>> the process of diversification is necessary, but you need exposure to the magnificent seven. >> we want to be more defensive. it's a higher quality. growth is slowing. >> the squeeze is quite intense. >> pockets, so opportunity. >> inflation, moderating. ideal scenario for the stock market. >> this is "bloomberg surveillance." jonathan: live from new york city, good morning, good morning. "bloomberg surveillance" starts

now. wednesday, equity markets are pulling back across the board. check out the nasdaq 100, underperformance on the back of disappointing earnings. down by 1%. tesla, missing expectations for a fourth consecutive quarter. that stock is down by almost 8%. lisa: this is because the hope for robotaxis is being pushed back again and again. they missed again the expectations in the market and partly because for the first time it doesn't seem like there is a lot of enthusiasm behind a new product or new idea. the political angle of tesla becoming increasingly interesting. jonathan: let's get into the political and -- angle. mexico, elon musk said "trump will put heavy tariffs on vehicles built in mexico, it doesn't make sense to build a lot in mexico." if that is the case, there is an

auto manufacturer making decisions based on november. annmarie: you can see political uncertainty affecting business decisions. tesla has been slow walking the plan to mexico now he is linking it directly to november 5. tbd whether or not there will be more money investment in that plant depending on who wins the presidential election. lisa: you saw margins compressed pretty considerably because of some of the terrorists already in place as a result of the increasing trade war. number two, there's a real question about elon musk himself, who has supported donald trump for president, putting in a considerable amount of money, though a bit less than he originally pledged, to the campaign, coming out, if the person he is seeking to elect has policies that might be negative for his business, is he pro to create favor or pro for social reasons or something else

beyond the economy? annmarie: asked about the economy, he said it would be devastating for competitors and her tesla slightly, that the value of tesla is overall autonomy and that in the short term losing the juice might hurt, but long-term it might help because it will hurt competitors even more. jonathan: over in europe, lvmh taking a beating as well. numbers not fantastic, the stock down by 4%. going through it line by line, fashion and goods revenue, 1%, compared to a year earlier we were talking about double-digit revenue growth of 21 percent. sales in china down double digits. you want an extra political angle? goldman sachs on china, this is what they had to say, the reason they were cautious on doing fiscal stimulus was the risk of trump. some of that logic is just like save the ammunition in case we

need to do more in 2025. if you are a luxury goods maker selling into china, there is a nod from goldman suggesting that chinese authorities are also waiting for the outcome of the election. lisa: you've heard that, basically, there was no incentive for the recent get together in china to put forward or do consumer spending and there was this foreign-exchange angle on this that i love. the fact that the chinese consumer was going to japan to get their goods because it was a lower price because of the currency differential shrinking margins. this is brilliant and i envy them. annmarie: massive sales lift. thinking of that political uncertainty when it comes to the election, they came out in their statement to talk about the climate of geopolitics where it all remains uncertain. citi had this to say, no miracle near term. feels like in this moment

complete election reset the companies taking into account that they need to wait, potentially, on these decisions or how their business might pick up until november 5. jonathan: fervor he absolutely battered. similar story if you call that luxury, but that's a conversation for another day. on the s&p, equity futures are down. brutal, wasn't it? i used to wear -- annmarie: i was going to say, don't you wear hugo boss? we've been there together. jonathan: use too. long time ago. lisa: now it's not cool? jonathan: things have changed. annmarie: what do you wear now? jonathan: not giving anyone an this morning. i'm available for endorsements if you pay enough money. i'm not. i can't accept anything. went too far. [laughter]

coming up, big tech dragging stocks lower, and another quarter of disappointing profits. the top story, big tech is dropping stocks lower. "there has been some notable softness in bellwether cyclicals, this is at odds with the macro narrative of the fed rate cuts driving acceleration. be careful what you wish for with softer data, it can become too soft." good to see you, greg. bill dudley, former fed president, changing the mind. looking at the labor market, says it's a big change time. what do you think? greg: the thing about fed cutting cycles and what they mean for equities, they are difficult to navigate. the fed is cutting because they can, it's benign, or they are cutting because they have to end the data is slowing down too

much and that's more negative for stocks. that's the question we have to answer. earnings season is how we will answer it. we are still early in the earnings season but so far it hasn't been great. there is evidence that slowing in the macro data is affecting corporate earnings and that's a less constructive backdrop. lisa: part of this is by design. we were talking about this yesterday. it is essentially the fed, you can't look at this and be surprised, the whole point was to slow down the economy to get weaker inflation. what is your argument that says it is a pernicious enough weakening to cause a selloff so that you are expecting to get down to 51.50. greg: honestly, it may not. we will have to see how earnings unfold. we set that target in february when it was above. you seen this extension of multiples with heightening rallies and essentially what we

