>> the market is well ahead of the fed. this has propelled small-cap optimism. >> these groups will benefit from interest rates moving lower again and investors will see an opportunity. >> the fed does not have to deliver cuts but has to get the market leaving it is moving in that direction. >> it is not just inflation but the broader economy. >> it gets put to work when the uncertainties at rates, inflation and recession starting to shrink. >> this is bloomberg surveillance with jonathan

ferro, lisa abramowicz and annmarie hordern. annmarie: do you remember when -- jonathan: do you remember when the summer is to be boring, nothing boring about this. the s&p 500 from her by .1%, coming up the biggest -- firm by .1%, coming off of the biggest loss. a rate decision from the ecb. 15 minutes later, jobless claims, 15 minutes after that a news conference with president lagarde, and later this afternoon from the rnc in milwaukee, wisconsin, donald trump, a former president addressing the republican national convention. we have jay polasky with us. jay: when you talk about, just

as the crescendo of the narrow market, now eight reversal. jonathan: huge move in small caps. the former president addressing the republican convention later. we need to talk about the pressure on joe biden. in the last 20 -- 12 hours, abc news reporting that both senate majority leader chuck schumer and hakeem jeffries have indicated to the president it is time to step aside. cnn reporting the former house speaker nancy pelosi has told the president the same thing. also a report of the campaign funding is essentially drying up. has the pressure government greater on this president? jay: it is interesting because i think joe biden is a fighter and this is making him dig in

which seems to be the case so far. you have a massive push on the others, things like 538 and pulling -- polling suggesting that biden would win. that seems to get lost in the perspective. the economic policy mix between the two candidates is at night and day and one of them is very constructive for the united states, i believe. and the other is destructive. jonathan: would like to tell us which one? jay: it is not just me, if you look at goldman sachs, moody's, the peterson institute, and 16 nobel laureates have said that donald trump's plan is bad for the united states. it means lower growth, higher inflation. you have mass deportation and

that throws a wrench into the labor market. you have tariff hikes, extension of tax cuts and essentially fiscal incontinence. i think it sets up the real risk of a dollar crash which sets the stage for a reversal of what has been a 15 year run of massive u.s. financial assets outperformance. jonathan: dollar weakness seems to be the objective of the administration if they win. are you saying that dollar dominance will be questioned come november if donald trump wins? jay: i think that is the case. you are starting to see it. it has not manifested because notwithstanding the frenzy around joe biden, the polling has not been suggestive of the same. the polling is extremely tight within the margin of error across the 20 states as well as nationally and that is why i think the market is not moved on

this but it sets the stage for does the small-cap rally have legs, does the broadening out of the market be sustainable or do we run hard into the fall and then get smacked into the face with a trump victory that leads people to question the policy mix of the united states. the fed gets put into a box because the fed is going to be cutting but if we get the worry that the dollar starts to fall, the fed has to raise rates in the dollar continues to fall and reits go higher. we are in a bond market that has not broken out. equities have clearly broken out. it is not the magnificent seven, all country world, all-time highs, emerging markets, two-year highs. we are in a situation where the other countries are starting to do reasonably well. and here we call into question

policy mix of the united states in a massively over owned asset. everyone is overweight u.s. equities and treasuries. you have things like the en, fair value considered to be 100, now at 156. the euro, fair value considered 120, it is at 109. i think it is not yet percolated in the minds of folks but if we wish for a weaker dollar and we get a weaker dollar than that suggests that the u.s. is not going to be the place to be for the next several years. jonathan: stronger dollar, firmer and we have a lot to talk about this morning. the equity market a touch firmer, up by 0.0. in the bond market, back towards a .20. we can talk about foreign

exchange, weaker going into the ecb decision euro-dollar at 1.0 93 zero. democratic leadership pushes for biden to step down. and look hickmore looking for rate cuts. as illness forwards -- as illness hits the president, indications that house leaders have asked him to step aside. annmarie, before we get to the events of where you are, we have to talk about what is happening elsewhere. how great is the pressure on president biden to make a move? annmarie: it is intensifying. he had a really rough 24 hours, not to mention that the white house came out and said he

tested positive for covid-19. it is not just senate majority leader chuck schumer going and telling him we think you need to step aside or the fact that hakeem jeffries the house minority leader saying that if you state in this race it will hurt down ballot and mean we can moves -- lose the house. you have a speaker of the house nancy pelosi also having a direct conversation with the president saying you're pulling -- polling shows it will be a loss against former president donald trump and you are going to ruin the ticket for house members. these are three top democrats, not saying this publicly but if you read the statements of denials, they are not straightforward denials to the press that the conversations took place but what you are seeing is the top three democrats, especially speaker pelosi who is close to the president, telling him directly,

you need to step aside. the president is isolating and back in delaware. the next few days we should note who he is meeting with. will there be a family powwow and could this heed the calls and step aside. at the moment it sounds like he is defiant when you ask the white house what is going on. they say this is his race and he is sticking with it and has the delegates and will be on the ticket november 5. jay: that is really interesting. i think that joe biden is a fighter and all this pressure is forcing him to dig in deeper. you talked about the down ballot. when you look at these senate races and the swing states, democrats are polling above the republican candidates. in the senate which is more important for the democrats to

hold, they actually seem to be doing well. biden is not polling as well as those candidates. i wonder if we are not getting over the skis in talking about biden stepping away. annmarie: you are right that biden is a fighter and this is a man who has fueled -- has been fueled to the complications in his life. he talks about the trials and tribulations of his life that he can overcome it. he thinks he is in the best position to beat donald trump. when it comes to the swing states, this is where he is struggling. a lot of it is in the margin of error when you look at some of the different polling and that is why you see the concern of individuals on the ballot whether it running for senate or congress. they think that biden is actually potentially going to hurt their chances. there is something else we should take into consideration. biden has changed his message

three different times when asked, what would it take to drop out? when he sat down to abc he said he would only be convinced if the lord almighty came down and said, joe, get out of the race. then the nato press conference, he was pressed on the issue and i was in the room and all anyone cared about and he said no, there is nothing that could make me out of the race except maybe they came back and said there is no way to win and the polls said there was no way to win. and then he said if he had some sort of medical conditions that emerged, if doctors came to me and said you have this problem and that problem, that would potentially be a reason why i would drop out. i think there is more wiggle room because joe biden himself has changed the reasoning why he would get out of the race. jonathan: right after we saw the

comments of that medical problem taking him out of the race, we get the covid diagnosis. saturday evening an attempted assassination on the former president of the united states who walks away with his wrist -- fist raised. look at the pictures of yesterday evening and afternoon. president biden contracting covid, no mask, struggling to walk up the steps of air force one. later on this evening, the president won't be able to conquer a program when he addresses the r and c. how stark will the contrast be? -- the rnc. how stark with a contrast be? katie: it will be stark -- annmarie: it will be stark and they are trying to unify the trump is in that many hawks and fiscally conservative and more moderate republicans were hoping potentially would basically it

no longer be the brand of the republican party unless trump was top of the ticket. yesterday in the speech from jd vance, it showed that trumpism is here to stay. the populist wing of this party is now the majority of the republican party with this ticket. this evening, we will see that with president trump coming to the stage and formally accepting the nomination to face off against potentially what will be joe biden november 5. he is probably going to put his fist in the air and say fight like he did after the assassination attempt on saturday. in contest, president joe biden who cannot counter programming because he is self-isolating and reports that members of his own party, senior members, and some who really love the president like nancy pelosi are telling him we think it is time you step aside.

jonathan: i want to talk about policy. on wall street for a long time we have always thought of the republican party as pro business and you and i have been talking about this for a number of weeks how pro-business this administration may actually turn out to be. what will be in the address later to settle the score on that front? annmarie: it is very different if you hear what j.d. vance has to say, the vp pick and he said this is no longer the party of wall street. this is the party of the working class. he called out autoworkers in michigan, factory workers in wisconsin and energy workers in pennsylvania. donald trump likely chose him to park him in these three states to try to win the election. if joe biden cannot hold the rust or the blue wall and is -- then he is not winning. donald trump will go to the

stage after an interview with bloomberg and said he would like the corporate tax rate at 15%. i am struggling. i had this conversation yesterday with the virginia governor glenn youngkin who they think virginia is in play when it comes to the republican party about which republican party is good for business. honestly, i don't know the answer. it depends on who you ask. some are like j.d. vance wants to see a higher corporate tax rate. the top of the ticket wants as low as 15%. we are still struggling to figure this out. what -- one thing i am continuously told when i am asked about what j.d. vance says about the business community, everyone said it is trump's party and he will get in line. jonathan: annmarie on the latest of the republican convention. just how business friendly will this government be if they get back into power. jay: there is a clear

distinction between the two candidates and their economic policy. biden has probably been the most successful president in terms of the economic terms. former president trump's policy is talking about mass deportation, destroying the labor market and raising tariffs 60% and talking about extending tax cuts and cutting taxes even further. i think the situation is setting up for what could be a significant shift and surprise in terms of the dollar because if the dollar weakens, the fed is in a box and i think people start to get worried about policy confusion and chaos which was the motif of the trump first administration and then you have a situation where you have massively over owned asset which is u.s. financial assets represented by the dollar that could rule over to 104 and 103.

people target 90 as a reasonable place if it does start to sell off. jonathan: let's get an update on stories. yahaira jacquez. here is >> shares falling in the premarket, the company reporting that third quarter profits will fall short of estimates. it is suggested they will be up to $3.25 a share, lower than the average three dollars 30 eight cents analysts were expecting. united rivaling delta saying that low-cost carriers are slashing prices as they tried to fill access seats this summer and that is weighing on the entire industry, they say. nbc reporting new jersey senator bob menendez plans to resign after the powerful democrat was found guilty of federal corruption charges earlier this week. it -- chuck schumer called on menendez to step down after the

verdict. the new jersey governor phil murphy said they should expel him if he didn't comply. murphy will pick a replacement to serve out the remainder of menendez's term. the golf championship in scotland, matt wallace shot out to an early lead followed by american justin thomas. scottie scheffler is once again the favorite for the tournament in the first since tiger woods in 2013 to be the opening ever at all four majors in one year. that is your bloomberg brief. jonathan: up next come the chipmakers taking a dive. >> the locket is -- the market is down a lot by a select few stocks. jonathan: we will talk about those stocks next on the program. good morning. ♪

jonathan: live from new york, welcome to the program. the s&p i've hundred futures attempted to bounce back, from her by 0.06%. chipmakers taking a dive -- firmer by zero point 06% -- 0.06%. chipmakers taking a dive. >> is a fundamental sell rather than macro. jonathan: the nasdaq 100 looking to rebound from the worst day since 2022, new concerns with trade tensions. they say rotation is the life blood of bull markets and it seems like they broadening out would go a long way to sustain the ball. jay is with us.

