earnings story that has been underpinning the rally up to now in europe, is actually continuing. one caveat. we produced these earnings revisions you guys widely comment on and publish on bloomberg, we have been pointing out that europe has been the brightest spot there, and that has been continuing to upgrade earnings in europe since march, since pre-reporting season. today we saw the first data point, so last week it was the first week we got a revision in three months in europe.

pretty broad-based among the sectors. the political risks have impacted in a way on the stocks. dani: i feel some of the impact to ensure companies, lvmh down since the election. hermes down since the election. surely some of the babies have been thrown out with the bathwater. in stash and something like luxury will not be impacted by political upheaval. beata: absolutely. most of the revenue coming for their luxury spaces coming from a broad source. we have had the market reaction to setting everything french last week. but a caveat is that actually cac 40, the french index, tends to be more volatile overall into the elections or after local elections and other developed market indexes.

but, of course, we have had a very eccentric risk scenario for the markets there. now, on luxury, it has been underperforming for the last month or two, right? after doing very well at the start of the year when markets narrowed. we have downgraded. we are neutral now. we worry about disappointments from the china story. it is still robust, but less robust than we thought. of course, the weakness out of the consumer in the u.s. that you have been touching upon. annmarie: following the summer's political angst, would you potentially consider having more exposure to europe after that, once the dust settles? beata: definitely. what we will be watching carefully is, number one, earnings revisions. potential continuation of the upside to the eps for their share.

my targets are quite robust this year from the current levels. so, it is not an absolute bear call for europe. there is upside, and it is underpinned by fundamentals. but also in the recovery from very low levels. we see continued positive delta on the gdp numbers out of the eurozone. if that continues i think, at what point will the investors come back to the idea that they need to diversify and the broadening can pick up? it has been happening, but perhaps the latest earnings revision number tells us it could be on hold for the short time being. but over medium time-there is a case in europe. lisa: thank you so much for being with us. a really interesting call

yesterday. this idea of a political risk gets raised when it comes to proposals that we have had a hard time nailing down from a number of the different rhetoric we have heard from both candidates. the latest being from trump's former national security advisor, robert o'brien, saying basically he wants trump, if he gets elected again, to cut off ties entirely with china and restart nuclear testing. embry, can you give us a sense of how realistic people -- annmarie, can you give us a sense of how realistic people should take this? annmarie: robert o'brien potentially would go back into a trump administration. his rhetoric on china was probably the furthest we have seen out of the united states. he says, as china seeks to undermine american strength, washington should return the favor. washington should seek to decouple from china.

trump to point out looks like they want to ratchet that up and go to full on decoupling, which to our guest's point, this is where some of the issues are when you look at some of these luxury names. when china goes for retaliation it is in poor. it's going to be in luxury names. this is potentially going to get more heated. dani: this goes back to the point of how 2025 is so confusing. because we have heard these proposals from camp trump. loss of independence for the fed. you get someone who says, that is not really what he is thinking. it is this drip feed of suggestions and rebuttals that adds to a very confused 2025 with the economy will be doing and what policy bluebay. lisa: we talked about this extensively. we are watching a. right now let's get to an update on stories elsewhere this money. he was your bloomberg brief. >> more trouble for bowing.

the playmaker may have installed bad parts in it 737 max aircraft, according to a whistleblower. a quality inspector alleging the company mishandled and lost hundreds of faulty parts for the planes, some of which he fears may have been installed on new planes. this is according to allegations made public a senate subcommittee. this coming is billing ceo dave calhoun is scheduled to testify on capitol hill today. the countdown is on for bite dance -- dance to layout its reasons for suing the government over the new law requiring it to sell tiktok. bytedance must file legal briefs by thursday. and of its main arguments will be that congress never provided public proof of a national security threat to justify a ban. and hong kong will allow training during typhoons. the decades-long practice of shutting its markets during storms will end on september 23. it was seen as increasingly

antiquated after the pandemic showed markets could function with most workers stuck at home. hong kong it's five to eight typhoons eats year. cash each year. lisa: up next, the data-dependent market. >> i think it is less what the fed speakers say. i think it will come down to the data. if the market sees healthy data it will become more relaxed. lisa: that is next. what is healthy data? you are watching bloomberg. ♪ ♪ ameritrade is now part of schwab. bringing you an elevated experience, tailor-made for trader minds. go deeper with thinkorswim: our award-wining trading platforms. unlock support from the schwab trade desk, our team of passionate traders who live and breathe trading.

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lisa: good morning. this is "bloomberg surveillance." on a day we get retail sales, eight key question about this bullish tilt to the market. can it brought a now? or are the crack some more substantial?

maybe a climb to a 32nd-best high today. the closer we get toward the end of the day the more stocks tend to rally. the euro losing a little bit of ground. yields up a touch, but yesterday a pretty significant selloff. 10-year yields hovering, and crude off a little bit today, but yesterday a significant increase in the close of the highest levels going back to april. under surveillance this morning, the data-dependent market. >> it is less what the fed speakers say. it will come down to the data. we have retail sales. we have industrial production. if the market sees healthy data it will become a little more relaxed. it will say, that is fine. the economy is still humming along. inflation is coming down. lisa: investors looking ahead to retail sales this morning, followed by a total of six fed speakers throughout the day. if you want a list of them we can give that to you. barkan collins, logan kugler all

coming out. lara rhame writing this. surgical rate cuts starting in q4 with december the likeliest option. i expect the 10 year treasury to retest 5% this year. lara rhame joins us now. you have been talking about this for a while. even as a lot of people are saying we are actually seeing the disinflation engage again, that we saw take a pause of number of months earlier the ship. why do you think that disinflation is not going to keep yields where they are and potentially could see that 5% level retested in the 10-year? lara we: are still seeing quite robust growth. if we get the impossible dream, which is the goldilocks scenario of a soft landing, that has to imply that yield curve re-normalizing to some degree. it is still so deeply inverted, and in this world where communal, the fed achieves the

goal that is so elusive, that we normalization includes some surgical rate cuts and a drift higher in long-term yields. the treasury has been rolling our deficit ostensibly at three to six months will options, and they are going to have to push that out. i think as we get into the election it is also going to be clear that both candidates have policies that imply larger deficits, and fairly strong growth, but higher inflation. i am not at all bullish that this latest round of weaker inflation data is going to be here to stay. lisa: what are you looking for with respect to retail sales? what is going to get people bullish? under the hood a concentrated bet on big tech. lara: retail sales can be very much a head fake because it is a nominal number. no prices came down in the month and it is also so geared toward

goods, and goods is where so much of the disinflation right now is focused. retail sales may be this lackluster consensus headline gain of .2%. we may even get another small negative. to me the inflation dynamics really come down to wage dynamics and to rent dynamics, which i think still are going to reaccelerate in the second half of the year. today we may get the relief that markets are looking for. it is hard for me to think about the data making markets relaxed, because the markets seem pretty relaxed. they seem to be moving higher without concern around higher rates. i think we have to recognize what extreme optimism is built into the economic outlook the market sees. i like to say that higher for longer earnings allows markets to stay here even though we are going to get higher for longer rates. annmarie: when you look at the

consumer do you think they are refusing to spend after price increases? we got the earnings report, walmart saying they are trading down. lara: i do think the consumer has to rationalize more than we have seen over the last three years now. what we have been expecting quarter after quarter is for the consumer to, i think, you know, for consumption growth to move more in-line with real income growth. we are finally seeing that. it means a slower, more predictable pace of consumption growth. and i think there is absolutely the lowest, sort of, quarter income, quartile of consumer which is at this point over-stretched. we have seen that in the delinquency data. we know the pandemic savings are long gone and long-spent. i think there is going to be, at the macro level, a paring back

of consumption and pockets of consumption that could turn out to be week. i don't think it is enough to push us into some kind of economic contraction, but that overall gdp number will look more like 2% this quarter, not 2.5% when inventories are taken out. dani: so, slower growth, still inflation there. i wondered then if this can sustain itself? average loans in the u.s., defaults were below 6% for the first time last month. for junk bonds defaults were only 3.6% last month. that data is from moody's. if what the environment you are describing pans out, can they remain so benign? lara: i think they can. we have seen businesses be as rational as households were. when rates were low they refinanced and locked in. they are going to have to roll up the interest rate complex as they move forward. but 2% growth, my forecast, even

though it is slower than what we have been seeing, is still absolutely solid. i think this is a place where we actually see more room for value creation in that middle-market lending space than we have possibly in some of the large-cap mega attack, especially private equity. as we look ahead, i think it is important to understand the nuance. some moderation in growth is absolutely solid enough for that big middle-market engine of the economy to perform well. and to maintain really solid corporate fundamentals. lisa: when you talk about the head fake of retail sales i wonder how much lower gas prices factors into this. we saw that in inflation data as well. we are seeing gas prices, and frankly oil prices, increase in the face of a potential heat wave.

what is the trigger point for that to change the scenario in a significant way? lara: this is where we forget a lot of the disinflation, a lot of the goods price declines have already happened. autos were the original pain point for inflation back in the pandemic, and they have come down relay significantly. i think we will continue to see some moderation or some deflation coming from that sector, but right now that has really already happened. we have gotten the benefit of that. looking ahead, it does turn more to services. gas prices are such a psychological piece for the consumer. five dollars per gallon seems to be a pain point at which the consumer just really feels that in their monthly budget and consumer sentiment drops. we are far away from that now, and unless we get some crazy out higher event like a storm, i think we are going to be ok going into the summer driving season. lisa: lara rhame, thank you.

annmarie: strategic petroleum clubs -- reserve. we are getting close to four dollars a gallon when you look at aaa. that is going to unnerve the white house. brent, august peak, $86 a barrel. lisa: i hear the hum of the air-conditioners ramping up in the city. dani: i would rather sit in an ac car restaurant this weekend. lisa: a lot of people are going to be at the beach. some people might be at the movie watching "inside out to." steven meier of the new york city retirement system. don't miss this. this is bloomberg. ♪ ♪ yeah, they made me who i am ♪ ♪ so i'm off to see... ♪ we invent them. we design them.