need to see is a re-acceleration in earnings to take the market higher from here and that doesn't seem likely. lisa: there's a political angle and we were talking about how the earnings season showed companies waiting for the political tides to clear. how much does that diminish the possibility of reacceleration of earnings simply because there cannot be that many big moves made if there are these potential tariffs or restrictions or regulatory pressures coming to the fore? greg: you can look at what is priced in and it's at the lowest level we have seen since the election cycle, so if anything the fear has been dissipating since the polls have been shifting and driving some of the procyclical rotation, the outperformance of the russell we have seen over the last month. annmarie: a lot of people are

looking for the noise, but you think politics moves the rotation? greg: i think it's one of many things. it's hard to disaggregate. we have seen extreme levels of the russell in the cyclicals with a soft cpi print that acted as a catalyst with parts of the market that were valued in november and december rallying again as a cutting cycle but more firmly priced in september. those are the traits that people tend to associate with a trump presidency. it's hard to distill how many of those drivers are content -- contributing. jonathan: the pillars that we keep going back to our politics and rates. you are reading into the economy based on the earnings. i think that's interesting because i find it difficult to do that at the moment. we had a conversation at the start of earnings season that the dow was pretty bad, pepsi was bad, gm was good, coca-cola was decent.

which one gives you a better read on things right now? jonathan: i guess the price -- greg: the price action on gm was great, -- not great, even if the numbers were. under the surface there is a bit of a market cap buzz, setting the price action that we had coming in. there is softness in the more cyclical stocks. you mentioned the consumer, i think we should be careful looking broadly at the earnings season. large cap tack -- tech is the sick will you want to focus is on to get out read. -- a read. jonathan: are we on the wrong side because the economy is already decelerating in terms of small caps? greg: it's definitely a risk. one thing we have been saying is that we are at the point now where we have outperformance from large caps and ai

bellwethers but there is now a squeeze higher in the banks with the small and mid-caps. what we are at risk of in terms of q3 and q4 is a more correlated self, which is ultimately what could see a volatility spike in the vix. lisa: going back to your volatility target, as you have been bearish on the market, i'm curious about the preliminary look at big tech, is that enough to give you renewed confidence that we will get there and it could be what leads us down, even if it is in tandem with growth concerns? greg: i don't think so. we need to see more material slowing. there hasn't been much a large cap support today, we need to see something softer at the margin in terms of the price action. i think that to get down to the year-end target there needs to be a more pronounced slowdown in the macro with a downgrade emerging. jonathan: greg, good to catch up

with you, sir. got the money of thoughts on the earnings season and what it might mean for rate cuts. bill dudley making some headlines here on bloomberg opinion, writing "i have changed my mind, time to act right now and reduced interest rates -- reduce interest rates. reverently in the next meeting, though it might be too late to fend off a recession by cutting rates. dawdling unnecessarily increases the risk." i wonder if they read out those lines next week? lisa: maybe if they had read that earlier, they might have gotten it earlier, that's what they were projecting. but i find interesting is that he highlighted the winning effect of the bidens stimulus, it seems to becoming more to the four. in other words, it's power is running out more quickly than he expected and not necessarily

offsetting the restraint of the monetary policy. that aspect is really getting him a little more worried. annmarie: i was picking up on that as well, talking about these vast investments of the biden administration and if that is what you think, potentially that demand is waning, the fed will be cutting sooner and you can paint this back to politics in two ways. one, there is an issue stimulus in the market. second, it means that if dudley is correct, or two, if there are cuts before the november election. jonathan: equity futures negative hereby 0.7%. let's get an update on stories elsewhere with your bloomberg brief with dani burger. dani: deutsche bank has reported its first quarterly loss in four years as trading slowed. they booked a charge tied to a legacy issue at a retail unit. the ceo told us that the bank is

likely scrapping buybacks for this year. >> this year, i think that prudence dictates that we step back from a second repurchase. we have already turned 1.3 billion to 1.5 billion so far this year. we think we are demonstrating the values. dani: shares of deutsche bank falling by 5% in trading. shares of lvmh also slumping in the french trade, reporting a slowdown in sales growth over the last quarter, shoppers raining inspected -- spending on luxury with the big hit coming from china, losing sales by 14% with larger growth in japan seeing an uptick in tourists. the cfo said that customers were simply saving up and waiting for their next trip to japan. all eyes will be on president biden tonight, he is set to address the oh -- -- the nation