this is a company putting out real numbers, just this morning, they now expect more than the maximum growth and had it guided towards previously. was that a buy for you yesterday? jay: they were. you live by the sword and died by the sword. if you are up 20%, you pull back a percent a day and that is normal. the point you are making is fundamentally these are solid, fast, rapidly growing stories which are unique in the world for you are talking about forecasts made a couple months ago and already beating and raising them. this is the story we have seen with nvidia and other chipmakers involved in ai for a year now you have a massive moves but the stocks are actually cheaper now than they were a year ago because earnings have outpaced the stock price appreciation. we have been and continue to be believers in ai and the idea of

the pick and shovel. and that is the semiconductor space. when you have pullbacks, those are opportunities. jonathan: this is what we have been rotating away from. small caps and questions around the table and conversations about whether we are going into a small cap presidency with donald trump heading up the united states and driving small business in america and punishing big tech in particular. how you frame that? jay: i look at it that small caps are big beneficiaries and 50% of small cap debt is a floating rate versus 10% for large cap. they are big beneficiaries. we saw the movie in the fall, small caps, october to december. they are set up for it simple and similar. small caps trade at 10 times 2025 earnings on a median basis. that is cheap. they are massively under owned

and there is a massive short. you have fundamentals to support it. and the other thing i think is interesting is things are broadening out. we just updated the model portfolios and i go through all the positions and all the things we are thinking about and the mattix are breaking out. you look at biotech and things like robotics and security and cyber security, they are all breaking out to all-time highs. they are looking at infrastructure in the production numbers yesterday. x li, all-time highs. a smart energy for the grid system, all-time highs. you are looking at a situation where there are multiple parts of the market starting to move

in unison higher and it is not just the magnificent seven anymore. that is a much more robust and much healthier market. as we talked about at the open, should it donald, whether that sustains is a very real question. jonathan: it is good that we are not going into an economic downturn but just cyclicals. let's look at delta and united in the last 24 hours, warning about discounting and driving down prices for the summer. that should not be happening if the economy is holding up. jay: it is interesting. we have used just as a reopening play coming out of covid and they didn't work and still don't work. even though you read about tourism and u.s. citizens going abroad in record numbers and get it does not seem to be an a for the airlines to make money. i think it is interesting but an anomaly. if you look at broader issues like retail sales the other days, the consumer is a strong.

you have wage growth and record unemployment or close to it, disposable income arising. consumption is a fine and what is interesting is are we having the manufacturing sector is starting to catch up? jonathan: based on that call, the window for travel might be closing. coming up, deke -- deep discounting and taking a bite out of the look for u.s. airlines. we'll take a look with sheila kahyaoglu later. with features unchanged on the s&p, this is bloomberg. ♪ so, what are yo i'm thinking... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch

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jonathan: live from new york city, good morning and welcome to the program. equity futures looking like this , firmer by 0.04%. the nasdaq attempting to bounce back, firmer by a quarter of 1% following the worst day since december 2020 two. chip scott hammer. yesterday's price action was a buy for jay pulaski. the 10 year, at lowe's we have not seen since march, 4.1827.

jobless claims is the one to watch, just how stable and strong is this labor market. encouraging news on the jobless claims last week. can we repeat that this week? to foreign exchange, we have to talk about this. your call on the u.s. dollar, individual after individual around this table see strengthening after u.s. -- tightening for the u.s. after a trump presidency. you take the completely other side, why? jay: i do because the dollar is the most over own downside in the world. the u.s. has been the dominant place to be in terms of equity markets for the last 15 years. you have an over owned asset, the fed getting it ready to cut rates so the dollar is starting to soften pretty of markets not quite ready to fully price in a trump presidency.

polling is still tight in the margin. we think about the trump policy mix which is cutting taxes, raising tariffs, firing thousands of people and messing up the u.s. economy. it is not just my view. it is clear that the policy mix is not great for the u.s. economy. therefore you have a situation where people will start to say, i am going to go elsewhere because the rest of the world isn't doing well and you have a situation where there is an opportunity emerging outside of the u.s.. the market is not just the u.s. doing well. all country world index is at an all-time high. other markets are doing well and other opportunities exist around the world. the set up where you have fiscal incontinence and a second term as you did in the first could lead to a weaker dollar which

would continue to follow even if the fed has to pivot and raise rates after starting to cut rates. jonathan: the second time i have mentioned this name, tina. you mentioned equity markets. talk about foreign exchange. what is the elsewhere and what am i buying? jay: you look at the developed country, you have the euro which is considered 10% or 50% undervalued. you have the yen which japan will be raising rates. fair value with the yen is considered 100 and is now at 156 with massive potential. you have places in the emerging markets with the dollar could weaken considerably, you look at brazil, mexico some of the countries in southeast asia. you have an opportunity where there are significant growth and earnings potential. people talk about just year means -- the earnings in the

u.s.. but the euro is expected to grow, china is forecasting double-digit growth this year and next year. china trades at 68 times earnings at this point. -- six to eight times earnings at this point. the opportunity, risk reward seems appealing in some of these places versus the u.s. where it is fully in the price, at least certainly for parts of the market. let's -- let's get top stories. president biden facing renewed calls to end his bid. both senate majority leader chuck schumer and house minority leader hakeem jeffries indicated to biden it might be better to step aside. biden taking a break after being diagnosed with covid yesterday. we've talked about this a few times already, does this present get to november at the top of that ticket or does he step aside?

jay: my view is that joe biden will be the nominee in november. i think he is a fighter and i think people like joe biden as a fighter. the polls are not anywhere near as the perspective in this story around joe biden. if you look at 538 electoral college polling, biden actually wins. if you look at polling weather swing state or nationally, it is within the margin of error. that is what will keep him in the race. it is not just him being a fighter but him looking at the polls and saying i am in it, notwithstanding all this negativity. the other thing people need to remember is president trump is not popular and has not been popular and is not popular in has never polled or received within 47% or 48% of the vote. if you look at the rnc, 5

million fewer viewers at the opening night than four years ago. there is not a tremendous amount of enthusiasm. to me, this is a little bit of a tempest in a teacup and it will pass. i think that you have a real opportunity where the democrats are energized and where abortion is on the ballot and you see signs that the rnc of mass deportation. i don't think that is really going to be exciting. j.d. vance, abortion and all forbidden under all circumstances. i don't think that is popular in america. to me there is a real opportunity and i am betting on this. jonathan: what are you betting on? jay: my view is a global macro blue sky environment 2023 to

2027. that with the biden policy mix that has been successful that the u.s. economy is the envy post-covid. trump could go in as a convicted felon and insurrectionist, he would go in and the policy would go out the window. americans and tourists are going abroad. maybe u.s. investors and foreign investors go to the rest of the world. jonathan: let's talk about senator j.d. vance in his address yesterday evening. how this organization come this party is ultimately going to commit to the working man. these comments yesterday happened to further trump's economic message like wisconsin, michigan and pennsylvania. we have heard this populist language and it is about the

working man and not big business in the republican party. what i heard, is the trade ultimately going into this administration that we go in? jay: president trump has -- former president trump has promised retribution so that is retribution against meta. and bitcoin definitely. i was at dinner last night with guys in the business and bitcoin was the topic of the day. it makes sense for me but i really don't see it otherwise but i think the big trading is a dollar down and what happens to bonds and they have been in tight trading range. equities have broken out around the world. which way do bonds go? bonds will break higher if it is a weak dollar. i am not sure that will be a great environment for u.s. assets.

bitcoin might be fine but bitcoin is a tiny thumbnail on the global financial asset stage. jonathan: we talked about the airlines. united airlines saying third quarter profit will fall short of estimates as u.s. carriers/ slash prices. and dealt out with a similar outlook. sheila kahyaoglu joins us. what is going on with the airlines at a time where it is summer and i thought demand was good and the consumer is strong. sheila: demand is good. but we see pricing in the domestic economy is weak and the airlines are telling you it is capacity. prices are down in the low single digits and the main cap for delta's low-cost carriers

like spirit according 11% down year on year and that is bad given pricing for airline ticket prices are already deflationary. airlines are blaming it on overcapacity and not consumer weakness. i think it is a case of the latter rather than the former. jay: we used to play the uts as the airlines as an opening play and it didn't work. airlines have not done much for quite a period of time. is this something you think is going to last or is there an opportunity if you are a long-term investor, is this an opportunity to step in? sheila: the perspective on airlines is they are cyclical. delta and united holding up double-digit made margins and that is good for a that trades below the chinese market evaluation isn't going to go lower and investors are making

that that earnings revisions are going to go lower. my focus is once going get its act together and it will one day that we will have more planes in the market and we will see capacity trimmed into the second half and 2025. airlines are being cautious and it will be interesting to see what united says about that because delta is saying capacity will be trimmed and americans are cutting transatlantic flights. we will see what happens and how quickly. jonathan: it felt like last summer we heard from delta and united, how much worse will things before american airlines if they face this as well? sheila: american will be the best print out of all these. it will be much more disappointing than what we are seeing. united has the highest exposure in the group and that offsets

the weakness we see in domestic markets. also the coastal hubs are better positioned because you are seeing the low cost carriers in the southern markets. jonathan: united double digits, this is even with the losses of the last week or so. american airlines down 20% year to date. what do they do to turn this around? sheila: they took the wrong approach and revise the management team and homed in on regional capacity. that should have been positive for them but it turns out they were in the wrong markets or saw low-cost competition. i don't know what they need to do to turn it around they need to follow steps that united and delta are doing whether it is having a better loyalty program and performing in the right areas. jonathan: thank you very much. let's get to the bloomberg brief

with yahaira jacquez. yahaira: president biden testing positive for covid-19 and is experiencing mild symptoms and we'll carry out duties while self -- the financial times reporting that warner bros. is considering splitting its streaming and studio businesses from its legacy television networks. the ceo is weighing options including asset sales and is spitting out the warner bros. movie studio and streaming into a new company free of the current $39 billion debt load. representatives were not immediately available for comment. citadel founder ken griffin has reportedly paid almost $45

million for an almost complete stegosaurus skeleton. it is 11 feet tall and 27 feet long. he has a history of trophy purchases out meeting investors back in 2020 12 by a first edition copy of the u.s. constitution here he reportedly plans to put apex on display at a u.s. museum. that is your bloomberg brief. jonathan: up next, a soft landing insight. >> i believe the current data are consistent with achieving a soft landing. while i don't believe we have reached the final destination, i do believe we are getting closer to the time where a cut in the policy rate is warranted. jonathan: live from new york city, and you are watching bloomberg surveillance. ♪