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lisa: can we make it the 31st day of a record close in the u.s. stock market? welcome back. this is "bloomberg surveillance." we are seeing a bit of a lift. less than a 10th of a percent. nevertheless, crossed that 5500 level in the s&p. nasdaq 100 is performing. that is how things have gone pretty much all year. the russell 2000 down by .25%. i want to pause here. to me this is one of the most interesting divergences. the russell 2000 cannot get a bid, even though it is down on the year, despite almost 15%

gain on the headline number of the s&p 500. dani: the problem is there has been so many head fakes this year. we started with this huge call that small caps would do well. they had a rally in december. that proved untrue. earnings are fine, the overall market can hold up. that proved to be untrue. investors have been burned one too many times. how many times have we heard, you cannot buy small caps until the investors are -- there are attractive valuations, but are you willing to stick your neck out and buy? lisa: a lot of this has to be -- has to do with bond market stability. yields higher in the face of corporate bond issues today. the selloff continues, albeit after a significant rally last week. 2-year yields just under 4.80. what you can see in the 30 year, just inching away from those

levels, 4.42%. when you move that through the currency market you could see euro weakness has taken ahead after this diversions last week, with the snap election being called today. under surveillance this morning, guess what? there are more problems for boeing. a whistleblower claiming hundreds of faulty parts were mishandled and may have been installed on new 737 max planes. the news coming ahead of ceo dave calhoun's testimony before a senate panel later today. it seems like the news just keeps getting worse and worse. what more do we have to unleash, and how do we view this in the larger question of saving a company this country really relies on? annmarie: it is too important to fail when it comes to bowing and what it means for the defense industrial base. not just what it means for getting on planes as consumers. dave calhoun is going to talk about some of these shortfalls and acknowledge them, but he is

going to get an absolute grilling, especially after this report coming out. also bloomberg reporting that the hunt for a successor is really starting to ramp up. potentially he will get some questions on that. dani: wall street journal also had a story that no one wants to take the job. that a called from ge was one of the candidates and, again, he doesn't want the job. insiders at boeing, apparently there is a lot of complications for them to take the top job. calhoun needs to lay out this vision of, here is how we are going to fix this. but they can't even tell them who is going to be taking the reins? that is a come pick it up is to figure out. lisa: which is maybe the reason why no one wants to take the job. donald trump's former national security advisor is calling for him to cut off all economic ties with china. as well as resume live nuclear weapons testing if he wins a second term. o'brien saying, "as china seeks to undermine american economic

military strength, washington should return the favor." aside from what this would do, i want to understand the significance of this individual, the role he has played in a former trump administration, and the feasibility some of these proposals could see the light of day? annmarie: he was his last national security advisor. he said he is in contact with the former president. in our reporting we know that potentially he showed trump this article that is going to be in foreign affairs magazine. potentially he did, but the campaign is saying these are not actual, specific policies of the trump campaign until he comes out of the president's mouth. there is a little tension. but clearly if he is in contact with the former president and he let his security team on the last administration, you have to give credence to what he is saying. dani: i know we are probably not going to get to this, but hind -- how nice would it be, to hear

him actually express some of these? that is continually part of the fear. that a lot of it is theater and we are not getting concrete, here is what my platform is, from trump. it goes back to 2025 being unknown. lisa: we are getting plenty of thoughts from fed officials. six fed officials are going to be having speeches, plus we get retail sales and industrial production. it comes after patrick harker said one rate cut is appropriate based on his current economic forecasts. interesting, given that he had a dovish tilt in previous utterances. joining me now is steven meier, chief investment officer for the new york city retirement systems. as someone who has to be an adjudicator of national policies of how we invest for public servants, how do you understand the confidence, the bullishness in a market that is really hinging on such narrow

leadership? steven: if you look at the markets right now, you are right. there is no breadth and clearly there are concentrations. people are talking about american exceptionalism. it is the artificial intelligence halo effect spilling over into the ship. it is really mega-cap exceptionalism. we are long-term investors. we managed to diversify portfolios in different types of environments. we are more strategic than tactical. we are not actually trading. having said that, we have strategic applicant -- large-cap in particular. we are flat, down a little less in non-u.s. equities. increased investments in private assets. dani: within those private assets, because i know you made an announcement you would start increasing your allocations, how

do you think about real estate? office buildings are still in distress. surely it is going to be worse with rates and loans coming due. have you pulled back on real estate specifically? steven: not necessarily. we have a diversified portfolio. if you look at our investment portfolio right now it is 31% multifamily in real estate. bubbly about 30 6% in industrial and logistics. we have an intentional underweight in retail and office space in particular. i think it is another two years in terms of those situations working out. dani: how do you want to be positioned for two years to come do you pull out completely when that comes due? that is a scary prospect. what we have seen is this rolling default. it is not one big event. what does that look like in two years? steven: for us it is around putting money to work, putting new money into the sector. we don't need to be a seller.

we are long-term investors with him much longer term horizon. we are not panicking, but we are also not stepping in at this point. you are some smart people out there who think valuations are probably close to the bottom. i'm a little suspicious. i think it has a little more to go. dani: if it is higher for longer, if it is we are not going back to a zero-rate environment, are there other investments you have had to rethink? things that will work in this environment going forward? steven: i would say we focus more on fixed income as a core holding of the portfolio. if you look at the yields you are able to get in fixed income, it is obviously more compelling that i was in a zero interest rate environment. i also think the zero interest rate environment was negative for the markets. i think it leads to sub-optimal investment decisions. where we are right now we have leverage around the world 250% of global gdp.

but think that is going to be a challenge domestically and abroad. annmarie: how concerned are you about the deficit? are you in the steve eisman can't of, oy, the deficit? steven: i am. if you look at the deficits we are racking up, we have 98 percent of outstanding u.s. treasuries relative to gdp, expected to go up to 116% in the next 10 years. those are dangerous levels. just the amount of people we need to roll consistently through these auction processes, i know lisa you follow the auctions. tens and 30's when ok. better than twos, fives, and sevens last month. i think it is worth watching. there is a lot of information coming out of those auctions, and the size of those auctions are going to be a risk factor for investors. lisa: can you give us some perspective? was that away from equities? was the -- that away from bonds?

steven: we are operating under somewhat of a constrained opportunity set. we had a limit of only two hunted 25% of assets. that has now been increased to 35%. we were overweight in equities. we have pulled back from that, u.s. large-cap in particular. we still alec -- wiest elsie allocation in the private sector. a lot of people have pulled back because they have been overdone. we have seen opportunities in secondary sales. we are continuing to put money to work in those spots. like private credit. you think the private credit is compelling in terms of absolute returns. most of those obligations are floating. we have a 7% rate of return or benchmark him and i'm proud to say so far this year to date we

are ahead of that. we have another eight or nine trading days. dani: there has been this criticism of private credit. that they have been in this extend and pretend mode. that they have been waiting for rate cuts. but at some point the music stops. do you share that concern? how careful have you been picking managers? steven: good question. i think you have to be really careful. there is a lot of new entrants in the private credit markets. we tend to focus on the areas where we do most of those investments through separately-managed accounts as a limited partner. we still see a good opportunity there, but you need to pick your managers. we also like opportunistic funds that can talk between public and private, where they think the valuations are cheaper. dani: this gets to the other parts of the industry. that in private assets it is just the big getting bigger.

is that what you expect? you expect that the smaller players are not going to have that demand and some sort of consolidation needs to happen? steven: because of our size we have the privilege of managing about $280 billion in assets. i think the difference for us this year is there has been a lot of pullback in public pension plans and institutional investors. we are able to get access to better managers and negotiate better fees in terms of averaging down the costs of those transactions. lisa: today we are talking about retail sales. you watch any of that? do you care or is it noise as you focus on ways to on correlate yourself? steven: i shouldn't watch that, but of course i watch that. i will tell you why. obviously our underlying participants watch that. my trustees call me all the time and say, what is going on in the market? so, we watch it.

we watch it as a manager -- a matter of monitoring the performance of the funds. but we focus on all of that. as i said earlier, we are not tactical, we are strategic. we are long-term, but we do care what happens in the short term as well. lisa: steven meier, really great here will -- to hear what you have to say. right now let's take a look at what is going on elsewhere this money. here is your bloomberg brief. >> almost hochstein is in the middle east looking to ease tensions between israel and hezbollah. writing has continued across the border as israel continues its campaign in gaza. after meeting with benjamin netanyahu, kok steen is expected to meet with opposition leaders. the news comes after netanyahu dissolved the country's war. huawei has surpassed apple's

iphone in sales in the world's largest smartphone market. and it is setting its sights on new sources of revenue. huawei is looking at taking a cut of in-app purchases on its app store, following the footsteps of the practice used by the likes of apple and alphabet. the company has been discussing a fee of about 20% with developers, lower than the 30% fee imposed by the u.s. tech giants. france got their euro 2024 campaign off to a strong start, leading austria 1-0, but it may have come at a significant cost. star stryker kylian mbappe bay suffered a broken nose, leaving him in doubt for the rest of the campaign. the french football screen said -- his status for the rest of the tournament remains unclear. that is your bloomberg brief. lisa: what kind of protective mask? annmarie: he went on twitter and said, any ideas for a mask?

i don't know. it is going to be interesting. i guess he wants to continue playing. dani: he got a yellow card is essentially because he had a blood nose. -bad for him. the rough would not let him put in a sub. lisa: up next, allegations of misconduct i knew at boeing. >> the minute you start to hide something in a big company, others notice. stay tuned to the fleet and be transparent about everything you say. lisa: that is coming up next. this is bloomberg. ♪

lisa: we are still talking about kylian mbappe bay's potential mask. looking at markets that are trying to rally for another day. potentially the 31st-record high

if we maintain positive momentum by the end of today. we can see a bit of euro weakness. yields are up marginally, but we have retraced a significant swath of the rally we saw last week. under surveillance this morning, new allegations of misconduct at boeing. >> i believe transparency of all things relative to all cultures is about the most powerful word i have ever seen. any company, especially large-scale companies which are willing to be transparent about everything, they will suffer less, because the minute you start to hide something in a big company, others notice. stay tuned to the fleet, no what it is doing, and be transparent about everything you say. lisa: it sounds good. fresh allegations against boeing, with a whistleblower claiming hundreds of parts were mishandled and may have been installed on new 737 max planes. it is yet another hurdle for dave calhoun as he prepares --

prepares to testify before a senate panel later today. joining us now is benedikt kammel. i want to start with the commentary we heard from dave calhoun himself about the importance of transparency. about not hiding anything. why is it, even that ethic, that week after week there are new disclosures coming up -- out about this company? benedikt: it is probably because of the unique situation boeing has been in since that january fit accident we have written so much about. the more you dig and the more you are under the microscope the more people will find out. this is precisely what is happening. we have had a slew of whistleblowers come forth. the latest one he just referenced, saying they mishandled parts, that they were sloppy, and this is only the latest one of several of these allegations. the timing obviously is very awkward. we have dave calhoun, the boeing ceo, appearing in congress today. a senate panel will grill him.

he will have to answer to that, so obviously the narrative is stacked against him and the company. dani: what is he say on a day like today in front of lawmakers who were going to skewer him? benedikt: you are absolutely right. this is about performance more than revelation. i don't really think we are going to find out anything dramatically new. i imagine he has done some very deep coaching about some of the tone, how he comes across, the right level of contrition, but also some level of defiance. he has the company behind him that he has to protect. and something of a path forward he can offer and say, look, we are obviously going to a tough patch here. but this is double. whoever fixes this will be somebody who follows calhoun. he did say a couple of months ago he would step down eventually sometime later this year, but for all intents and purposes this will be a difficult moment for him. one smart observer said, there

is no winning from going today. it is only the degree to which they lose today. how much of a line can he hold? how much can he offer? annmarie: the senator who chairs this panel says boeing needs to stop thinking about the next earnings call and start thinking about the next generation. do you think their rhetoric is about the earnings call? are they actually trying to solve the underlying problems? benedikt: it is a nice soundbite from the menthol. that is the heart of the allegations against the company, that they have put profit over performance in terms of the engineering side of things. that they have been too slick in making the numbers work. stock buybacks, dividends. executive compensation. all of those things obviously don't look great when the underlying product, the aircraft, is having severe problems. no, this is something i said the successor will have to fix

eventually, think about the culture shift boeing needs to go through. calhoun has spoken to this to some degree, where he said transparency is key, but also turning around the ito's of the factory, making sure people put engineering before finances. all of these things will be on the table today. annmarie: dani: and so much rests on who takes the job next. the wall street journal has a story that nobody wants this job. what is the ceo search stand? benedikt: it is probably too harsh to say nobody wants this job. you could say this is arguably the most important and potentially lucrative job -- not financially, but in terms of the outcome -- in corporate america. if you could fix boeing you are made as an executive. there is also kind of a floor in this, because the company is not going to go bankrupt. so, there will always be boeing. if you can turn this around and make it a multi-year

reengineering effort, that is a great feat. who is on the list? there is a number of people we have spoken about. larry kopp from ge is one of those people. there is a number of others, but the search continues. there is no obvious candidate that has emerged at this point. no obvious internal candidate. there is the farm and air show coming up next month. may be around that time is when we might see some whitesmoke for the time being, as you said. the search continues and there is no obvious candidate. lisa: people were suggesting maybe the issues at boeing would lead to lower deliveries to a lot of airlines globally and this would lead to lower capacity. somehow that has not transpired. are people still talking about that, or is that something that has faded in tandem with a cooling in some of the demand we have seen globally? benedikt: it really has not

faded. you might see it less pronounced in some markets, but overall this ripple effect we have seen since the boeing crisis erupted, is intact. boeing cannot deliver the planes and numbers they had hoped to. they are capped by the faa. airbus is delivering more, but also cannot put out what they would like to. all of these things are leading to a situation where the airlines are asking, where are my planes? the demand is there. people want to fly. but we are just not getting the new planes. the repairs are sort of crawling up. this has created a real bottleneck in the industry, and it is still there. lisa: benedikt kammel, thank you for being with us. who wants this job? there might be people who think they can make a name rescuing this company, but it seems like a pretty high bar to hurtle, and we don't understand the scope of the problems. dani: who would shareholders be

happy with as the ceo? larry culp is one of the names you mentioned that was not interested. but would you want an outsider? boeing is a difficult beast to wrap your hands around. maybe you want an insider, someone who has been complicit to all the problems. it is a lose-lose. lisa: we are talking about a company that is a product of national planning. this is a company that was anointed a national champion by the united states. is there any discussion -- i'm asking this seriously -- among political analysts, saying, what is the benefit to have national planning at a time where there is increasing impetus to invest in infrastructure and all sorts of industrial behemoths? annmarie: they definitely want boeing. they want to move on. the faa needs going to be that national championship that they want it to be. to the point of the ceo search, benedikt said this could potentially be a great challenge

for an up-and-coming executive, but also something about, you cannot really fail. in the sense that the government will not let that person fail if this is too big of a company for the u.s.. it is an interesting job because you almost have a safety net that this has to work. there are no other option's. lisa: are you pitching this? we have to have safe plans, bottom line. the point being that at the end of the day we cannot have whistleblower after whistleblower suit saying, faulty parts, etc. we could talk about this all day, but we are also going to be talking about what we are seeing what the rally in markets. coming up next, peter tchir of academy securities. marci mcgregor of bank of america on that bank of america fund manager survey going full bull. this is bloomberg.

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>> the narrative has been shifting toward the economy. >> the fiscal impulse is starting to fade. >> how long will the fed maintain higher for longer? and does that increase the risk of recession? >> there are a lot of ways we could get two cuts this year. >> what the market is probably most worried about is a scenario where the data weakens, the fed

is slow to react. announcer: this is "bloomberg surveillance." lisa: counting down to retail sales amid potentially a 31st record-high. this is "bloomberg surveillance." could morning. jonathan ferro is off today. annmarie still here, although who knows, she may go to southern france. dani burger, thank you for being with us this weekend next. we are talking about the narrowness of this rally. it is interesting, the first hour talking about both his complacency that a lot of people see in markets at the same time others are saying it is feeling shaky. which is it? dani: it is weird because it is both. it is complacent and shaky because all you need to do is buy a couple of stocks and you can do well. one of the funnier things i saw yesterday -- we are really enthusiastic about ai. mcdonald's had partnered with ibm to do automated drive-through's, and they

canceled their partnership yesterday because people were reporting things like getting hundreds of chicken nuggets being ordered for them, they were getting bacon on top of their mick flurries. it was a great example of us saying ai's going to solve everything and they literally have no idea what they are doing. lisa: he reminds me of "sleeper" where everything is five times too big. as people get used to the ai euphoria there is this risk i see increasing in all of the notes. last week was kind of a gut change for a lot of people, given what happened in france and how much that shifted allocations across the board way from europe back into a select few u.s. ai companies. annmarie: we heard from citigroup today about how they are underway. they wanted to be more exposed to europe but they are worried about this political risk. what happens with this tit for tat for china? when it comes to record highs, it comes to the fund manager

survey, again, it is the seven same names. if you are not in them, you are not exposed to it. microsoft, nvidia now stand at six to 9% in terms of the long bets. the most single crowded trades we have seen in history. lisa: which raises the question of what retail sales could change, if anything? you might get some softening in retail sales, but this is a temporary blip and it is going to see a resurgence once again later in this year. how do we act in a data-dependent way when the people say one data point does not make a trend? dani: also the data point does not make a difference to this market. it does feel that way, that regardless of what we get the big cap text -- tech stocks are not going to care. the data is confusing. we have the appropriate measures for this world, where the richest among us can keep spending and the lower among us cannot? does the data really reflect

that? how do we interpret something for data that was built when it was more of a monolith of a consumer? lisa: the market is up, and that is what you see today, after yesterday it closed at the 30th-record high of 2024. today we are basically unchanged. taking back some of the earlier gains, but you can see gains continue in the winners, which is the nasdaq 100. euro a little bit weaker. 10-year yields basically flat on the day. yesterday we saw a real selloff on the heels of corporate bond issuance. i find that interesting, given it does seem like on the margins people are looking for how to shift their money in the fixed income space. crude closing at the highest levels going back to april. academy securities peter tchir. will kennedy, as oil hits the highest levels since may. and marci mcgregor following a

bullish fund manager survey. big tech driving the s&p 500 to its 30th record of the year. peter share writing this. ai seems the big story yet again. it will be nice to see the underperformers catch up or take leadership, but it seems like the narrow leadership continues. peter joins us now. would be nice to see some sort of participation, collectivity to this rally. does it make you bearish on at or west full? peter: more confused, i think. last october it was easy, right? there are all sorts of reasons for the laggards to catch up, that everyone is investing in a few names, and that worked pretty well. commercial real estate did well. thanks. russell 2000 performed well. right now you do not see that. the economy seems to be doing well. the data still -- still seems to be strong, that we cannot catch a bid to anything else. money is flowing into the u.s., and it doesn't even have to go

into seven stocks. if you put it into an index fund about 40% of that gets allocated to eight or nine stocks. i think most of the money is not coming directly to those stocks. i think a lot is coming into etf's or mutual funds. that is unpopular, but to the extent it is getting invested in those, it all gets funneled into these seven or eight stocks. it is forcing all of these money into relatively narrow things that have a good story. on the factor side you have momentum. it has been the one trade that has consistently worked. for better or worse those same stocks form momentum. lisa: i hate to use the b word, but when does this become a bubble, or problem, or a note of fragility rather than something logical based on how much money they are making? peter: i have been questioning the valuation. we have been bearish from time to time. not climbing the table, but last week i started getting comments

even from people who own the stocks, who have been big believers. they are looking at some numbers and saying, i have no idea why this is up this much. that is something to watch. more people are trying to figure out, what is going on with the options market? that is driving a lot of the activity. that is why you are getting these 10% moves. dani: that is something that has been overlooked with nvidia. in their stock split not only did it make it easier for everyday investors to buy, but all of a sudden it is much easier to trade options on nvidia too. if we are in a world where more options are being traded, there is more passive money, the four gone momentum, are you in the camp that something is broken about this market? peter: again, passive has taken too much of a role. you have the options, the need for those daily trading of options, a lot of these things what i think it is going to do is suppress volume on a

day-to-day basis, and then you are going to get these huge gaps. if the world is a zero-sum game and people are winning more and more, but smaller and smaller amounts, and you get the loss it is going to be bigger. you want that downside protection because we are susceptible to these large moves in a period of a week. we may grind higher, but something feels broken. nvdl, i'm not sure why we approved an etf that gives two-times leverage. something volatile like that, the investors in that will lose money, and if you cannot afford to have a margin account why you need to play a single stock double leverage? it is problematic and it is one reason i think so many people are questioning this market. dani: take me to the inevitable outcome of that. peter: i think there is money there. there is real stories behind these companies. it is not what we saw in 2021,

stocks were going up every day, they had no earnings, there was nothing. i think things have gotten ahead of itself. the store you pointed out earlier. you try and use it, and sometimes it is great, and by the end you have fact checked a few things in i could have done this myself almost as quickly and learn something. that is the problem, right? what do you actually learn and how do you come up with your next approach? i think there is this ai, everyone has to talk about it. a lot of it is simple programming. it is not ai. it is going to get there. i think the market has got ahead of itself and last was the first time even the bulls seem to question it. that is an interesting change. annmarie: let's talk about the geopolitics of this. you wrote in your note that you have not been paying a lot of attention to european politics, but now it is high on your risk. what makes you so nervous about europe? peter: we have often seen these

trends develop in regions where something starts and then a couple of years later something else happens. we had brexit, and you look at some of the things that triggered brexit. and of that has been addressed in europe and now that is what you are hearing in france. you are hearing these company -- these countries talk about that. in an economic slowdown, that is when people turn more nationalistic. it is always great to point your finger at somebody else and say, your fall. what caught me most by surprise is that it feels in france the extreme left and right are gaining momentum. i think a lot of us have been frustrated in the u.s. that it seems like the fringe elements get all of the attention and that is what drives a lot of policy. i did not see that developing in europe. so, we have that. beyond that you see all of our enemies, adversaries, saying, where does the u.s. stand on this? will nato hold together? this is the first time in 24 years we sent a note yesterday

that putin has gone to north korea. that is a reasonably big change. when we mention china, everything goes to taiwan. there is the philippines. that is getting sketchy her. people are looking to take advantage of this and the political discourse is getting worse globally in the west. annmarie: the flipside of putin owing to north korea is he has no choice, but to look to north korea. when you look at asia, when you look at what robin o'brien is saying, what do you make of that checkup he is calling for complete the couple with china. peter: i think that is the direction we are headed. when we talk to our most plug-in board members, there is no way we are going to do ai with china. that is now viewed as extreme national security. you take a step below that even, and more and more biotech, the pharmaceuticals, all of the things we have relied on, people are saying, what is this?