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jonathan: waking up thursday morning. the peak in price action for more on the s&p. bond yields up two or three basis points. a soft landing in sight. i believe the current data are consistent with achieving a soft landing and i will be looking for data over the next couple of months for that view. i don't believe we have reached our final destination, i do believe they are getting closer to the time where a cut in policy rate is warranted. jonathan: here is the latest, another round of jobless claims coming at 8:30 p.m. -- 830 a.m. eastern time. economists expecting christine lagarde to keep rates on hold at the june rate cut. luke had more rights the following, i think the u.s.,

u.k. and ecb do need to cut because if you leave it too long the consumer will start to cry out loudly. luke joins us with more. do you hear any crying? luke: i think there are signs of it. we saw unemployment up a little bit in the u.k. and cute us. really, if people looking at finance and you are seeing the creeping unemployment and that will feed through into people feeling not great about the future. that is really all we need to see. things like the 30 year fixed mortgage in the u.s. and that hurts. we also saw reports this week that the financing costs have

been bouncing higher. we are probably going to get a soft landing at the risk of that turning to not so soft have to increase the longer interest rates stay at this level. jay: the market is pricing in roughly two cuts for the fed over the course of the rest of this year. is that your view as well or do you think there is more to come? we have talked a lot this morning about the risk of the fed being put in a box by a trump victory and people getting concerned about fiscal policy in the united states. are you concerned that the fed starts to cut and is forced to reverse itself and raise rates to protect a week dollar say in the first quarter of next year? luke: perhaps there is something else there as well. if you get protectionism in and

the tariff that trump and his team have talked about, maybe that is a growth shock rather than directly inflationary for the u.s.. if that is the case, maybe the fed takes longer to cut. but if europe is struggling with growth maybe you don't get this big shift in relative foreign exchange rates, a get you a firmer rate but it is not too much and if you have all of that going on in the fiscal concerns and dealing with the amount of debt the government has, possibly fundamentals matter, economics matter and over the next 12 months, rates have to come down. it may be that the trump election causes that. jonathan: there is way too much euro optimism in this program in the last hour.

the china shop volume -- shock volume may be on steroids. if you get the u.s. administration cranking up tariffs in america, everybody is complaining about one thing, spring meetings, world bank, imf, chinese overcapacity and the only economy the administration is doing anything about will be the u.s. administration. the other capacity is going to be euro. that is the logical way to think about it. that is not just the china shop on steroids but the european central bank and will that be good for growth? luke: you're starting to see it coming down in the euro zone. looking at the stocks over the last couple of days, coming down. we are into the early 1980's, late 1970's in terms of capacity

utilization and that could feed into it quite a lot look at the growth shock in europe. it is hard to be positive and they are at this point. i think the ecb may well be low in cutting and not doing anything today but will catch up over the next 12 months. jonathan: the long duration, given the conversation we have had, is there a degree of confidence that you have greater confidence in a region to be long-duration? luke: the u.k. dollar, u.k. duration is the favorite. it is what we are seeing from the u.k. government which seems like quite a nice change and i think investors appreciate that. we have a lot of election worries and volatility around europe and the long

european duration. the u.s. has to be in the context of twos and tens deepening up. let's say the u.k. seems a good place to be at around 4% yields and getting into the early 3% next year. that seems to be the place to take the duration view. jonathan: luke picked more of aberdeen, -- luke hick more from aberdeen, thank you. the former president he mounted talk about infrastructure spending in the market starts to. equity feature start to rally and it was after months of the guest coming on programs like this saying donald trump would be bad for financial markets. let's finish that. why is it any different this

time around? why is it different than we were in late 2016? jay: markets are at all-time highs and stocks have done very well. the u.s. massively owned by foreign investors as well as domestic investors. i think you are in a situation where the risks of a problem of developing as opposed to a continuation is significant. the way i look at things, the u.s. economic policy results over the last three years post-covid are the envy of the developed world. low inflation, better employment. we are in a good situation for the risk of a massive policy shift which former president trump should he get reelected would engender is problematic which we have talked about. what is interesting is we wrote

our 24 hour outlook back in october, for and early cycle and it is playing out around the world. the risk is that a trump administration with its policy mix i think puts a ranch into the whole process and relate causes people to reconsider and if that does turn out to be the case, you have a situation with the u.s. is the most expensive market in the world with the most performance. the last 10 years, emerging-market equities up 5% and the u.s. 175%. the u.s. is on a spike compared to everyone else. the bond market is in a two-year trading range. how the bond market reacts and how the dollar reacts is really going to tell the tale and it is not, in my view, a constructive

one if former president trump gets reelected. jonathan: we will talk with you again before that but let's do this in november. jay: perfect. jonathan: a different perspective on things right now. taking the other side of the trade. equity features on the s&p 500 firmer by 0.1%. coming up, we catch up with tom kennedy of j.p. morgan asset management. there is a lot to discuss. anne-marie is still with us -- annmarie is still with us from the republican national convention. from new york city, the second hour of bloomberg surveillance, up next. ♪

the moment i met him i knew he was my soulmate. "soulmates." soulmate! [giggles] why do you need me? [laughs sarcastically] but then we switched to t-mobile 5g home internet. and now his attention is spent elsewhere. but i'm thinking of her the whole time. that's so much worse. why is that thing in bed with you? this is where it gets the best signal from the cell tower! i've tried everywhere else in the house! there's always a new excuse. well if we got xfinity you wouldn't have to mess around with the connection.

therapy's tough, huh? -mmm. it's like a lot about me. [laughs] a home router should never be a home wrecker. oo this is a good book title.

>> the data is moving in the right direction and cooperating. i think for september it is shaping up well. >> we don't think the economy is slowing that much or that quickly that we should see across the board cutting and portfolios. >> the big risk is inflation finds a home but it is too high. >> the top priority is inflation rate it's coming down better than the fomc expected. >> simultaneously the economy

has not collapsed so it makes these rate cut expectations much more plausible. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: the second hour of bloomberg surveillance starts right now. good morning. your day ahead shaping up as follows. a rate decision from the european central bank 15 minutes after we will get jobless claims in america and you'll hear from president christine lagarde in germany. attention shifts to the politics later on. , president trump in milwaukee at the republican convention. with us and pleased to say dani burger dropping by. what jumps out to you? lisa: i'd rather talk of the market at this point rate i know we will get to the politics. but it's really about this earnings season. in the fundamentals calm us down from the politics we had a flick of that today. expectations are high so can it

live up to those. market willing to publish -- punish companies. >> let's talk about them and a way this season started. it started with delta. delta of all companies coming out. i know will sound super odd to anyone who's traveled recently. this deep discounting going on and there's too much capacity. for anyone who's traveled over the last month you might have a different opinion but we heard it from delta last week, from united last night and saying the same thing. lisa: it's an international thing. this is the oddity of having the market that's run up a lot. now it's the entirety of the market that's run up a lot. we are in a position where we've traded off vibes and now we have the earnings season. it makes us more likely to sell the news and that's what we are getting, this weakness in consumer stocks we didn't think was there. the story had been the dollar was stronger internationally so everyone was going to europe. that's now being questioned and that's a problem.

jonathan: the trumped up trump trade rate small-cap presidency. i think we have to start not with the former president but the sitting president. the growing pressure on him, what an evening we saw. diagnosed with covid stepping back from the campaign, self-isolating. it difficult walk up the steps to air force one. none of those will do any favors at all. abc news suggesting democratic leadership are piling on the pressure to step aside. beyond that cnn, nancy pelosi saying the same thing to the president, you cannot win. semaphore yesterday saying the campaign funding was drying up, it's getting more difficult for the sitting president to stay in the race. lisa: it felt like people inside the democratic party were going to every news outlet saying who wants a leak, who wants to hear how were feeling about president biden and that gets to this more stark split screen. not only -- but the fact you

have an rnc where previous never trumpets are lining up one by one throwing their support by the president. meanwhile you have the democratic party speaking to everyone they can leaking information they want president biden to step down. it's a vision of unity and divided nest. >> they've told him privately then they start to leak the story sprayed step three's to do this publicly and we will work out how close we are to step three later on. equity futures on the s&p 500 firm or 1/10 of 1% on the s&p and the bond market yields are higher in the 10 year. jake polaski very opinionated on where this will go. very bearish on the u.s. dollar. on the screen a stronger you dollar. the nasdaq 100 has its worst day since 2022. tobin markets amid mounting pressure for president biden to drop out as traders boost bets

on a september rate cut. we begin with our top story the nasdaq 100 off the back of its worst day since september 22. the great equity rotation that everyone expected but wow this is fierce. the russell 2000 outperform the s&p 500 by 10% over just five days. that's never happened. tom joins us for more. how sustainable is this rotation? tom: i think it is sustainable and what we've expected to happen amid a soft landing in the u.s. economy. if we look back to just last month the divergence between the nasdaq and everything else, you can go one of two ways with that . you can see tech fall down. it's quite durable. jonathan: let's park the politics were now and park the race story. let's focus on the second one earnings. what we are hearing from some of

these airlines and other companies, they are coming out and saying the consumers not in that great of a position. >> you have to see earnings report. magnificent seven earnings group rate everything else more or less zero. we've been expecting some convergence preyed it's taking longer and you'll see it this quarter where you see the broadening out in earnings and see single earnings growth creep higher. >> there is this argument out which goldman sachs has come to take all the pillars john says. all that is priced in preyed what we've seen means all the good news is in the share price therefore i'm not buying the dip. where do you make that argument? >> i think this rotation is showing you it wasn't in the price. folks have been coming on all year saying the broadening out will happen. it's good to be great and then it could just be positioning your seeing the sharp reversal in this historic broadening out in performance but it's not overpriced.

if we see earnings surprise to the upside, valuations are reasonable if not wildly cheap relative to history depending on how you look at it. relative to history small-cap indexes about as cheap as it's been since 2001 just relative to the s&p 500 bring so that history relative to fundamentals if we can see earnings that should keep going braden >> the small caps were mispriced. i know yesterday helped a little bit but otherwise we have very big cap tech stocks. mag seven and still the flows to the etf's have been unrelenting even recently. one out of every four dollars has gone into those etf's attract the market cap waited s&p or nasdaq. is that part of the market vulnerable? thomas: i think on evaluation perspective yes. the flows we are seeing we are seeing the same flows as well. people really believing in this ai trade and starting to get comfortable with even that ai trade has to broaden out. i have to own more than just my

hyper scalars that i've owned for the last 15 years. i need to own the energy infrastructure to support ai demands of the future. i need to own the infrastructure to get data centers so it's more of an industrial policy beyond ai and at the risk of waiting too far into politics it looks like this is a bipartisan measure from president trump and president biden to support the critical industries of america whether that be defense, energy, supply chain bring cash or supply chain. jonathan: elections don't matter, that's what we've heard, of the charts just go up and to the right. u.s. elections don't matter preyed we've all heard this. is it different this time? thomas: history tells us it does not matter. the s&p 500 more or less the same performance. think what's different from our perspective this go around is how bipartisan industrial policy is in america and the

willingness and demands to spend and energy, supply chain bring a couple of fun facts that help me get comfortable with this, we've been in this era of globalization our whole lives. now with war at 80 year highs across the world and growing discontent. it's is very hard to do. critical industries, ev's, batteries, we import most of those critical inputs for those print as an example $.40 of coppers important to america. the other one which is i think wildly miss appreciated about half of all large cell batteries are imported to america. from china. so separation is very hard and i think it's why you are getting a partisan support for this separation and you will need a cup -- a ton of cap acts. >> when you use that phrase it makes me think we are on this trajectory regardless of what happens in november. >> that's what we think. if you look back we've seen these presidents before print