we are in this awkward position in solar panels where we want to go green. somehow we see the solar industry in china, and now we are putting tariffs on solar. people are going to do more and more on their own, realizing that a high level there is independence. unfortunately i think china is fine with that. they are building this network of resource-rich nations. we have principles. we have things we want these countries to do and behavior we find acceptable, and i think china doesn't really care so long as they have a trade relationship. have accumulated this network of autocratic resource-rich nations. it includes iran. it includes russia. i think that is problematic. lisa: put this together. you are talking about the narrowness of the rally in the united states and the potential for political risk that people have not been pricing in. what do you think is most vulnerable to a repricing has political risk becomes more

prevalent in people's minds? peter: i think it is going to be some of this big ai spent. if we see a slowdown at the consumer level, if the jobs numbers start reflecting what we saw in the household survey, there is going to be some concerns. we are going to see less traveled this summer than we did last summer. i think that will decrease spending and people will question, what are these valuations? i think we are susceptible to some kind of commodity shock, or on the good side for a global economy india continues to grow. they had some hiccups after the election, but they are demanding more commodities. china is going to do more and more. then we had these enemies who control commodities and don't necessarily like us. it just feels very susceptible. lisa: it does not sound like you are bullish right now? peter: i'm not particularly bullish. last year i loved the laggards and thought they could catch up. i don't see how laggards catch up in this market, unless the

valuations come down on those high flyers, momentum breaks. it reminds me a lot in treasury training of where the advisors drive a lot of it and you see people, why does he keep going up? buddy yields keep going up? -- why do yields keep going up checkup you see these momentum trades get stomped out. treasuries have been reverting. i think that comes down. and that is that last refuge of momentum. that is why we get the 10% blowback in a very short time again. lisa: peter tchir of academy securities, have a great time in your vacation. let's get to an update on stories elsewhere this money. he was your bloomberg brief. >> apple is shutting down its pay later program after launching it just a year ago. the program allowed users to pay off purchases of as much as $1000 over four installments. the move, marking a retreat from apple to offer more financial

services in-house. the iphone maker recently announced third-party services would be integrated into its upcoming ios 18 software. this care has filed for bankruptcy. the announcement coming after the struggling ev maker held discussions with a major automaker about an investment. but failed to secure a deal. this could listed assets of between $500 million and $1 billion, and liabilities of between $100 million and $500 million in its bankruptcy petition. the following products for script from creditors while it works out a plan to repay them. and if commissioner roger goodell rejecting claims the lead -- the leak colluded with directv to set the price of the sunday ticket broadcast packets. the nfl is facing a lawsuit from fans who want it to revise its policies to allow for greater access to the games at lower prices. the nfl could have to pay as

much as $21 billion if he loses at trial, because damages can be tripled under federal antitrust law. it is your bloomberg brief, lisa. lisa: up next, new york crude holding above $80 a barrel as we head into the summer. >> we still think summer is going to go. inventories are going to drop, so the crude market is going to be supported. certainly there is that element of potentially moving into an oversupplied market. lisa: that is coming up next. this is bloomberg. ♪

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♪ [vroom] [train horn] [buzz] clearing the way, [whoosh] so you arrive exactly where you belong. lisa: coming into tuesday of a shortened week, retail sales tuesday as markets may be try for a 31st record high to close the day, in terms of the s&p for 2024. losing some of that steam right now. basically flat.

you can see that euro weakness continuing. 10-year yields up marginally, and crude, i want to sit on crude for a second. up just a touch. yesterday up 2.4% as people took a look at possibly more demand, as well as potentially more disruption. under surveillance this morning, new york crude holding well above $80 as we head into summer. >> we think inventories are going to drop, so the crude market is going to be supported. but certainly there is that element of potentially moving into an oversupplied market. we are in a world were we have commodities on the supply side and not. that is the balance we are seeing. lisa: oil basically flat today after hitting its highest level since late and driven by local markets. this comes as parts of the u.s. are bracing for a heat wave, expected to bring record temperatures. joining us now, will kennedy.

can you give us a sense of what you are hearing from people in terms of the momentum we have seen over the past few weeks? in particular last week when it comes to higher oral prices and whether people think it is sustainable? will: it has been a strong market, and you can see that if you look at the price for oil in the near future and further out. those spreads have rallied since april, which shows inventories are drawn down. i think people, as francisco was saying, always expected this. we are moving into the peak months for demand. people are moving around the u.s.. they are moving around elsewhere. they are flying, and that demand is expected to draw down and is drawing down inventories globally. i think that is reflected in the flat price of crude, which has come back quite markedly. as francisco said, there may be less certainty ahead as we get through this period, into the

latter part of the year. lisa: this is why maybe you are not seeing that lift through to the gasoline market in the united states. you have seen declines there, from as high recently as $3.68 back in april. i'm wondering the significance of that? this is basically poised to shift higher. is it completely divorced this -- at this point versus the global market? will: one of the things we have seen globally is that refining margins, the prophet people get from turning crude oil into jet fuel, have come off. u.s. refineries are still working very hard, as you would expect, into the driving season. but in other parts of the world we have seen some spare capacity. in china, for example, margins are not strong. that is why you have not seen gasoline prices react in the

same way we have seen crude prices react in the last few weeks. annmarie: what you are saying is we are seeing stockpiles move to drawdowns. we are seeing potentially we are going to have a driving season that is going to be big and robust. on top of that we have not even seen hurricane season just yet. what potentially could we see trickle down into the oil market into gasoline prices? will: i think the hurricane point is very well-made, annmarie. we have not seen any big hurricanes the last three years, but all indications point to the fact that we could see some very big storms in the gulf of mexico. that can often have a big impact on markets in two ways. can shut oil-producing fields off in the gulf of mexico and hit those refineries in louisiana and texas that are so vital to supplying gasoline to the u.s. markets. they clearly is an extra risk, going through the summer months. and one reason why people may

not want to be caught short in this market. dani: is the u.s. well-positioned to withdraw from the sbr? after having not filled it up? if we get to those risks, can the u.s. mitigate them? will: the current administration has shown itself unwilling to pull that lever. i think it was an interview by the financial times earlier this week where he said the administration would be willing to bet lever in the months ahead. that their priority is to keep gasoline prices low for consumers, especially running into the election in november. i don't think you can rule it out, but there is a lot of resilience in the u.s. system before you get there and i think it would have to be a very severe disruption before that happened. but at the end of the day that is what it is therefore. it is a strategic reserve to smooth out disruptions in the market. if you got a very strong

hurricane which took a lot of refining capacity off-line, that option is clearly there. lisa: i do wonder what you think about natural gas and some of the other utility costs as we head into a hot spell. a lot of people will say it is always hot, but this is a particularly hot spell. eckhard highs across the midwest, heading into new york city today. we are all very excited. do you have a sense of how this will show up in energy markets more broadly? and frankly, for consumer bills that have factored into how much money they have left over for retail sales? will: one of the trends we have seen globally over the last for years is this difference between demand in summer and winter has lessened. eating in winter has come off a little bit, but demand in the summer has come up because people are having to run their units harder and harder. we will see that as we go into this heatwave. that will produce a draw on natural gas.

u.s. northeast draws its energy in lots of ways, but natural gas is one of them. and we have seen a rally in natural gas prices. they were extremely low in the spring. we saw some producers curtail production, and then this will drive demand higher. so, you will perhaps see those prices continue to come up. lisa: will kennedy, thank you so much for being with us. every year people have been talking about how hot it gets and how this is factored into utility bills, but it is not just gasoline. it is also the amount people are paying on their monthly bills that really does cramp their ability to spend elsewhere. annmarie: for electricity, when you are thinking about this heatwave, manhattan central park set to reach 98 degrees on friday, according to the national weather service. that heat is going to spread. upstate new york, the midwest. it is going to be a massive week for heatwave.

lisa: they have cooling centers and people are trying to go to movie theaters, beaches, figure out how to toe this line. it speaks to something peter tchir was talking about. how far away are we? how vulnerable are we to an increase to $10 a barrel? to really cause a dance? dani: the concerning thing is the geopolitics of it all. that these commodities are in large part held by adversaries of the u.s.. that india is consuming more. you put all of these together, do you worry about something more pernicious? lisa: we are going to be speaking with marci mcgregor on why the bullish market will continue regardless of all of the fears we have been laying out. this is bloomberg. ♪

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lisa: coming into tuesday with air something and uncertainty. markets basically don't know what to do with that because how could you? basically flat on the s&p. do we get a 31st record high of the year? nasdaq futures eking out and gain, not surprising given the leadership we have seen. when you push it through the bond market, i thought it was interesting, the selloff that we saw. with issuance of corporate debt. this idea that people sold

treasuries to go into some of the corporate issuance that was happening pretty much across the board. dani: last week was so quiet for corporate issuance. there is a feeling we are getting a lot of rate volatility, things are uncertain. corporate are starting to pull back. yesterday proved that wrong. there is this huge demand to not only to bonds but also absorb them. even though you don't know what the cuts will be, do not know what the data will be, and we are all confused. lisa: which is why, annmarie, air-soaked and uncertainty. annmarie: kudos to andrew hollenhorse. indeed, i see two cuts are non-possible this year if the data breaks one way or another, which is why people are so data obsessed.

which is why i am excited for retail sales. lisa: you can see the euro a little bit weaker versus the dollar. under surveillance this morning, more trouble ahead for boeing. a new whistleblower claiming that the playmaker lost track of hundreds of faulty parts that may have ended up in new 737 max jets. i trip over myself because i hate the story, i hate talking about all the problems with boeing planes, the idea of faulty parts going into planes that we fly. i wonder what structurally has gone wrong, where there are these whistleblower that still have what to say that hasn't been heard already? dani: it's remarkable that this has been going on for how long? even before the alaska door incident, we knew there were problems. it is uncomfortable every time you had to get on the plane, look at the seat behind you.

i do that and then i put an eye mask and try not to think about it. annmarie: on my most recent flight, i have been to see that i was flying on a boeing, i had a moment, and then i put my earphones in. i have to get home. what struck me about this story, these nonconforming parts, damaged or inadequate components, supposed to be tracked, disposed, or repaired, and meticulously recorded. none of that is happening. i have a lot of questions, and i'm sure the senators will have questions when they skewer the ceo, what is happening under the hood that we still don't know about? what more whistleblower reports will be expected? lisa: and what are the casualties of the pandemic era, where people who retired who had institutional experience, people were not paid as much as inflation was increasing, and

you had a shift in the population of workers. how do you change that? maybe that is why people don't want to get in and be the ceo. dani: some of the lead candidates for this don't want the job. you need to have a really coherent thing of how you fix this beast. it is huge. calhoun told guy johnson that we need to stay disciplined. that is not enough. that doesn't make me feel safe in a boeing when i hear the ceo say we need to be disciplined. lisa: talking about philadelphia fed president patrick harker who seeing one rate cut this year, looking for several more months of improving inflation. plenty more fed speak as investors await retail sales in one hour's time. you wonder the relevance of the commentary considering they don't have that much confidence. it is interesting, the rhetoric shows it was not an aberration that the fed coalesced around

one rate cut this year. it was definitely a lack of conviction that was even in some people who had been somewhat dovish. annmarie: that is why this is so interesting. they feel like they have this lack of conviction. everyone saying when that inflation bring hit before, potentially this will give some of that supported the fed may need to want to say we see the soft landing, we will start to potentially make a cut. and they actually came out more hawkish and said it will not happen until december. it feels like the fomc moved more toward the neel kashkaris. lisa: basically people don't care, they are unabashedly optimistic about stock returns. the latest bank of america survey found investors are the most bullish since november 2021 and are likely to keep pumping money into record-breaking stock markets. marcy mcgregor writing, we see

catalyst for the bullish trend in markets to continue. we view any pullbacks as a buying opportunity. we anticipate markets to feel choppy in the coming months as markets may take a breather. marcy joining us now. so good to see you, thank you for being with us. we know you are not responsible for the fund manager survey but you help to understand and interpret it. not a small pool of cash. how do you have the conviction to be bullish and a time when there are so many people who feel like this is getting narrower and narrower, with the most crowded train being that magnificent seven? marci: of course you want to see the market rotted out, and we may see some choppiness in the summer especially as we enter election season, the fed is battling this last mile of inflation that is giving them a headache. when i think about the ingredient for the over full trend to continue, we have a lot

of liquidity in markets, financial conditions are easy, solid earnings backdrop that we think will broaden. so far the s&p year to date has been driven by earnings, not multiple expansions. that gives me confidence. also we are seeing bond yields, i think they will stay range-bound, but they have been making lower lows, lower highs. we cannot discount the innovation pervasive in the economy right now around artificial intelligence. i think the below trend continues. it may feel choppy, we may get a pause in the early summer months, but we have been saying the bull may turn into a buffalo and start to roam a little more about the uptrend is intact. lisa: whether it is a buffalo or a cow, we see an air of uncertainty. this issue that fed officials themselves don't know how to read one animal we are looking at david where do investors get the conviction when people are

still debating whether 10-year treasury yields going to 5%, 3.5%? like we heard from hsbc? how important is that to you given the bifurcated calls we are hearing all across wall street? marci: in the near term the pad to lewis resistance performance is lower. our view is that the economy is moderating but very slowly. that will be music to the fed's years. we have seen parts of the economy like retail sales, housing, manufacturing something sums loading. and we have a strong labor market which is normalizing a bit but still pretty strong, giving a tailwind to the consumer. the bottom line with the economy, it is hard to get overly bearish when there is so much fiscal support creating a cushion for the economy.

while i think the economy will moderate slowly, it will allow inflation to start to trend lower. we may have a higher resting heartbeat for inflation for some time. inflation somewhere above 2%, but the fed ultimately gives the confidence to cut this year. the bank of america view is one cut in december. there is a risk based on data that could be two. ultimately you will have the fed keep telling us to be patient, they need a couple more inflation prints before they gain the confidence to cut. when the fed is data dependent, the market hangs on every data point. next earnings season, the confidence will come back to investors with his bull market trend to continue. dani: it feels like unbridled optimism for earnings, especially if it is a slowly moderating economy. next year, the estimate for earnings growth is 14%. that would be the best year if you exclude the covid season of 2021, since 2018.

does that sound right to you, 14% earnings growth? marci: i think that's a little bit optimistic. you will see that revised lower. the key is earnings broadening. the other 493 company starting to pick up. we are seeing sectors and industries starting to join the party, of course led by tech and the magnificent seven. i also think it will be important to the earnings story that you get small caps in the party. you may see an inflection point where small caps start to show a little more green shoots on the earnings front as we look ahead to 2025, may even start to outpace their large-cap peers. the broadening is really important to reach any of these optimistic earnings estimates. i think the consensus is a little bit higher now for 2025. i could see that coming down a little bit but broadening will be key. annmarie: you mention two

things. uncertainty around the u.s. upcoming election, fiscal support we have seen out of the united states. do you see any sign of that abating? marci: what we typically see in a classic presidential election year is a spike of 25% from july to november. that will not surprise me. volatility at low levels already. once the election is passed, markets return to fundamentals, which includes policy. a lot of the spending has a bit of a lag to it. when we think about the defense spending that has been earmarked for this red-hot geopolitical world we are in, a lot of those dollars are put to work in the u.s. when we think about the infrastructure spending from a couple years ago, that is more of a medium term support to the economy. ultimately that will support construction, transport,

machinery, investments in the old economy as well as a green economy. it is hard to see right now any will in washington to turn the fiscal faucet off. there is a chance it could continue. lisa: how much are you concerned about what we are seeing in terms of the fiscal overhang, the deficit? we were just talking about this with the new york city head of investments for public workers. he sees the sizes of auctions going up as significant. at some point, you could see push and markets akin to what we saw in europe. do you see that on the horizon, advising clients to be aware of as they come up with a new 60/40, whatever it may be? marci: this is the number one question i get, questions around the debt and deficit. my main concern is that it could dampen future growth, stealing from the future, drag on future spending.

when i think about it as an imminent issue, our colleagues at global research did fantastic work on this, and found the weighted average groupon of the national average debt is 2.25%. as long as that stays under nominal gdp -- we don't expect that to change -- that would be the inflection point where we started be concerned. we have some room even though the overall picture of the growing debt is a bit concerning. realistically, my concern is this could borrow a bit from the future, could put pressure on the private sector to boost the economy going forward. ultimately i'm not concerned that we not at a tipping point right now. dani: it is going to spend but it matters what type of spending, and how much growth you get from that spending. we hear the language from france, the deficits there, the spending they are doing can make up for it. when you look at the global picture, are we in an

over-leveraged world, can growth keep up with a type of deficits that countries are running? marci: in the post-covid world, the gorging of spending has been happening on the government level. we are not seeing it in corporate's, consumer balance sheet, which we are seeing as healthy. internal data is showing us deposit balances are still about 40% about 2019 levels. we didn't see the excess on the corporate or consumer side, we did see it on the government side. it is a risk again in terms of going forward, will washington have the will to spend? you are right, you want to see government spending on areas that can add productivity to an economy. that does not include interest income. what the government spends on anywhere in the world matters. we did see some of the spending go to areas that could add to productivity, research and

development, infrastructure spending, those could all boost the overall productivity of the economy. clearly, yields coming down will be music to the treasury's ears. lisa: marci mcgregor, thank you so much for being with us. great to hear from you. let's get an update on stories elsewhere this morning. here is your bloomberg green with the one and only yahaira jacquez. yahaira: best buy if your parents are one of the year, ai computers. the retailer is said to be training more than 30,000 employees to sell and repair pcs equipped with microsoft's new copilot ai which go on sale today. best buy says it has exclusive rights to more than 40% copilot models. bitcoin touched a one-month low in early trading. the cryptocurrency is being weighed down by the prospects of higher for longer u.s. rates and

outflows from digital asset investment products. it fell as much as 2.7% this morning, touching levels not seen since mid-may. smaller tokens including either and solana were lower as well. the boston celtics are back on top, beating the dallas mavericks in the nba finals, led by their star duo jason tatum and julian brown, taking the series in five games in front of a home crowd. it is there franchise's first title since 2008. the celtics have now passed their archrivals, the los angeles lakers, for the most titles in nba history. lisa: thank you so much. steve, you are winning life, and every day we are reminded of it. the celtics, his team, just another in his portfolio. annmarie: and a football team in italy. who is having a better year than steve? lisa: next, the ozempic effect.

>> it has almost turned into a macro story. this will create higher productivity and workers, you will get gdp that is higher than you might assume. glb ones fall in that category.

lisa: we are still talking about the celtics as the search for direction after 30 record highs in 2024 led by big tech. meanwhile, we see a lot of questions about when that will shift food and potentially some of the other trends other than ai, like ozempic david under surveillance, the ozempic effect. >> the ai theme has been

applied, almost turning into a macro story. this will create higher productivity and workers, get gdp growth that is higher than you might have assumed. glb one also falls into that category. there are some big assumption being made, what does this do to longer trend economic growth, what does that do to your long-term view. lisa: glp-1 revolution playing out in retail. customers are downsizing on clothes and renting the smaller sizes. suture read a good dolly joins us now with retail sales just over 30 minutes away. let's talk about this. i thought to myself, is this really true, can we really attribute people looking for clothes fitting to the ozempic effect? do you see this having a legs and shifting retail sales going forward? sucharita: when you look at the

story, even the data they cited said that it was not necessarily a clear correlation. it is likely just the fact that people, during the pandemic, purchased a lot of larger size clothing because they were at home, may not have been working out, not as physically active. now they are back to their regular routines. i think there was some speculation that ozempic was the reason but it was more of a correlation, not causation. lisa: is there something interesting about the numbers that you have seen in terms of how much people are going back to retail, how much people are going back to shopping for clothes in a way that people said they wouldn't after the pandemic, frankly even before that, when people saw greater discretion among consumers. sucharita: this entire retail economy post-pandemic has been very curious. the retail sales, the numbers

have been at all-time highs. until the last few months, have even exceeded inflation which suggests units that people are buying across categories, not just apparel, but food categories, consumer packaged goods. mass merchants were doing particularly well. it was at odds with this consumer confidence set of numbers which were entirely down. that is the reason we have that expression. people feel one thing but they are actually doing another. that is what we are seeing in the economy. only now, i expect the numbers today to have some softness, probably at the level of inflation, maybe less. dani: i know this question is out there but i'm a user of reels, tiktok, and i see a new fashion trend every day that i'm supposed to be latching onto. apparently i'm not supposed be

wearing ankle socks because it shows that i am a millennial. if you where low socks, you are old. does this show a faster fashion cycle that is getting people to go out and spend more? is it having any discernible difference? sucharita: that is probably the bigger thing. it is not just social media, but companies like shien, temu have paid a ton of money for online advertising, acquired so many consumers, and have supercheap prices. they can get people to purchase at a faster rate, too. the lower the price point is, the demand curve will have you purchasing more units. that is absolutely happening even that is what is unique about the apparel industry in particular, one of the few product categories and consumption where the average price point has actually gone down, has barely kept up with