president trump favor tariffs early on. resonant biden favorite subsidies incentive-based spending but recently is announcing tariffs. i know they are small. but it is showing you where the separation is necessary. it's ev's, solar cells, critical inputs. it looks like both parties will use both tools to get this security that america needs preyed >> that takes time to ramp up. what happens and we have this political rhetoric that is extreme we hawkish china on both sides taking action may be sooner than the industry to meet the demand. >> political rhetoric aside when you're having demand and supply mismatches prices will go up. if i can invest alongside a government or even incentivize proper businesses that will spend regardless of where interest rates are in the economy. i want to play with that. it's also the last point to round out is this what people don't have exposure to. it supports the broadening trade

and its industrial policy initiative that really we haven't invested alongside for 15 maybe 20 years. >> in this market stock bond correlations have been confusing at best but the traditional is yields higher, it's a problem for equity markets because you have to discount future cash flows. yields are going higher because there is more spending, higher deficit and maybe more inflation. is that a positive for this market? thomas: i think there is time horizons that are different for that. industrial policy spend will take a long time. interest rates went through that where we had to discount those cash flows. it looks like the fed will cut rates amid this cyclical slowdown. but over the longer term i think the way this plays out it would go back to interest rates that we had post-financial crisis. jonathan: what do you think normal is? thomas: 3, 3 .5. there reason to huge conviction on wall street about that but it

is different than what we've experienced. to your point the playbook should be different about how you invest. if you go back to the global financial crisis, all you had to do was lever tech. jonathan: it sounds easy now. thomas: it does but the point at that way is i think a lot of people have that position still on. a lot of cash and a lot of tech. are we in high interest environment with policy spend behind it and we should rotate, yes. jonathan: at the expense of tax? thomas: for my client so far they are not willing to do that. then he have too much exposure but we do believe in the ai trade, we think that will work. we want them to broaden out there exposure to that trade beyond the four stocks everybody owns. it's getting more exposure and with higher interest rates i can diversify, similar returns, less risk. jonathan: value traps. you can look at some of the regionals and it's clear they traded these levels for a reason. they are there for a reason of

the last 12 months. are you questioning investors about what their bargaining on this everything else trade. thomas: if you knock you have -- the single factor that has defined the post covid equity experience is high quality versus low quality preyed if we don't go back to a interest rate environment that factor should be most important and this dispersion is all across the show every day. equity markets wide dispersion. credit markets, real estate everywhere. just stay high quality it still the thing you need to do regardless of what you think interest rates will be. jonathan: thomas, good to see you. thank you preyed equity futures firm or by 1/10 of 1%. yahaira: former dallas fed president robert kaplan saying it's likely the central bank will cut rates in september amid

progress on inflation. he added the movie is not likely to mark the beginning of a full-fledged rate cut cycle. kaplan speaking after a number of fed officials led by chair jerome powell noted in recent weeks the central bank is making some progress towards lowering inflation to its 2% goal. warner bros. discovery shares up in the premarket. the financial times reporting the media giant considering splitting it studio, streaming and studio businesses from its legacy television networks. david's as live is weighing up -- david zaslav is considering streaming into a new company and free of the broader groups $39 billion dead load -- debt load. represented as not available for comment. chipmaker tsmc higher in the premarket boosting its revenue outlook after quarterly results beat estimates. they expect sales to grow even

more in the mid-20% range it had previously projected as it rides a strong wave of chip demand. tsmc results after semiconductor stops -- stocks were punished due to concerns about tighter u.s. restrictions on chip sales to china. that's your bloomberg brief. jonathan: i don't know about you but i just want to cover the ken griffin $45 million stec source fossil story. lisa: he is not even keeping it. he's putting it in a museum which i know was the right thing to do but why buy a dinosaur if you won't hold onto it? jonathan: that's the kind of thing i nephew would say for me to buy. up next on the program the dow -- the dam is breaking preyed >> it's not unreasonable for people to say wait a minute you're 81 years old. so i think it's a legitimate thing. jonathan: that conversation up next. good morning. ♪

jonathan: equity futures on the s&p 500 firm or by 1/10 of 1%. no drama, nothing like the price action yesterday. the 10 year, 4.1846. the dam is breaking preyed >> would you be willing to look at the idea if you get in perhaps in a year or two you would look to very capable vice president to carry it over the finish line. >> only if i was told there was some medical condition i have. it's not unreasonable for people to say wait a minute you're 81 years old. i think it's a legitimate thing. jonathan: that's a shift from the president of the united states pay top democrats ramping up calls for president biden to step aside. abc news reporting congressional leaders chuck schumer and hakeem

jeffries have warned biden if he stays in he ruins the parties down ballot chances and cnn reporting nancy pelosi telling biden recent polling shows he cannot win in november. anne-marie joins us from the rnc. the pressure is building. annmarie: absolutely. this is political isolation the president is starting to feel with those three names you mentioned. schumer, hakeem jeffries, former speaker of the house nancy pelosi very close to the president all basically saying you are going to ruin the chances of down ballot democrats if you want to maintain any control in this government. and also jonathan not just political isolation, self isolation from covid-19. the president had to skip an event last night in nevada. he is trying to go to the swing states and trying to campaign and now he's in delaware. self-isolating because of the positive covid test. i would look ahead to see what does the rest of the week bring

for the president? who will he be speaking to? is now the time, he has a serious conversation with his family out of the dnc in august. here at the rnc it is not isolation. it is a republican party that they are trying to put on a face even though under the surface is a lot of divisions they are trying to put on the face one that is united. it feels like this is an exiled king whose come back, literally, not figuratively dodged a bullet over the weekend and this weekend they're good -- this evening they are going to crown him. jonathan: joining us now is tobin mark esper the threshold for the sitting president to drop out of the race shifted. it was originally but the lord almighty telling them to go. knock it to happen for the next one was someone coming to him saying you cannot win. it sounded nancy pelosi has done so. the new one is if someone tells me i have a condition i would step aside.

it's reasonable to ask these questions pray what you make of that shift, that pivot over the last few weeks? tobin: yeah, pelosi i suppose is not that far from the lord almighty in terms of the way these things are regarded in the democratic party there's been a shift. the building of pressure has been nonlinear. it is been hard to follow the story. he seemed to quell some of the democratic doubts or bluff democrats back into line at various points and we have fought over the weekend the assassination attempt on trump suck the oxygen out of this effort but the leaks over the past when he four hours from schumer and jeffries which they pointedly did not really deny once those reports came to light suggested that conversation had gotten farther and it been more explicit with biden even before the assassination attempt. giving a couple days grace to let that story clear and now at the pressure. the question is sort of how long

he holds out since ultimately he still does have to make the decision himself. but it sort of hard to see a way out for him at this point. jonathan: can you establish a base case. if he steps aside and come out -- kamala harris steps in. is the policy any different at all? tobin: i don't think it is. the determinants of policy are knocking to be the preferences of democratic president even if harris were to win. we -- within the administration there's already been essentially a coalitional arrangement between mainstream democrats and progressives through the first four-year of the biden administration where we've seen quite progressive appointees in charge of a lot of key regulatory posts, financial regulation and some other big ones. and then from a legislative outcome perspective they are likely looking a divided government in which case everything needs to be bipartisan compromises. even in the ceiling case where they managed to hold onto 50

seats in the senate, at that point the determinant is what does jon tester of montana want to do. i don't think the delta between them will make a difference from a policy perspective. >> one of the more remarkable things of this debate over biden the people who have come to his assistance been the more progressive wing. bernie sanders, aoc. we've seen some of the policy out of the biden administration though it's unlikely to pass at this point are things like supreme court reform, capping rents and rent increases. does that represent a shift to the left that the democratic party sees the road ahead and says unless we go left we cannot win this thing. tobin: i wouldn't say the party has made that assessment but it does look as if president biden and the biden campaign have made it a near-term assessment that leaning left, putting out some new policy that might plausibly appeal to the progressive wing of the party is a good way to shore up support. i don't think that's a coincidence you see them standing relatively strong at

the same time he's rolling out these new longshot progressive policy proposals print i agree with your assessment realistically the composition of congress will preclude actually taking action on hardly any of that but that looks like a gambit by the biden campaign rather than a durable shift by the party. lisa: on the other site of things you have j.d. vance speaking for the first time as the presumptive vp nominee saying these things. we won't cater to wall street calling them wall street barons who crash the economy. this is a party that not too long ago you had some of these wall street figures turn around a support trump. schwartzman from blackstone, ken griffin of talked about donating braden does this change things for the support of wall street and trump and his vp pick? tobin: i doubt it. certainly they want to trump to go in a different direction with his vp pick. he was not the preferred nominee

of that set of influential donors. but he does stand apart from the republican party on a lot of these issues and i tend to think he's not going to get his way on a more populist approach to antitrust or populist approach to financial regulation even in terms of his own position is barca has been somewhat worse than his bite on some of these issues. taking financial regulation for example he's had some strange bedfellows legislative efforts where he cosponsored executive compensation reform with elizabeth warren. but when it comes to the highest profile most genuinely material issues for the sector like the basel three endgame rules he's been in lockstep in opposition to those with industry and most of the rest of the party. this is someone who has a reliable voting record with the republican party as a whole in good standing with the official conservative movement organs despite the fact from a rhetorical perspective he's taken some of these populist

divergences from the pro-business republican platform written i would not read the argument he's trying to make to working-class voters to mean the republican party is not in a deliver policy lines up. jonathan: certainly a big question on wall street. that's one to watch for great to catch up with you. we will get back to the financials a little bit later. wells fargo upgrading the banks paid we catch up with chris. coming up next, tsmc raising its revenue outlook amid the ai boom. bouncing back by 1.2%. this is bloomberg. ♪

jonathan: just a little bit of calm relative to the storm of yesterday, if you want to call it that. pulling back from all-time highs on the s&p 500. the nasdaq 100 is bouncing back by about one third of 1%. a difficult run for the nasdaq 100, the worst day since december 20 22. small caps are little bit lighter. to the bond market, the two-year, 10 year, 30 year, the front end of the curve for a moment, up need basis points to 4.46.