inflation. that is definitely one of the things that we are seeing, more of these inexpensive units being purchased. some of these chinese sellers being the place where we are purchasing. annmarie: i was struck by the fact that kroger, the u.s. grocery is in cannes, france. why? sucharita: that was interesting. the big advertising and media conference that happens in france every year, normally you expect companies like meta and google, advertising agencies, media companies to be there. kroger actually has a producer on presence there. the reason is they are trying to pitch their retail media business. this is advertising on a retailer's website, on their properties. kroger is trying to get a piece of the advertising that amazon

ads has established for the retail world. lisa: suture ritika dolly, thank you so much. i am now going down a rabbit hole of ankle socks. they have apparently been canceled. dani: they will make tiktok's filming people on the street. i can tell if they are millennial origin z, gen x, depending on what kind of socks they wear. lisa: it's about a new fashion where the socks go up to mid-calf. annmarie: crew socks? i guess they are back? lisa: just wondering. there is something about the clean look of shoes -- dani: i feel like you are getting somewhere. annmarie: it is a heat wave, why is anyone wearing socks? just don't wear socks with sandals. that is a rule. lisa: this is quite the fashion

discussion. our sartorial leader has gone out and we are making it up. david leibovitz will come and save us. ian shepherdson of pantheon macroeconomics, gregory danko, as well as david rubenstein of the carlyle group. annmarie: i am not making it up. definitely don't wear socks with sandals. lisa: what we are seeing in market is potentially another day of record highs. basically range bound. what i'm seeing right now in yields, marginally up. people telling me to get rid of crew socks. i don't want to throw out the ones that i like. dani: i have so many low ankle socks. i will help retail sales by myself buying new socks. lisa: this is bloomberg. ♪

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her uncle's unhappy. i'm sensing an andunderlying issue.ss. 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.

>> the market this week want better data, wants to be assured that the economy really is strong. >> the incoming data has been

unstable enough, that has reflected itself in the instability of the markets. >> you are not going to make straight a's every quarter, you will have some weakness here and there. >> risk assets accrued through the whole thing and ignore the volatility. >> it is really going the way that the fed would like it. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramovitz, and annmarie hordern. lisa: 30 minutes away from understanding just how many socks people are buying to update their crew socks holding to something more fashionable, maybe to wear with crocs or birkenstocks. she is horrified to think that potentially anyone would catch her dead wearing sandals and socks. 29 minutes away from retail sales. at a time when a lot of people are focused on the narrowness of leadership. talking about the equity market rally, how much consumers can keep on spending on things other

than socks, just their natural expenses that have gotten so much greater. dani: you have this moment where inflation went from 9% to 4% in a year, and then bounce around 3%. you don't have that real income gain that you did in years past. when does that make people feel unwilling to go out and spend? lisa: which has been a question mark underpinning this session. we have a lot of people, university of michigan survey coming in on friday much weaker than expected. the underpinnings highlighting it is not just inflation. people are not as confident about their job prospects at a time when we are still seeing record highs. annmarie: we all agreed what was so interesting about the michigan report was the director coming out from the survey, saying the middle class, for the first time in a long time, they are starting to feel like they are part of the lower economic

income level. that is very concerning. i was talking to the chief economist and ubs. u.s. consumers should continue to spend money. however, anecdotal evidence suggests u.s. consumers are more price-sensitive and refused to spend in the face of price increases. that mirrors what we heard on friday from michigan. lisa: which highlights how confusing this moment has been. patrick harker is confused. annmarie, you pointed to his comments, surrounded by air-soaked in uncertainty . i am wondering how much this clouds how much the market will respond to retail sales that are expected to soften. it is unclear how to interpret it when some people are telling us to ignore it. dani: it is a moment in time when it seemed like the fed's uncertainty, their default is to

have just one cup this year. the market have been pricing in two or three. that is what the fund managers survey showed us. it is almost as if the fed is over correcting what they did in december, unleashing this verbal cut in december. perhaps they are concerned about getting excited about the data. if they had all the data in hand today, cpi, ppi, sop their retail sales, maybe they would have put in one cup. lisa: that is why we'll be listening to the six event speakers that come up today. right now, market's not doing a lot, session is young. we saw this a lot yesterday, waffling around and in interesting into the close. the s&p's overall gain, almost 15%, equal weighted 4%, russell 2000, down on the year.

dollar strength continuing because where else do you go? her. we have been watching this with respect to some of the corporate issuance, how much that takes away some of the demand for benchmark u.s. government debt. 4.29 on the u.s. 10-year. crude bouncing around after going back a month, 80.28. david leibovitz, ian shepherdson of patheon, gregory dayco of ey with retail sales on deck. do we get some clarity from that? mega caps lifting the s&p 500 to its 30th record of the year with retail sales due in about 25 minutes. david leibovitz of jp morgan writing, we take the fed at their word and believe a rate cut will be delivered by years end. clearly, this will be dependent on the evolution of the data.

david, does it matter if the fed cuts rates this year given it all depends on whether nvidia can keep collecting cash, paying out dividends as much as it has? david: i don't know how much it matters that the fed cuts rates before the end of the year. what is more important from the market today is the fed maintains and easing bias. if they say the data is not cooperating, we still want to ease down the road, and it looks like that will happen more in 2025, the market will take that will. we went from pricing in six rate cuts to now just one or two following the june meeting. i think the market recognizes what the fed is trying to do, going to try to be data-dependent. what would spook the market is if you saw a re-acceleration in the underlying data and the fed would say we need to do more. lisa: we have been talking about the volatility on the heels a lot of data prints. if we get a really hot retail sales print across the board,

not just in some key staples, while not affecting significantly, move the narrative? david: i think the market is in an interesting spot because we have had this variety of data over the past couple weeks. cpi looked really good. the most recent job support, let's not forget, we added 300,000 jobs, wage growth accelerated. the market want to see the economy coming back into balance. i am not sure a hot retail sales print would be the cat that gets thrown amongst the pigeons, but if we saw a series of higher prints, that would cause a bit of concern. the markets are hanging on every data point here. you think about that 15- basis point move last week. that level of volatility says to me that the market is giving the levels of distributions to be wide and is looking for a trend

before it settles down. dani: if we see some normalization, can the rest of the market do well, not just big tech stocks? can we start buying cyclicals, small caps, literally on anything other than tech? david: small caps are a bit of a different animal, let's put them aside. one of the themes that can out of our equity sessions was we should see this broadening out . we are talking about a softer nominal growth environment. cyclicals accelerating as nominal growth is accelerating. a little bit of dissonance there. when you look at the flow of earnings these companies have had the last couple orders, it looks like they will pick up relative to what we have seen as of late. small caps, it is a retreat at the end of the day. we can talk about the russell 2000 versus the s&p. higher rates very much away on

the dynamic. you would also want to see robust real growth and that is not coming through in the data. dani: for the tech players, one of the changes we have seen is the capital intensity that has befallen all of these businesses. usually incredible margins but they are spending a huge amount of money, hundreds of billions in corners, in order to get their ai offerings up. should we change how we approach these companies? does a meta, whenever mag seven you want to put in, does becoming more capital-intensive change your attractiveness at all? david: it's a necessity of productivity. we need to see the capital investment. we know it will happen at these companies. the silver lining here is, multiple silver linings. these companies have a ton of cash. they don't need to go into the debt market and take on a bunch

of leverage that 7%. that is a very powerful dynamic. the other thing from a valuation perspective, if you look at the free cash flow yield on these businesses, it is still unlike anything we have seen in history. they don't look that expensive on a free cash flow basis. p/e multiple, i'm not sure that is the best way to think about what these companies are worth over time. as long as they are generating cash, can self fund, paying dividends, we like that. annmarie: potential headwinds coming from the political stage. do you think this is overdone in europe? david: i do. it's important to separate signal from noise. today, we have a lot of noise and frankly no signal. we are going to learn more as we approach june 30, u.k. elections sandwiched nicely in the middle

of the second round of the french elections on july 2. we don't know anything until we get to that point. one markets are dealing with is the crystallization of risk. it is much less about what is happening on the right. we don't think the probability of a frexit is terribly high. we are more concerned about what is happening on the left, this drumbeat of unwinding all the economic reforms that france has gone through. that would put france head-to-head with the eu and bring us back to a situation not unlike what we saw following the financial crisis. annmarie: what will be the impact on markets? david: you will see the bond vigilantes reemerge. this is becoming a deficit issue more than anything else. like we saw in the u.s. last summer when the 10-year went 5%, bond markets can push back against government spending. i think that it probably the next shoe to drop if things don't take a turn. annmarie: more people not paying

attention to this? this risk have been brewing for decades. why were so many people caught backloaded? david: markets don't focus on politics until they do. they have had plenty of other things to chew on between inflation, policy shifts, the ecb is going to lead us down this road a better policy, more accommodative policy. man, look what is happening over here, it is not that good. it just injected the volatility back in the markets. usually markets pickup on political issues three months in advance of the data. calling it a little bit close, calling a snap election was a little bit of glass of cold water, but the second half of this year will be very much characterized by politically driven volatility. we saw this in mexico, india, south africa, now europe, then the fireworks here in november. lisa: a question of where

political volatility will hit the hardest, the bond market or the stock market, given the leadership of these stocks that have real cash flow that cannot be undermined by some belief or concerns on the political front. bank of america data showing government debt globally has risen 40% over the past few years. how is this shaping how you allocate, where you see risk, versus four years back? david: the short answer is it shows up more in the bond market than the stock market. one of the conclusions we came to following our strategy summit last week, we wanted to move to a short duration stance. we had been neutral up to this point given the volatility. we didn't want to find ourselves on one side of the line or the other. we said that 10-year is trading at 4.25, a couple of cooperative data points, it feels like

markets are extrapolating these data points into the future. let's look at what is coming down the road. there is an election. in the u.s., both candidates will run on more spending. that will probably materialize over the course of the next few years. frankly, we are running a 7% deficit in a non-recessionary economy. this will be a bond market issue, whether the bond market stands up and say we are only willing to finance this type of behavior up to a certain point. lisa: wonderful to see you. we will keep the commentary on socks to another date. let's get you an update on stories elsewhere. here is your bloomberg green with yahaira jacquez. yahaira: more trouble for bowling. the playmaker may have installed bad parts in it 737 max aircraft according to a whistleblower. a quality inspector alleging the company mishandled and lost hundreds of faulty parts for the planes, some of which, he fears,

may have been installed on new planes. this according to allegation made public by a senate subcommittee. it comes as the boeing ceo dave calhoun is scheduled to testify on capitol hill today. apple is shutting down its pay later program after launching it just a year ago. the program allow users to pay off purchases of as much as $1000 over four installments. the move marks a retreat to offer more financial services in-house. recently, the iphone maker announced third-party services would be integrated into its upcoming ios 18 software. france got there euro campaign off to a strong start on beating austria 1-0, but it may have come at a significant cost. star stryker mbappe suffered a broken nose in the match, leaving him in. for the rest of the campaign. the team said a protective mask will be made for the captain,

but his status with the rest of the tournament remains unclear. lisa: thank you so much. i cannot look at those pictures. it is awful. annmarie: speaking of french politics, he weighed in on sunday night, telling the youth that they needed to not accept extremist because they were at the gates of power. he was not saying who they should support. dani: would have been cooler if he did that with a bloody knows. lisa: morning calls in the state of the housing market with bloomberg's drew writing. this is bloomberg. ♪

♪ rise up this morning, ♪ ♪ smiled with the rising sun ♪ discover our newest resort, sandals st. vincent and the grenadines now open. visit sandals.com or call 1-800-sandals lisa: 12 minutes away from retail sales as we try to gauge the consumer amid a sea of confusion on underlying strength when it comes to spending at least in ai. he s&p bouncing around this 5547

level as you see yields marginally higher. not a lot going on ahead of this print that we got in 12 minutes time. jp morgan raising its price target on apple to $245 from $225. the firm boosting in volume outlook for the upcoming iphone 16 and 17 thanks to artificial intelligence. rosenblatt boosting its price target on nvidia to a street high of $200, up from $140. the analyst expecting new chips to keep driving value. bmo capital markets upgrading kroger to outperform. the merger with albertson's is a win-win scenario. even if the deal is not approved by regular regulators -- federal regulators. kind of a fascinating call that i want to dig more into. after the closing bell, results from kb homes. drew reading joins us now for a preview. the home sector has been

interesting, a bit of concern in the recent lennard earnings. even though earnings were up this quarter, maybe not so much in the future given 7% mortgage rates, some of the incentive they have had to give to consumers. how much is that trend of homebuilders being able to lower costs for aspiring homeowners kind of running out of steam as we have gotten longer in this post-pandemic phase? drew: i think one hard -- len nard's response shows us that buyers are still paying attention. what is the impact on gross margin going forward? part of the reason there was a negative reaction is because they got it for their third-quarter gross margin below expectations and that will require a significant ramp in the fourth quarter in order for them to meet their full-year guidance. it is not necessarily that the incentives are not working to get buyers into the door, they

are, it is the fact that it comes at a cost. lisa: how much are we seeing homebuilders already baking in in terms of their valuations that margin compression versus a rude awakening ahead? drew: there has been a lot of optimism looking into the second half of the year for gross margins to expand. a lot of that has to do with interest rates were lower when the -- we started the year, so they would be able to support their gross margins. also getting better fixed cost leverage as you get through the year. now that calls into question as rates have come back up, you are starting to see a rebound in incentives. rates went as high as 7.5% not too long ago, back to seven now. results will continue to ebb and flow with what we are seeing in the rates market. annmarie: is there a sense if we are seeing a weakening of the consumer, places like kb potentially having to cut some

of their pricing? drew: unlike but we have seen in the resale market, builders have been pretty aggressive adjusting their prices to meet the market. they have done this through base price reductions, actually lowering the true price of the home, they are doing it through their floor plans, building smaller square footage plans, less a minute sized. they are offering concessions when it comes to rate by, closing cost assistance, structural options to buyers. annmarie: if that is the case, who, out of all of these homebuilders, is leading the way when it comes to actual margins are right now -- margins right now? drew: from a profitability perspective, toll brothers, poulte. also business matters that you have to consider. certain builders are focused on higher volume sales, some willing to give up, not chase as

much volume. when you think about the volume builders, d.r. horton, lennar, who is model calls for higher inventory turnover, generating a lot of cash, they are applying that cash to more systematic share repurchases. that is something investors like. dani: one of the interesting things about kb home, they tend to cater toward first-time buyers, people trying to move up. we are trying to get signals about the consumers. had to we know about how this cohort is doing, when we are in a world rife with people complaining that the homeownership latter is so difficult to get onto right now? drew: great question. about 50% of kb home's business is tailored toward that first homebuyer. how does their selling price compared to the other builders? they are one of the more affordably priced builders out there which puts them in a good

position in the market that we are in. as you would expect, buyers in the entry are more sensitive to fluctuations in interest rates. homebuilders on the lower end who target people coming out of the mental market, we are seeing relative weakness there. perhaps you have builders targeting entry-level but more affluent entry-level, dual income buyers, and they are doing better. lisa: thank you for that update at a time when housing sales, upgrades have driven retail cycles in terms of spending. here is what we are expecting in about six minutes time. retail sales, the expectation is for a 0.3% gain month over month. when you strip out auto and gas, the expectation is higher, 0.4% on a month over month basis. what are you looking for at a time when people say it will be confusing given some of the warped messages from lower gas

prices and other trends? dani: any sign of weakness. it will be another one of those choose your own adventure data sets, where you can find what you want. yesterday, apple announcing they are ditching their by now, pay later, it's an interesting insight into where we are in the consumer cycle. companies are not willing to stretch outside of their comfort zone. we know the consumer is spending a lot, racking up debt because of that, but at what point does that don't become a problem for spending? annmarie: we have seen some businesses/prices, and that will help consumers, but interested to see where retail sales were not. when you see companies slash prices, does that mean the consumer feels more robust, or do we see more pressure on them? that is why this retail sales number is important. lisa: when you talk about the uncertainty, there is this issue, citigroup's car spending

data came out higher. it is not clear. it's also a question of where are they spending, on vacation or some of the clothing sales? we will break that down. right now, you are seeing a market that is not doing a lot after making its 30th record high yesterday, we saw that in the s&p 500, led by big tech. we are at session highs. 5548. of less than .1%. the euro weakening against the dollar as we talk about the political divide. coming up, breaking down that retail sales data with ian shepherdson of pantheon, greg daco of ey.

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lisa: seconds away from that ge retail sales report as we toggle between optimism and pessimism around the consumer. welcome back. this is "bloomberg surveillance ." the state of play is modest gains on the s&p heading into the open. 5547. the nasdaq still not performing the climbing background of the session highs, up .2%. as we wait for retail sales, it should about which of the surprise will be, and it is on the downside. retail sales coming in month over month at 0.1% versus the expectation of 0.3%. when you take out auto sales, it

declined to zero point 1% versus the expectation of an increase of 0.2%. the control group coming in softer than previously expected, 0.4% versus the 0.5% expected. pretty much across the board, downside to prize is in terms of retail sales. what you can see is s&p futures getting a bid. evidently bad news is good news, softer tone creating more of a lift possibly because there is a feeling this is the disinflationary trend the fed when looking for. revisions are important. down .2% in the prior month versus a flat reading we got previously. down 0.1% versus the 0.2% reported last month. ex-auto, when you look at what is going on with the control group, down 0.5%. that is the revised number.

put together, this is a weaker consumer we are seeing in this picture. when you can see in bond markets, yields off of session highs, lower on the day. 10-year yield, 4.24%, down two basis points. 2-year yield down five basis points. at a certain point, how much is this good news, does not reflect a true weakening? what is your sense that really stands out to you? dani: equity markets have already given up some of those gains that we saw. bad news being good news is a little bit confused. it is a trend now? it is not clear but it is starting to feel like. especially when you take the revisions in hand, is this a consumer that is finally starting to feel the pinch? how does that filter into the labor market? we need to see how the fed will be reacting to the data. annmarie: when i saw the

revisions, that is what i asked myself, is this a trend, real cracks in the consumer? you are seeing this in some of the consumer data, but now potentially in the hard data, revisions, this month, downward surprise. is this not a trend? lisa: when you bleed this into the 300 month annualized figures, you see them coming in as a result of this data. we will be parsing through it. michael mckee is not here. he is off today but we will keep digging through the numbers and get you some of those details about where we saw the declines most significantly. ex-auto stand out to me in terms of how much that propped up those retail sales. i want to bring the panel and because they probably have a better sense of this. both of them have been on this disinflationary trend. ian shepherdson pantheon

macroeconomics, greg daco of ey. greg, i want to start with you. both of you are talking about how the balance of risk, we are seeing real weakness, and this is just a tipping point that will deepen. what do these retail sales due to edify that feeling of yours? greg: you are seeing more caution, prudence on the side of consumers. we have been seeing consuming be a little more careful, more sensitive to higher prices. this cost 50 we've been talking about for a few months now is darting to be visible in the data. we are seeing more caution when it comes to outlays. when you adjust outlays for prices, you are actually seeing a contraction in retail sales on a year-over-year basis. service sector spending is still relatively strong but we are seeing more caution. the key reason is the fact that you are seeing some softening in the labor market. nothing alarming, but a bit more

caution in the labor market as well. lisa: when is the gap between more caution and true weakening, given this is two straight months of pretty negative downward revisions as well? >> it sound like the control group is flat over the last couple of months, weakening before that in terms of the growth rate. this is starting to look like an entrenched softening, not a rollover, not a disaster by any means, but it is very different to what we saw last year. second half of last year we were looking at constant upside surprises, there consumer trudging through the second half of the year. we will not do that in the first half of this year. as well as the labor market which we think is real, you can see people are getting nervous about job security for the first time in the cycle, but they also have less cash flow. real income growth after-tax is lower than last year.

payroll growth is lower, wage growth is lower. people are just being a little more cautious at the margin. if you are more cautious at the margin for a few months, it starts to build into something real. dani: if we have this price with tv do corporate have pricing power anymore? if we are in a world where corporate seventh-inning margins, you don't have the labor constraint that you want stood, is this an inflection point for the labor market? ian: inflection point for sure but also for the inflation story as well. that margin expansion we saw during the pandemic and a year after was a huge driver of the increase in inflation. most businesses have held onto that inflation. if we are starting to see them coming down, it really does change the inflation picture. it was a really big part of the inflation story that is not widely appreciated.