jobless claims were better than expected last week. we need a repeat of that this week. it wasn't just cpi, it was that the labor market showed signs of holding up. >> it is that you won't have nonlinear unemployment at this point and it powered the entirety of this market. a powered small caps dol that you could have inflation coming in and the economy not showing more issues. you have a contradiction. concerns about the deficit but a 20-year option where everyone is willing to buy. jonathan: we talked about this yesterday. you have an administration potentially getting a second term talking about higher tariffs but a stronger dollar, calling it a problem. from tpw, i had tons of feedback on his comments and they were taking a different view of what he was saying. thinking that the u.s. exception that we have seen dominate

global markets for much of the last 10 years, the last decade, could be undermined, damaged, destroyed even by 9:00 a.m. coming trump administration with the policies they been talking about on the campaign trail. dani: i wish i was around the table for that moment. my question for him would be, this is a government that spends a lot. we can all agree. if we look back to covid, the reason we had american exceptionalism is because we had a government who spent a lot. how much damage can you do to the american economy if you are running such a high deficit russian mark history shows us, not a lot. jonathan: it will be how willing international investors are to fund that deficit and what price you have to pay in the bond market. we will keep revisiting this. under surveillance, president biden facing mounting pressure from within his own party to drop out of the race. abc news reporting that chuck schumer, hakeem jeffries, have told biden that might be best for him to step aside. the president taking a break

from the campaign trail after testing positive for covid. the hits kept coming through the afternoon. dani: adam schiff publicly to the los angeles times and then abc news, cnn, all of these different outlets reporting people behind the scenes. basically went to him and said, look at these polls. not only are you at risk, but all of the democrats down ballot. if you don't make a decision soon they will get public about it. he not that long ago said it was the polls showing him he could do it. cnn's reporting said he said to pelosi look at the polls i got, they show i'm winning. i find it frustrating, the reliance on polls when president biden knows better than anyone the value and importance of momentum and how much bad momentum really impacts you. jonathan: there is not momentum now and the infighting and the party continues.

some of the damage that we did yesterday. the stock was down quite hard and is bouncing back a little on the u.s. depository. the numbers, putting up the numbers, we keep coming back to this, they are predicting sales will grow more than the mid-20 percentage point guidance they offered last time. looking for the ai spending boom to continue. dani: it is hard to fight it, but the issue -- and this is so nitpicky -- it is growing a huge amount but a little less than before. nvidia reports over 400 earnings growth. this time the earnings is a mere 100. that gives people the space to say that maybe we take a pause on this, especially thinking about geopolitics. the growth is strong but the rate of growth is slowing. jonathan: geopolitics is certainly a headwind for sure. we will get the rate decision and then 30 minutes later get a

press conference with president lagarde, keeping rates unchanged after cutting them last time around. talking up the prospect of a super september, more on that later. a bit weaker on the session down by 1/10 of 1%. the u.k. chancellor rachel reeves making her first visit to london since being appointed earlier this month. francine lacqua sat down with her this morning and asked about this announcement of a fiscal lock and why she thinks that she needed to do that. >> the bill that was announced in the king's speech yesterday, the purpose is to provide the fiscal lock so that never again can i prime minister or chancellor do what liz truss did with their disasterous many budget -- mini budget two years ago.

this means the independent office can always provide a forecast when there are significant and permanent tax and spending changes, specifically worth more than 1% of gdp. that would mean that it would have triggered a forecast when they introduced that disastrous mini budget. francine: that is something that investors will take solace to. are you confident that is achievable? rachel: the purpose was to give businesses and investors the confidence that britain is a stable place to invest and do business. i am determined to do that. we were elected two weeks ago on the mandate to grow our economy based on the stability that is so essential to underpin any economic decision-making. that is why the bill is so important. i am under no delusions about the scale of the challenge that

i face in this job that will be difficult decisions, but i was really clear during the election that everything that we put forward, whether it is on the nhs, defense, or tax policy, will be fully funded. that is very different from what we've had the last 14 years with decisions with no regard to where the money is going to come from. i am going to be different. francine: chancellor, a lot of what you're trying to put in place will depend on private capital coming into the u.k. have you had conversations about their willingness to come to the u.k.? rachel: you are right. our plans to grow the economy depends on businesses and investors choosing britain as a place to invest. i want investors to look at britain and see a country with a stable government with the clear mandate to grow the economy and choose britain as a stable place to invest in an increasingly volatile and uncertain world, which is why the fiscal lock today is so important.

also the other changes in the last two weeks.we have announced more policies to grow the economy in the last couple of weeks than the last 14 years. in the first 72 hours of the job i made more comprehensive changes to the u.k. planning system than the previous government did in more than a decade, because i know that we need to unlock that private investment that businesses tell me they are ready to invest if we get rid of some of those blockages. the blockages in the planning system are more significant than anything else. those changes, to bring back mandatory housing targets for local authorities, ending the moratorium on onshore wind, calling and planning decisions on data centers, on housing, crucial to send a signal to business that britain is a place to invest, but also to make sure that we can get on with things and get building in britain again. francine: are they listening? have you gotten calls saying i am in? rachel: absolutely.

in my first speech at the treasury weekend half ago, we had businesses and investors in the audience, met afterwards the following day, announced the creation of a national wealth fund, the task force led by mark carney, no reporting to a labour government. we also had amanda blank, barclays, and other big u.k. investors, and that is crucial. there are no plans that i can draw up in my new office in the treasury that are going to work unless we have business buy in. our hope is that in the plans that we have announced in government have the fingerprints of business all over them, because these plans have been cowritten with business because they are all about unlocking private sector investments into our economy.

francine: are you considering tax breaks? rachel: i won't announce any tax breaks or tax changes without saying where the money is going to come from. we will have a budget later this year, but also i need to be really clear and honest about the scale of the challenge that we have inherited with the public finances. we will have to make difficult decisions. we need to fix the foundations before we can start rebuilding things in britain. unlike the previous government, i'm going to be honest about the scale of change. i will level with people and together we will rebuild our country based on that private sector business investment to get our economy growing. i asked the treasury officials to give me an assessment of how much stronger the u.k. economy would be today if we had grown the average rate of economies these last 14 years. the answer would be 140 billion pounds bigger, 5000 pounds for

every family in britain. we have to grow our economy. it is the only way to improve living standards, keep taxes low, and have the money we need for dilapidated public services. jonathan: a fantastic exchange between francine lacqua and rachel reeves. it is amazing how we are still reflecting on what happened with liz truss. we talked about germany having a debt break. it seemed like the entire continent had a self-imposed debt break following the difficulties with the bond market. dani: you can even see the echoes of liz truss in the king's speech where one thing they introduced was giving the office of budget responsibility more power to say we don't want to do the same thing that happened with liz truss. you can see in rachel reeves' careful language, any spending she talks about she is hesitant to talk about tax cuts because she doesn't want to upset the bond market. you get the feeling she is being so careful. jonathan: fiscal discipline,

rolling out the red carpet for private capital. it is early days but that alone sounded like a conservative chancellor, didn't it? dani: absolutely, but this is not jeremy corbyn's labour party. that they want private investment, that's not usually something that you would hear from the labour party. jonathan: we'll see what tax policy looks like before we can make definitive conclusions about what leadership we will see here. that stories available on bloomberg.com and the bloomberg terminal with francine and the chancellor online on the bloomberg terminal. your bloomberg brief,. yahaira: shares of domino's pizza are falling in the premarket after second-quarter sales fell short of estimates. results show discounts and new product launches have not been enough to attract value seeking diners. the restaurant chain is suspending its long-term guidance of stores annually.

united airlines reporting that third-quarter profit will fall short of wall street estimates. saying that adjusted earnings will be up to $3.25 a share in the current period, less than what analysts were expecting. united echoing delta saying that low-cost carriers are slashing prices as they try to fill excess seats this summer and that is weighing on the industry. boeing's largest union voting to authorize a potential strike as contract talks enter a crucial phase. the international association of machinists and aerospace workers represents 32 thousand boeing mechanics in washington and oregon took over the seattle mariners ballpark on wednesday in a move intended to showcase union solidarity. the union saying in a statement that it's largely symbolic vote to strike has 99 point 9% support. the current contract is set to

expire september 13 and the union will vote again once boeing makes its final offer. jonathan: more in about 30 minutes. next, betting on september. >> whatever happens the fed is planning and gearing up to cut rates in september. won't move in july but will move in september. jonathan: we will talk about september. live from new york, you are watching surveillance." ♪

jonathan: in about 30 minutes, an ecb rate decision south of the jobless claims and 15 minutes after that a news conference with ecb president christine lagarde. equity futures at the moment our firm by 1/10 of 1%. under surveillance this morning, betting on september. >> whatever happens i think the

fed is planning and gearing up to cut rates in september. it won't move in july, but they will move in september. the fed, its path for september is pretty clear. i think there's a good chance that they could do one more cut in december if new policies come out. it will take some time for them to digest those. that may affect their next decisions. jonathan: it is a difficult one. investors gearing up for a busy day of fed speak as a growing chorus of officials signaled they are moving closer to cutting interest rates. "while recent data is supportive of rate cuts sooner than we anticipated, the market might be getting ahead of itself, pricing more than three cuts by january and nearly six cuts by the middle of 2025." the official housecall of socgen was no cuts. i want to get the bigger view. challenging the view that once you start they keep going. what is the pushback? >> the fact that the data has

been relatively strong. it is something that the fed has two recalibrate as we go along. if you listen to fed chair williams -- the new york fed president said there trying to move into less restrictive policy. they're not talking about embarking on a very aggressive path of rate cuts or a cadence of once a meeting or once a quarter. they will be very data-dependent when they start. drawing the analogy with the ecb , they cut rates in june. socgen called it an independent rate cut. coming into the end of the year, they will be faced with questions about how the data is progressing.

the fed might well be in the same situation where they will have to recalibrate as we go along as they move away from restrictive policy. jonathan: robert kaplan talked about if you are a current fed official you won't touch the subject. if new policies come out it will take time for them to digest those and that may affect their next decisions? how important is november as a date for how you think about 2025? subadra: the november elections i think are very meaningful. after they cut in september it will be interesting to see how they message their policy path from then on. the market path is aggressively pricing in first several cuts between now and january. that feels like it is a little too much, but really the outcome of the elections i think will be

key on how they think about policy after november. so, the trump administration is talking about higher tariffs, the debt and deficits picture is something they will be focused on as well. it is something that the fed is going to have to pay more attention to, not just the monetary side but the general trajectory for the fiscal side of things. dani: both that the ecb and fed have had different flavors. the ecb it is by cutting you are acting as a kingmaker letting governments run really high deficits and saving them by cutting. if we are in a position where in november we get a trump presidency and we know that that will be the policy, the deficit will be higher, and the fed is still cutting, is that a problem? are they doing the same thing the ecb is being accused of doing? subadra: the trajectory for debt

and deficits is quite dire. regardless of who gets elected, trump or biden, i think that is something the next administration will have to address. it's not the purview of one party or the other. i think that that is why it makes it tricky for the fed to be able to cut rates in an environment where debt and deficits and long and yields could arise with the market and bond vigilantes starting to push back on the narrative that is being put forth by the administrations that come to power. i think they will be very careful about policy adjustments. it is going to be more about moving away from restrictive policies as opposed to embarking on several rate cuts. the last leg of inflation is going to be tricky. you talk about inflation getting from 3% to 2%.

that pathway will probably be slower than people anticipate. the first rate cuts will kind of signal they are willing to do more, but whether they deliver depends on the data. dani: the idea that the bond vigilantes will come in if there is government spending they don't like, to your point we know that there will be a lot of spending. with that backdrop, sure, there have been curve steepeners, but we got a 20-your auction yesterday that has absorbed well. what is the risk that at some point the bond market might try to punish too much spending from the government? subadra: in an environment where the data is starting to weaken, you are going to see the market rallying and bond yields coming down. if anything, in the last three to four weeks what we have seen as the market getting ahead of itself, pricing in the trump trade, the curve steepening quite meaningfully. in the last week, there has been

a little bit of a re-think and profit taking on those traits.as -- on those trades.you will see that decline in yields going into the election. our call all along has been 10 year yields will start to decline. 10 year yields around 4% by the elections or the end of the year . after that is when you will start seeing the selloff because of debt and deficits. there is really not any willingness from any party to address the debt and deficit issues, and there is not that much room, i would argue, for cuts in spending. it is going to be very interesting to see how the next administration deals with the issues on debt and deficits and how much the bond market is going to pushback on that narrative. jonathan: that is an important phrase, debt and deficits. you are selling off coming out

of november. we try to get high yields, is it because of a better growth profile, higher inflation, supply? is it just about supply or do we get a higher bump in inflation, higher interest rates from the federal reserve? subadra: i think it will be a combination of factors. you are right to point out that part of it could be because of the stimulative effects that you're getting from rate cuts. if the market starts to look towards -- especially when the economy is relatively strong -- this is an unusual cycle. i haven't seen one where the fed is cutting rates to get policy out restrictive territory and not because we are heading into some sort of crisis or meaningful recession. in that context, they have to be careful. if they cut to aggressively that could lead to the market. if we look at the equity market it is performing really well, credit spreads are very tight and, the dollar is very strong. these metrics lead us to believe

the financial conditions are easy. they have to be careful and not cause further easing. if that picks up and we see what we saw in the first month of the year, first few months, you could actually see yields rise. jonathan: it is super unfair to ask for a number, but i have to ask for a number. we rallied down to 4% on tens. are we threatening fives on a 10 year in america? subadra: our forecasts getting back to 4.5% by the middle of next year. again, it is the policies put forth by the administration to come will dictate how much of a selloff we see. it also depends on the trajectory for the economy. a modest selloff makes sense for us to get from 4.5% to 5%. you will need to see perhaps a further duration in the outlook for fiscal policy. jonathan: subadra rajappa of

socgen on the future of this bond market, debt and deficits important for treasuries. dani: i think the fascinating part is this is not my own phrase, i will steal from mark mccormick, the market is a serial monogamous and can only concentrate on one thing at a time. all we can concentrate on the fed but next year that will change. jonathan: you can feel the pull of politics every morning after the past couple of weeks, after the debate. we said the days after the debate between biden and trump, it felt like it was the first trading day of the campaign for 2024. that is what it turned out to be. we will catch up with chris harvey of wells fargo. and alberto gallo of andromeda capital. the third hour of "bloomberg surveillance" is up next. ♪

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>> the market is well ahead of the fed. this is clearly what has propelled a lot of the small-cap optimism.

>> these are groups that will benefit from interest rates moving lower again. >> the fed does not have to deliver those cuts, it just has to get the market thinking that the fed is moving in that direction. >> it is not just inflation driving cuts. it is the broader economy the fed is watching. >> the cash on the sideline that gets put to work in a world where these uncertainties of rates and inflation starts to shrink. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowitz, and annmarie hordern. good morning, good morning. this third hour looks a little something like this. in about 15 minutes we get an ecb rate decision and after that a big data point with jobless claims. following that we hear from president christine lagarde from the ecb. that estimate at 8:30 eastern. the number, to 29. the median estimate two hundred 29,000 for jobless claims the previous number, 222.

can we settle down around the 220's. dani: the fed speak, waller was saying that one of his big concerns for the first time is unemployment. it sounds a lot like daly, and that seems to be the justification for some doves. what happens when the trend is different than we thought? jonathan: we are getting closer, but we are not there. the federal reserve inching towards a rate cut in september. the price action looks like this. farmer by a little more than 1/10 of 1% on the s&p 500. treasury yields climbed just a little bit by a basis point or two. lots of thoughts on foreign exchange. it has been overwhelming. donald trump telling "businessweek" we have a currency problem. earlier this morning, saying that based on the campaign the dollar will weaken a lot if they get back into power.

dani: there are a lot of consequences, but if you're trying to put together a portfolio what the consequences are, i was thinking about yesterday. a classic risk-off da basically everything selling off, and where do you look for safetyy? the dollar cannot help you. big cap tech is overvalued, so that can't help you either. the options for hiding in the market are looking thin. jonathan: long bitcoin short meta. how many times have they thrown mud at meta, facebook, mark zuckerberg in the campaign? dani: trump told his next week that he wouldn't have tiktok banned because it would benefit meta. i don't know how comfortable they will feel about bitcoin being their trade. jonathan: chris harvey makes those. i'm not saying that you made that one. you get the picture.

chris harvey of wells fargo on the trump trade come just not that piece. geoff yu and rob sockin. chris harvey of wells fargo saying, "what looked like a pop last week has become a rotation driven by trump's polling and policies. we are confident regulatory pressure has crested and we upgraded banks to outperform." it is good to see you. this is a change in a short time. chris: we didn't expect what happened this weekend to happen. it made the probability of trump taking the presidentship from likely to highly likely.suddenly , we were not talking about the fundamentals, we were talking about policies, tariffs, taxes, regulation. when you talk to people, and i'm sure you've had lots of conversations, you have 10 different conversations you have

10 different answers. rates are going higher, rates are going lower, we will have inflation, we won't have inflation. the only thing we are confident on his we have crested on the regulatory side. it was already occurring with basil three and chevron, but now it looks like the trump administration is going back in, it is something we think is long and exploitable. jonathan: how broad is the banks call? chris: it is starting with large cap, but we like the banks, we like the financial space.the regulation is going to help the group, it is going to help multiples. ultimately i think it will help earnings as well, but the issue is that it is multiples and you can price that in. it is already beginning. we can talk as much as we want about tariffs, but the regulatory environment is already changing. dani: having a vice presidential candidate talking about he won't cater to wall street, do you write that office campaign rhetoric?

chris: i would not write that office campaign rhetoric. there will be a lot of push and a lot of pull. i think there will be some growing pains and he has some very strong opinions. i don't dismiss that, but what they talk about and what i think is going to come through and is coming through is, it is america first. domestic companies over global companies. there is talk about being procyclical. economically sensitive names in the short term rather than growth names. with regulation, more about capital markets, whether it is companies with m&a and ipo's or multiple evaluation across the financial and banking space. dani: in that trade of american companies versus a broad, full on display yesterday, those chip figures abroad, intel does fine and treads water.

does that rally have legs? chris: yesterday was interesting, because you are right. everything went down. there was not a lot of discrimination. across tech, more on the hardware semi side you would weigh more than on the services and software side, but everything went down. it will take a while for the market to discriminate.we saw this last time, we will have a number of iterations. there will be a number of things in the public we will talk about. it will be that industry, this industry, and it will change over time. the market is saying that we went from a likely change in administrations to highly likely change in administration, and the views are different so we need to price those in. jonathan: to get nuance from you, what is the difference between the traditional rotation and a pure trump trade? chris: traditional rotation -- i think there are two things. we were wrong about this, the

rotation is not going to happen because it is not fundamentally driven. the fundamentals aren't there. what we are seeing is if you look at surprise indices, they are rolling over. the reaction to bad news, companies are reacting poorly to bad news. you had the weekend and all of a sudden the political environment changed. this week it was almost all about the political. i think the only thing that is long-failed in nature are the things that touch that regulatory -- long-tailed in nature are things that touch that regulatory. we will see, but until we see the fundamentals change, i am not entirely sure that you will see the broadening out that a lot of people hope. jonathan: let's part the banks. -- park the banks. a little nervous about incoming earnings so far?

what we heard from united yesterday, pepsi as well, what do you see in those stories? chris: it is not great. the economy is not as strong as i think people expected. if you look at the beginning of the year, a lot of economists, the forecast was for one or two and it doubled. people took out the recession forecast. it wasn't that the economy is so strong, it was we won't have a recession. now, we are looking at we did not expect the fed to be as tight as they have been. that is starting to eat into the psyche. you are also having inflation fatigue and seeing companies have been pushing price and individuals are starting to push back. now, you really -- what we say is the economy is not going to bail you out. people think the economy is accelerating. i don't see it.

we need things to slow down. we have had a bump because of the trump trade, but it is not supported by the fundamentals. dani: people say it is not the economy that will save us it is the fed that will save us. we will get fed cuts and for the small caps that have floating-rate debt, they will all be saved? chris: their point. we had an oversold balance. this is probably the oddest easing cycle i've ever seen. whitney you enter -- when you enter an easing cycle things are bad and the fed is cutting because there is a liquidity issue are the economy is slowing down. how are they going to cut? 25 basis points here, 25 basis points there. is that aggressive enough to change the economy? i don't think so. is that enough to change an oversold condition to something better? i think so. until you see the economy start to re-accelerate, it is harder for smaller cap companies that have a tremendous amount of balance sheet and operational leverage to outperform.

jonathan: leave big tech behind and by everything else. can you tell us not only what you want to buy, what would you tell our audience as everything gets wrapped up in the everything else rally? what should they avoid? chris: we are not a fan of commodity-related stocks. if inflation is lower, i'm not sure how that works. we don't think the economy is accelerating. those are places we don't want to be. we are underweight energy. we think that that will be a difficult spot. anything commodity and commodity-related, inflationary are not inflationary environment, i don't see how it works. jonathan: chris harvey of wells fargo on the latest, the trump trade, that stinks in between the trump trade and a distinction -- the distinction between the trump trade -- your bloomberg brief. yahaira: the democratic revolt

against president joe biden is growing. congressman adam schiff saying publicly that he has serious concerns about biden's ability to be donald trump in november. this coming as abc news reports that top congressional democratss chuck schumer and akeem jeffries told the president last week that it would be best if he ended his reelection bid. cnn reporting that former house speaker nancy pelosi told president biden that polling shows that he cannot win. staying on biden, the president has tested positive for covid-19. the white house is saying that he is experiencing mild symptoms and is planning to carry out his full duties while self-isolating in delaware. his diagnosis coming at a critical time on the campaign trail. he canceled an appearance before a key latino advocacy group as the democratic revolt against his candidacy picks up steam. ford is planning to invest $3 billion to build its highly profitable super duty f-series

pickup truck at a plant in canada that was previously earmarked to make ev's. the automaker will open the plant in 2026 employing 1800 workers. the move underscores the changing market for vehicles with the company adapting to slowing growth in ev demand while its consumers performed more of its large trucks. that is your bloomberg brief. jonathan: next, an ecb rate decision. we catch up with lizzy burden in frankfurt to get thoughts. this is bloomberg. ♪