it is why i think core inflation next year goes below the fed's target. just beginning to creep in. greg: i tend to believe so as well with inflation point. we have seen more pricing sensitivity on the side of the consumer, also seeing markups fall, when you look at the ppi indices for the consumer pass-through. we are still seeing some disinflationary currents in terms of the rent inflation. wage growth is also moderating. altogether, the fundamental indicators in terms of inflation are pointing toward further disinflation. if you have a forward-looking perspective, that is the right type of mixing want to see from an fed perspective in terms of easing monetary policy, not to bring rates down to zero, but recalibrate policy to today's reality. annmarie: the december make sense? greg: i would have thought july would have made sense, potentially june. you are not cutting down to zero

to stimulate the economy and prevent recession. you are talking about how you recalibrate monetary policy for an environment where core pce is within target. likely 2.6% in may. that is when you want to start considering recalibrating monetary policy to have the optimal framework in an economy where the labor market is gradually cooling, wage growth cooling, inflation moving in the right direction. annmarie: we heard from the new york fed president talking about being data dependent. do you think they need to take another look at their dots? ian: greg and i will have an agreement-fest here. i wish they would have cut last week. what worries me here is they are very backward looking, constantly talking about what the data has been doing. not in discussion about where

the leading indicators -- we have dozens of reliable indicators. they seem to be resolutely ignoring them in favor of looking at the backward looking stuff. if you carry on doing that, by definition, you will be late when you start cutting rates. the danger is you have the economy slowing more than it needs to for longer than it needs to. a bit of courage here. we don't have to wait until we are 100% certain inflation will get to the target, but to be reasonably sure right now is a solid case. core pce over the next month will be 2 something. not a million miles away but rates are still at their highs. lisa: we did get retail sales about nine minutes ago, came in across the board lower than expected with downward revisions as well to the prior month. the headline coming at zero point 1% versus the expected 0.3%. decline in the prior month of 0.2%. looking under the hood, what was

driving this, this speaks to some of the homebuilder stories we were talking about earlier. furniture and home purchases were down 1.1% on the month. building materials down 0.8% on the month. you can see this pretty much across the board. what are the part that bolster this report? vehicles and parts. auto dealers, 0.8% gain. gas prices going down. 2.2% decline. sporting and book costs, 2.8%. people are buying books. this raises the question of how much they suppressed housing market -- some might argue the broken housing market -- is suppressing retail sales in a way that is distorting the data, could rebound substantially if rates come down, people buy homes again, if they find it accessible. is this muddy data being

obscured by otherwise a broken housing market? greg: the housing market is certainly frozen but i'm not sure you will see a massive reacceleration in the market unless you see 1023 -- three things. prices falling dramatically, interest rates falling dramatically, or income growth accelerating. we have real disposable income growth at 1%. that is a low number. home prices are still high and still going higher given the lack of supply. interest rates are unlikely to fall back massively given that the fed is likely to maintain this higher for longer monetary policy stance. i don't see that as a potential for a comeback. if you look at the underlying drivers of consumer spending, you have income growth that is moderate, low savings rate, and while there is not accelerating as much, at the same time that credit is tight. you have this bifurcated outlook for consumers, where the

younger, more indebted consumer is struggling to make ends meet in this environment. dani: to the point of bifurcation, maybe it doesn't accurately capture things because of housing, but if you are looking at the richest people who essentially buy assets, investing in the stock market, does something like this give us the full picture? is it just capturing what we already know is under pressure? ian: the lower end of the income distribution is under stress in a way they have not been since covid. the fiscal stimulus, the checks in the mail that we got in the pandemic, was a huge support to consumer spending, especially for the middle and lower income portion. that top part of the consumer, it's all about asset prices. the variations in consumer spending are driven by the middle and lower. if those people are seeing slower income growth than last year, and are beginning to worry about job security. in new york fed survey asked

people, are you worrying about job security? that is not a great combination. that is a combination that makes people save more because of worry, but they are saving more from more cash flow, which means spending gets hit harder. we are not at a point when everything is falling apart. that is not the story. but we have to get out of the mindset, constant upside surprises for the consumer. not anymore. annmarie: do you see a real halloween out of the middle class? ian: probably going a little too far. the unemployment rate has been very low. nothing is better for the middle of the income distribution than seeing sustained low unemployment. all wage growth is slow, it is still growing. the price level shock from the pandemic has scared people, made

them nervous and unhappy. that is why this administration's poll ratings are so low. but actually real wage growth is still positive but it will probably get weaker. as it gets weaker, it makes people more cautious. annmarie: when you look at the retail sales, do you expect more companies coming out and saying i guess we need to slash more precious to keep that market share? greg: you are already seeing companies think about incentives as a way to get consumers to spend more. if you look at the different income quintiles, the bottom and medium being much more price-sensitive. that mean they need to get greater focus on how to draw consumers to spend. you have to do that at an affordable price. in order to do that, you need some incentives. what that mean for the overall economy is lower consumer spending and ongoing disinflation.

those price cuts in certain sectors are going to lead to further disinflation. this is actually a positive story where the fed has to be careful to recalibrate monetary policy and adjust to that environment, not be so backward looking. backward looking can be very dangerous in an environment where you have a lot of noise in the data, downward revisions that show a different picture when it comes to retail sales. lisa: to your point about this is not a negative story, this has been one of the key question for equity markets, is bad news good news when disinflation could be positive? you can see in this morning, basically lower. futures on the s&p. markets are lower across the board. this is from drew mattis at metlife, crystallizes the fear that people have. he says it may have been the break month. lower sentiment, lower retail, higher claims. the question is whether this will spiral downward, and if so, when does the fed recognize it?

given that view that some habit, and you are sympathetic to it, when is the chance of a fed error when the fed is looking at december for a rate cut? ian: the chances for a mistake are going up for sure. monetary policy works in very long lags. i cannot stress how long it takes for the economy to react to whatever the market does. that means that if they start cutting rates tomorrow, it will be well into 25 or 26 that we start to see the upswing triggered by that easing. between now and then potentially we could be in for quite a long period of sluggish growth. at this point, i'm not terrified of a downward spiral disaster because the private sector finances are in much better shape than you have other start over sessions, but i can see the risk of the fed presiding over a long period of sluggish growth, which is unnecessary to get inflation out of the system,

which is why next year they will end up with inflation below the target, monetary policy getting easier. there is going to be a real push and pull in stocks over the next few months. people buy because evaluations. margin guys are saying this is a loss of volumes and margin compression at the same time. it could get a bit sticky. greg: i will disagree with ian a little bit, but there is a risk that the economy worsens more because of the self reflected interdependence between the fed and financial markets. this unhealthy environment where financial markets are trying to price what the fed will do based on data which is backward looking, and you have the fed looking at financial conditions to try to evaluate how tight its monetary policy is. if you end up in an environment where there is a sudden pivot at the fed because of disappointing

economic data that is backward looking, that could catalyze into something more pronounced in terms of financial markets seeing this as very bad news, thinking the fed is seeing a recession down the road. you could have this negative feedback loop that weighs on the economy. that is a potential downside risk. lisa: the game theory of what we see with the markets and federal reserve. thank you so much for being with us, ian shepherdson of patheon, greg daco of you by. setting you up for the day ahead, and david rubenstein joining us on the latest with peer-to-peer conversations. this is bloomberg. ♪ recipes. recipes that are more than their ingredients. ♪ [smoke alarm] recipes written by hand and lost to time... can now be analyzed and restored using the power of dell ai. preserving memories

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lisa: counting down to the opening down. david rubenstein in the office with an orioles tie which has heated debate around the table. here is the treating diary for

the day ahead. fed speak including bargain, goolsby. markets are closed on wednesday for juneteenth. thursday, the bank of england decides. another round of jobless claims in the united states. s&p global pmi data. joining us around the table after we got retail sales is david rubenstein wearing his orioles tie. host bloomberg wealth. the interesting aspect of your interview this week, it is with someone who runs a $2.7 trillion wealth management firm, at a time when we have talked extensively this whole morning about the uncertainty around how to position portfolios, retail sales could be signifying some sort of rolling over of the consumer, or just a welcome softening. how did your guest to reshape the way he is viewing asset allocation and strategy at such an uncertain time?

david: the person is the ceo of kaplan management group which manages $2.1 trillion. their view is the conventional wisdom, which you cannot beat the markets, is wrong. they actively manage stocks and bonds, mostly stocks, and they beat the market pretty consistently. you don't know about them as well as maybe you should because they work through registered investment advisors. if you go to your money manager and say give me a good mix of stocks and bonds, they were probably contract with capital group to do a lot of the stock investing. it is not as well known publicly as blackrock might be. but it's an incredible company, has been around for quite a while, started in the 1930's. they have their view that they can beat the market pretty consistently, and they have been made he is a bond person by background. when he came in, it was a different kind of mix than he

expected to do because the firm he had been with before was also a stock equity firm. at t. rowe price, he built up their intent business. now he went to capital group, built on their intent business. nobody thought a deaf person would become ceo, but he is so good, he became --debt person would become ceo, but he is so good, he became ceo. dani: fascinating and challenging time to be an equity manager. you can say i can buy a cheap passive fund and it gives me that exposure to the mega caps because it is market weighted, and that is all that is doing well now. what does it mean to be an equity manager when you have to pick essentially three stocks, nvidia, tesla, but then it's been challenging to find a wider breath to find the winners. david: conventional wisdom in the business schools is you cannot beat the markets. some who generally say that do

beat the markets. warren buffett has beat the markets consistently. if you have a very good money manager and you are willing to stay with them for the long-term, you can maybe be the markets sometimes, at least that is what clients or capita group feel. they have $2.7 trillion to feels they are doing a pretty good job. but they don't pick one manager and say, you do what you want to do, pick stocks. they have a team of people. the team of people works on your account, for example. it is not just one person managing your money. it doesn't sound like you are a capita group user. dani: i cannot say that i am . annmarie: how is he positioning for the u.s. election? david: over the last 75 years, when a president of the united states is a democrat, the s&p 500 goes up on average 6.7%.

when a republican is president over 75 years, 6.4%. no real difference. if you want to play the markets, jump up and down in the markets and try to take the risk, you can figure out what the president will do, market will do, but over a longer period of time, the markets will do reasonably well under democratic or republican presidents. smart money managers are not worried about what will happen in november, december, but over the longer term. many people, like the capita group people, would say we don't really respond to elections as much as you think we should. the economy is so big, no one president will make that much of a difference. lisa: how many orioles ties do you have? david: this is the only one, i keep on wearing it. we are playing the yankees tonight. the yankees in the orioles have the best records in the american league, so we will see what

happens after this three-game series. lisa: going to baltimore? david: i will be at the game tonight. lisa: you will see amh there saying i am all pinstripes. annmarie: i would have worn my yankees gear if i knew that you were showing up. david: the yankees are a nice team. if you ever want to go to an orioles game, let me know. lisa: michael gitlin of the capital group, don't miss that at 9:00 eastern tonight, especially given his focus on debt markets, which makes him even more qualified for this moment. tomorrow, u.s. markets are closed for juneteenth. thursday, jonathan stubbs, evan brown, anastasia amoroso, and morgan stanley's seth carpenter. markets are trying to figure out how to digest a retail sales print that came in below expectation to downward revisions.

right now, it is a negative read. this is bloomberg. ♪ at morgan stanley, old school hard work meets bold new thinking. to help you see untapped possibilities and relentlessly work with you to make them real.

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matt: futures hovering around zero after disciplining retail data. countdown to the open starts now. ♪ coming up, yields falling, futures muted after the latest retail sales print undershot estimates. golden step -- goldman sachs sticks to two because this year. citi places its services business front and center as