jonathan: we are seconds from an ecb rate decision. last time they reduced interest rates and this time we are looking for rates to stay unchanged at the european central bank. that is how they stay, unchanged at the ecb. three interest rates to go

through. all three going nowhere. the main refinancing rate, looking at 4.50, 3.75 on the deposit rate. the ecb not doing much often -- off the back of this. dani: you can argue that these are the same and we need to wait longer-type of headlines. they will follow data-dependent meeting by meeting approach. basically, incoming information broadly supports inflation assessment. they need to hold and they are not ready yet. this is different language from the ecb that well telegraphed a cut. this is language saying we don't know what we are doing it, we are not ready, we need to get back down to 2%. jonathan: we are not pre-committing to a rate path. i imagine we will hear the same thing from the federal reserve as well. lizzie, we are expecting no change and that is what we got? lizzie: you know the europeans

like a long summer holiday, not to rub it into the two of you. but this is exactly what was expected. you have all of the economists in our survey saying there would be no change today because in september they will have two more cpi prince, more data, they will know what the fed is doing and how french politics will shake out. you are right to identify that this is a cautious ecb. they learned their lesson after the june cut, well telegraphed, perhaps over telegraphed. they boxed themselves into a corner. even if we expect a september cut, they don't want to overcommit yet. i expect that is the tone christine lagarde will take in the press conference later. half an hour until that. jonathan: what is developing in france over the last month, and maybe i'm reading too much into it, tpi, transmission protection

instrument available to counter unwarranted and disorderly dynamics. what do you think that could be about? lizzy: christine lagarde is going to get asked about france in this press conference. it is her homeland. a lot of the questions about the disruption in the bond market from the french election is kind of a last week story, right? we saw in the bond auction this morning that there was good demand in france. it looks as if there is not going to be a huge ruckus for the ecb to deal with, but it's whatever christine lagarde says that will be interesting on how the ecb views its role when it comes to financial stability, to your point. dani: they are saying that the headline inflation will remain well above target into 2025. we heard the same thing last meeting with their update of their inflation projections.

it was awkward, because they did that and cut. how much of what we are about to hear from madame lagarde is her trying to get out of that box, that corner they they put themselves into in the last meeting? lizzy: well, we actually have a great story on the terminal about the question marks around these forecasts because of the heavy reliance on productivity to make them come true. inflation in the euro zone is sticky. stickier than in the u.k.. the bank of england has inflation back at target and there still question marks over if it will cut in august. very much so christine lagarde will not want to box herself in for that september cut. the market does expect that we will have two more cuts this year and so far policymakers, even at the hawkish end of the spectrum, have been leaning towards backing those market expectations.

jonathan: great work as always. the headquarters of the central bank in frankfurt, germany on the latest decision, unchanged as expected. the line on the transmission protection instrument also in the june statement. you get a feeling that the line takes on additional importance after the political developments in france over the last month. dani: robin brooks was one of them. basically said that they will step in to save france should they need to. this creates a political weirdness where they are allowing a government to run big deficits, like they did with italy when they initially used it, but the language from madame lagarde and the ecb has been one of, we are only stepping in if the moves are unwarranted. you have to assume that should deficits widen and there be issues with bond spreads that it would be warranted. jonathan: let's tune in with geoff yu. it is good to see you. let's talk about this statement from the european central bank. i want to start with france.

i think that you will get questions about that in the news conference today. can we park the french issue? is it in the rearview mirror? >> no, i don't think we can park the french issue. it is the upside risks to inflation coming from a strong physical boost in france and possibly in germany given the latest settlement related to baseline. this interest speech last year, not this year, she highlighted how public sector wages and the lack of productivity in the public sector was a contributory factor to inflation. she didn't mention at this time, i think due to the timing, but overall i think that's the short term risk the ecb monetary policy execution. it isn't about market volatility, that i agree with, but it is causing the ecb to be higher than previously expected for longer. jonathan: socgen was with us

earlier this morning and you heard this phrase before. that decision was data independent. not data dependent, data independent. what is your base case for when or if the ecb cuts again? geoffery: i think that i think september is a live meeting. given where the fed is heading, i think that the fed is probably on course for september as well. that opens a policy space, not only for the ecb but globally. they can actually continue, at least one quarter, what all central banks are looking at right now with one or two exceptions, it isn't backward looking data, it is about forward-looking data. are they on path for inflation to go back to target? now it is still yes. i worry about the manufacturing sector. they can't divert attention to that at this point, but it's not looking that healthy given the direction of travel for policy diversions. dani: do you want to change your

euro-dollar call? geoffery: heading in the right direction. parity is actually looking quite aggressive right now. through 1.05 through the end of the year given where the risks to u.s. yields are heading into the election. i'm still very clear on the direction of travel. dani: you said you are worried about manufacturing, but the thorn in the side of ecb has been services. their wage growth, something like 4.2%. you look at that and all of the people traveling to europe, what gives you confidence that that side of the picture allows the ecb to cut? geoffery: i totally agree. that site doesn't give me too much confidence, but assuming that they only narrowly focused on it, and this is one of the criticisms that president macron levied at the ecb implicitly saying that maybe the ecb should look at a broader mandate. still restrictor from their point of view. not saying that that will register changes in the near future, but it will allow those

issues to fester indefinitely and then when it is time due to base effects or otherwise come down and you're able to redirect some attention to that sector, it's already too late given potential trade barriers coming through. jonathan: you touched on what is developing on this side of the atlantic. i had a guest earlier on the program from t pw who made the point that he thinks that the platform, the campaign effort, the policies that might come through next year from the trump administration, if he gets a second term, would actually damage the u.s. dollar. are you taking a different perspective? geoffery: we need to look at time horizon, irrespective of the candidates. a, tariffs. i think that that is a consensus in the u.s. now. b, no fiscal restraint. that is a consensus everywhere in g10 apart from new zealand. as long as it is a stable

trajectory, the dollar would not be damaged. at some point, if international investors worry about that sustainability, it's a different issue. for now, looking at the flows and the strong buying of duration into the u.s., that doesn't seem to be an issue yet, but we will see. jonathan: it was good to catch up, as always. two very different views on foreign exchange. dani: more people sound like geoff than jay. part of it is the idea of the fed's cutting cycle that they are broadcasting they are able to cut. that gives the ecb room to cut, mexico, brazil. even if things look bad in the u.s. they will look worse elsewhere, keeping the dollar strength alive. jonathan: you know how these news conferences go. they feel like they want to get away for vacation. but socgen was pretty punchy about it, they called it data independent. it didn't make sense to cut

then, others think it won't make sense to cut now, will it in a few months time? dani: all of it is awkward. they still see inflation running too hot in 2025. what will it look like when you're cutting and saying actually inflation will remain above target? jonathan: the ecb news conference with christine lagarde begins in about 20 minutes. we will take that on bloomberg television. before we get there, we need to break down jobless claims at 8:30 eastern just after this commercial break. we will break down those numbers for you and then catch up from new york city. this is bloomberg. ♪

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dani: -- jonathan: the jobless claims in a moment. were looking at 229,000, the median estimate. the previous week 222. equity futures firm or by .2% bouncing back on the nasdaq 5%. the russell is down by one third. the two year, 4.4545. the yields are higher by a basis point. let us cry so -- crossover to mike mckee. mike: an unexpected pop in

jobless claims that might worry people and thanks that he gives the fed more incentive to cut rates. 243,000. 249 was the expectation. continuing claims also jumped a little bit up 108,067,000. the initial claims were revised to 223. here is the interesting part, jobless claims for this week's numbering is based on last week's filings which was the reference week for the july payrolls. this might see a little weakness and get people interested. we also have the philadelphia fed much higher than anticipated. prices received at 24.2 from 13.7 and the new orders index at

20.7 versus -2.2. the price is paid, 19.8 versus 22.5. we have seen some negative employment news but positive price news which will add up to thinking that the fed will cut. dani: -- jonathan: it is really important to process what we saw. cpi came in beneath expectations with jobless claims that have dropped. i think that has restored confidence. with this number this morning and it is one data point, but do you think the jury is out is -- on the strength of the labor market. is that something the federal reserve needs to think of a little bit more? mike: both of us the answer. the fed is expecting more weakness in the labor market but it is also july and a lot of auto plan and others shut down

for retooling and you get pops. everyone hates the word seasonal adjustment but it comes into play. we will have to see if we get a couple of weeks of this kind of performance with people filing for new claims. we are not at a point where it looks like the labor market is about to collapse. it does look like things are getting weaker. dani: to that point while we were speaking there are more risks to unemployment than seen in a long time. what difference of tone is that from waller? what difference does it make that he is speaking about the labor market in that way? mike: he is saying the risks are more balanced and the way things had set up, companies cannot find workers and they were desperately looking for them and paying more. now the risk is that if there is an economic slowdown and we did not see it in the philly fed numbers but if it were to slow than companies might be more

willing to cut workers. but they would also be less willing to hire workers. so we see a drop in the hiring july payroll or august payroll. but i also have to point out that the richmond fed president said -- he thinks the labor market is still strong. jonathan: an update on the labor market. we will see if they are very strong. continuing claims climbing an initial jobless claims 243. the previous number was a revised 2.23. joining us now is rob sark and of city. i want to come to you because you have a big call. you are looking for a recession in the united states and you are looking for the u.s. recession this year. where does it come from and do these data points speak to it? rob: thank you so much for having me. the u.s. team is looking for a recession in the second half of

this year. there are a number of factors that you can point to that suggest the economy will slow down more sharply, tightening credit conditions, straining lower income households and a broad range of softer labor market data as we potentially see this morning. i want to highlight that that call is finally balanced and there are a lot of strong arguments that suggest that the economy holds up better. the labor market is a perfect example. a lot of indicators have moderated significantly. historically they are at healthy levels. you see that with the jobless claims data today. the labor market can turn quickly which is why i think officials have to be cautious while they watch the data. there is no doubt that the labor market is moderated and is moderating into a soft landing or into some type of sharp slowdown.

dani: rob speaks to something that you can take different ideas from different data points and you have to look at the totality. i want to look at what the data is telling you at this moment? >> so, we are in a soft patch for the u.s. economy but that has been concentrated in the lower income part of the consumer which is the part hit by high interest rates. essentially people who have credit cards and short-term financing. if we look at the rest of the economy, funding rates are locked at low levels from the covid, pretty much, low interest rates which have lasted 15 years. we consider -- we continue to see loose financing conditions and we see this as a bump in the road where the fed needs to make one or two insurance cuts. and we see the path for 2025 interest rate cuts that the market is extrapolating assessment lien -- a sense of --

essentially are consistent with a russian scenario outcome. we have trump economics times two coming in. and the risk is that central bankers might extrapolate weakness while at the same time you have an additional fiscal stimulus coming in next year. that is why they are reluctant to give forward guidance. they got it wrong on inflation, it was not transitory. now they are afraid of leaning -- while at the same time we might entering a fiscal dominance period where monetary policy is not the only game in town. we have to look at forward fiscal stimulus that we have. we cannot have the russell breaking highs at the same time and a lot of cuts being price. one of the two has to give. jonathan: fiscal dominance is a technical term. it means focusing on the solvency of the government.

are you seeing that? or an era where the most important factor is fiscal and no longer monetary? alberto: i think it is both. for markets we have to look more at deficit and stimulus and equity markets are waking up to this. and then eventually there is, in some countries a limit to how much fiscal policy can be deployed. there is one word that you never hear from flat -- from policymakers and that is austerity. we have never heard about it. so, as a bond investor i care about what the central bank will do. we know that the ecb and the fed will cut. i am thinking about 2025 and that rate cut path and the markets extrapolating looks exaggerated. i think the credit spreads are a little too tight with companies

that might struggle for higher for longer. if growth stays at trend. there is always a recession probability. but i think that, potentially we see very high odds of trump winning again. that was also the case in june and before the recent events. and with that happening you will have a much more pro-inflation fiscal and trade policy. dani: i want to take to what alberto is talking about. what happens if a recession comes and the deficit is already at levels and we are already running a recession deficit in the good times? rob: it is a great question. if you do look at history that would argue that a recession is likely in this environment whenever wage growth and inflation got as high as they did and labor markets as tight as they did. a lot of things have been

different and i think the risks are pretty balanced. in terms of fiscal policy, i think that is also a great question, as we have been discussing. we have been running high deficits during expansionary times and i think that is the lay of the land going forward regardless of cyclical conditions of the economy. maybe if you get into a recession you will see recessionary spending depending on how deep it is to cushion the blow. but i think that even if the economy stays resilient, we are in a rather large deficit and rising debt world whether it is a trump, biden or different democrat. it is likely going to happen until markets tell the u.s. government that they are not willing to absorb the debt. if you look at the budget office baseline you are looking at five percent of deficit over the next decade compared to 3.5% based on

current law. i think there are a lot of risks about deficit to the upside under both types of administrations. i really think that regardless if we are in a recession or a resilient economy, i think you are looking at large deficits for a foreseeable future. dani: resilient economy is a feature of the large deficit. all of those economists who thought they were going into a large recession backtracked and said that the ira came in and saved the economy. is there a factor of maybe this economy stays afloat because of the deficit and the spending? rob: i think the fiscal situation certainly has supported the economy throughout the cycle and you have seen that specifically in certain types of data. we have seen for example manufacturing related

construction has risen rapidly. that is following the passage of the ira. that being said, i do not think it is predominantly fiscal supporting the economy. when you look at major developed markets and you compare the growth in deficits relative to where they were running pre-covid, you have to measure the fiscal support of the economy. the u.s. does not stand out that drastically from most other developed markets including those in europe where growth has been weaker. i think the fiscal has held but there is something else going on that supported the economy and the resilient demand for services. very strong consumer balance sheet. and the willingness to draw down pandemic savings that consumers build up during the period. fiscal has helped but it is not the be all end all story for the

u.s.. jonathan: we have to leave it there. we have to do it again soon and we have a lot to talk about. jobless claims coming in a little bit higher than expected with an update on stories elsewhere. >> an upside surprise on the jobless claims data. coming in at 243,000 and the estimate was 229,000. continuing claims were the highest since november 2021. data is prone to big weekly swings, but a weaker labor market could fuel a case for fed rate cuts with markets pricing that in in september. the ecb kept rates on hold and offered no indication that it will move in september. investors turn to the news conference for clues on the central bank's path forward. a statement saying it is not pre-committing to a commit -- to a particular path and domestic price pressures are still high

and service inflation is elevated and headline inflation is likely to remain above the target into next year. the financial times is reporting that meta has explored an investment in the company behind ray-ban sunglasses. it is the latest move to intensify the push to develop smart glasses, and the first glasses were launched in 2021. the newest generation launched back in october and sold more in a few months than the previous version dated in two years leading meta to hold talks to deepen the collaboration. jonathan: thank you. up next the ecb president christine lagarde's news present -- news conference. from new york, this is bloomberg. ♪

jonathan: a news conference in frankfurt germany just getting underway in the ecb. watching that out of the corner of my eye. let us get to the trading diary. fed speak continues. we will get logan and bowman. netflix earnings coming up and then donald trump formally accepting the gop nomination and delivering a speech, rewritten of course after the assassination attempt. tomorrow, more fed speak from williams and bostick. the ecb saying domestic price pressures are still high. service inflation is elevated and headline inflation is likely to remain above the target. they did not make a move on interest rates. they did at the last one. the focus like the federal reserve and chairman powell is on september and here is the president. pres. lagarde: the vice president and i welcome you to our press conference.

the governing council today decided to keep the three key ecb interest rates unchanged. the incoming information of -- broadly supports the medium-term inflation outlook. while some measures of the outlook ticked up in may, most were stable or edge down into -- in june. in line with expectations, the x -- the impact of high wage growth has been buffered by profit. monetary policy is keeping finance restrictive at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above target well into next year. we are determined to ensure that inflationary turns to the 2%

median target in a timely manner. we will keep policy rates significantly -- sufficiently restrictive for as long as necessary to achieve the aim. we will continue to follow a data dependent and meeting by meeting approach to determining the appropriate level and duration of restriction. in particular, our interest rate decisions will be based on the assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. we are not recommitting to a particular rate path. the decisions are sent out -- set out in a press release on our website. i will now outlined in more detail how we see the economy and inflation developing and then explained the assessment of financial and monetary

conditions. so, training to economic activity. the incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than the first quarter. services continue to lead the recovery, while industrial production and good exports have been weak. investment indicators point to muted growth in 2024 amid heightened uncertainty. looking ahead, we expect the recovery to be supported by consumption, driven by the strengthening of real incomes resulting from lower inflation and higher nominal wages. moreover, exports should pick up alongside a rise in global demand. finally, monetary policy should exert less of a demand over

time. the labor market remains resilient. the unemployment rate was unchanged at 6.4% in may. remaining at its lowest level since the start of the euro. unemployment -- employment which grew by 0.3% was supported by further increase in the labor force which expanded at the same rate. more jobs are likely to have been created in the second quarter, mainly in the services sector. firms are gradually reducing their job postings but from high levels. national fiscal and structural policies aim at making the economy more productive and productive which would reduce price pressures in the medium-term -- median turn. a successful implementation of the next generation e.u.

program, progress towards capital markets union and the completion of the banking union and a strengthening of the single market are key factors that would help foster innovation and increase investment in the green and digital transitions. we welcome the european commission's recent guidance calling for e.u. member states to strengthen fiscal sustainability and euro group's statement on the festival stance -- fiscal stance for 2025. implementing the e.u.'s revised government framework fully and without delay will help governments bring down debt ratios on a sustained basis. looking now at inflation. annual inflation is to 2.5% in june to 2.6% in may.

food prices went up by 2.4% in june which is 0.2% less than in may. energy prices remained essentially flat. both goods price inflation and services price inflation were unchanged in june at 0.7% for good and for .1% for services. while some measures of under flying and -- underlying inflation ticked up in may, most measures were stable or edge down in june. domestic inflation remains high. wages are still rising at an elevated rate, making up for the past period of high inflation. higher nominal wages alongside weak productivity added to

unique labor cost growth. although it decelerated somewhat in the first quarter of the year. owing to the staggered nature of wage adjustments in the large contribution of one-off payments. growth in labor cost will remain elevated over the near term. at the same time, data on compensation for employees have been in line with expectations and the latest survey indicator signal that wage growth will moderate over the course of next year. moreover, profits contracted in the first quarter, helping to offset the inflationary effects of higher unique labor costs and survey evidence suggests that they shall continue in the near term. inflation is expected to

fluctuate around current levels for the rest of this year, partially owing to energy base of facts. it is then expected to decline towards our target over the second half of next year owing to weaker growth in labor costs, the effect of the restrictive monetary policy and the fading impact of the past inflation surge. measures of longer-term inflation expectations have remained broadly stable with most standing at around 2%. let us look at the risk assessment. the risks to economic growth are tilted to the downside. a weaker world economy or escalation intent -- in trade tensions would weigh on euro area growth. russia's unjustified war against ukraine and the tragic conflict in the middle east are major

sources of geopolitical risk. this may result in firms and households becoming less confident about the future and global trade being disrupted. growth could also be lower if the effects of monetary policy turnout stronger than expected. growth could be higher if inflation comes down more quickly than expected and rising confidence and real incomes means that spending increases more than anticipated or if the world economy grows more expected -- grows more than expected. inflation could turn out higher than anticipated if rate -- if wages or profits increased by more than expected. upside risk also stem from the heightened geopolitical tensions which could push energy prices and freight costs higher and disrupt global trade.

moreover, extreme weather events and the unfolding climate crisis more broadly could drive up food prices. by contrast, inflation might surprise on the downside if monetary policy dampens demand more than expected or if the economic environment in the rest of the world worsens unexpectedly. looking at financial and monetary conditions. the policy rate cut in june has been transmitted smoothly to money market rates while broader financial conditions have been somewhat volatile. financing costs remain restrictive as the previous rate increases continue to work their way through the transmission chain. the average interest rate on new loans to firms edged down to 5.1% in may wahlberg -- mortgage

rates remain unchanged at 3.8%. credit standards remain high. according to the latest bank lending survey standards tighten slightly in the second quarter while standards for mortgages eased moderately. firms demand for loans fell slightly while households demand mortgages rose for the first time since early 2022. overall credit dynamics remain weak, bank lending to firms and households grew at a rate point 0.3%, only marginally up from the previous month. the annual growth in broad money as measured rose to 1.6 percent in may from 1.3% in april. in conclusion the governing

council today decided to keep the three key ecb interest rates unchanged. we are determined to ensure that inflationary -- that inflation returns to a 2% target in a timely manner. we will keep policy rates sufficiently restrictive for as long as necessary to achieve the aim. we will continue to follow data dependent and eating by meeting approach to determining the appropriate level and duration of restriction. in particular the interest rate decisions will be based on the assessment of the inflation outlook in light of the incoming economic and financial data. the dynamics of underlying inflation and the strength of monetary policy transmission. we are not pre-committing to a particular rate path. in any case we stand ready to adjust all of your instruments within our mandate along with

the medium-term target. and the smooth functioning of monetary transition. we are now ready to take your questions. thank you. >> thank you. the first goes to alex of bloomberg news. alex: thank you and good afternoon. you said that domestic price pressures are still high. could you elaborate but the biggest lingering concerns around the issue of wages and productivity and what you would need to see in the data on those points that you are going to get over the summer in order to be comfortable with another rate cut in september? the second question on fiscal policy. are you worried that large deficits and slow consolidation could make it harder to bring inflation back to 2% and create financial stability problems? pres. lagarde: thank you very muc