from the oval office, the first time he has spoken since he dropped his reelection bid on sunday. former president trump is demanding equal time, saying that he sent a letter to three major networks arguing that the biden speech will be a prime time campaign commercial for kamala harris. trump is going to hold a rally in charlotte, north carolina this evening two hours before the presidential address. jonathan: thank you. did you see them playing golf? quite cool. lisa: there is a certain cohort who likes watching golf. jonathan: yeah, decent golfer. not a six handicap, but -- lisa: trying to beat kamala harris on the course? jonathan: he still trying to get biden on the course. can't let go. [laughter] up next, new election taking shape. >> hear me what can i say i know donald trump's type and in this campaign, i promise you i will

probably put my record against his any day of the week. jonathan: live from new york city this morning, good morning. ♪

jonathan: not sure what i think about lvmh and the cfo saying that people are not buying enough stuff because they are saving up to go to japan again. lisa: i think it's brilliant, a fantastic fx traded if you can, go for it. why not? it's basically a discount and that's the reason that their profit margins are shrinking. jonathan: if you can afford to go on vacation to purchase lvmh, i'm not sure how frequently you're going to japan again. lisa: how do you explain taylor swift, flying to england to see taylor swift?

it's a similar analogy. annmarie: tickets are much cheaper. jonathan: do you think that the taylor swift boy ends is the same as the lvmh prior? dropping tens of thousands of dollars on leather goods at any time? have you seen the store? lisa: if that's the case, what's $10,000 to fly over there? jonathan: that's what i'm saying. do you need time to save up? probably not. anyway, we agreed and then we disagreed. futures, negative by 0.7 percent. yields are unchanged. under surveillance this morning, a new election taking shape. >> so, hear me when i say i know donald trump's type and in this campaign, i promise you i will probably put my record against his any day of the week. i am so very honored and i pledge to you i will spend the coming weeks continuing to unite our party so that we are ready

to win in november. jonathan: kamala harris holding a two point advantage over donald trump in the latest reuters poll compared to the 2 -- two point deficit that biden was facing last week. biden addressed of the nation at 8 -- addressing the nation at 8 p.m., the first time we will hear from the president since he dropped his reelection bid. jordan, 8 p.m. eastern time, the president addresses the nation. what are you expecting to hear? jordan: his explanation on why he dropped out after saying only the lord almighty and force them to do that. also, what message is he sending to the nation about kamala harris, the person that he picked to be his successor? those are the big themes we will be looking for. annmarie: why did it take him so long to appear in front of a camera before the american people? jordan: a vapor of the reasons

he came down with covid last week on thursday and was in isolation over the weekend when he popped out that statement. but it is odd that he did not appear personally to make this huge, momentous announcement that really changed the contours of the race. there have been a lot of conspiracy theories on the right about his well-being. the address is also an opportunity to reassure the public that he can serve out his term in addition to the other things that were listed. annmarie: the trump campaign pollster said that this does not change the discontent of the voter over the economy, crime, open border, housing costs, and concerns over two foreign wars. he's calling this a honeymoon for her. how are you reading this, how the trump campaign is preparing for a new campaign? jordan: there are some valid points in that memo but it shows

me that they are worried about kamala harris. keep in mind, this is coming off the heels of the republican national convention and an assassination attempt on donald trump. two events in which you would expect a huge boost in the polls for trump. why is he not getting that? why is that not accounted for in the memo? the fact that they are preparing the whole campaign to go after biden with concerns over his age, this is throwing spaghetti against the wall when it comes to kamala harris, having settled on a message to counter her yet. annmarie: and now we have donald trump is the oldest president -- presidential candidate ever, tables turned. the vice presidential pick, was that a mistake for the trump campaign? was j.d. vance the wrong person to galvanize voters? what's the likelihood, based on who you speak to, that there could be a replacement of j.d. vance? jordan: too late to do that for

the republicans if he was nominated officially at that convention just a week or two ago. he's on the ticket, they can't take them off even if they regret the choice. looking ahead to what kamala harris has to do, she doesn't want to fall down the pitfalls of donald trump, perhaps she wants to pick someone who complements, you know, her style, her strengths, with someone else. a lot of speculation about white male governors. that might be the list she's looking at. lisa: except for the one who is a senator in arizona and seems to be a front runner. any sense you are getting on who that person is most likely going to be? jonathan: it's not clear that she has narrowed her -- jordan: it is not clear that she has narrowed her list but it seems to be about half of a dozen people. governor josh shapiro, governor andy beshear, and governor roy cooper, those are the core that

we have heard speculation about in terms of who she michael after. annmarie: she's going to be at an event instead of listening to benjamin netanyahu. is this the right decision for her campaign given the lack of foreign-policy experience? jordan: good question. she had some previously scheduled events and will be out of town. she is going to be meeting separately with netanyahu on thursday, that is what we are told. look, i think that on the one hand, yes, she would like the opportunity to be in the room to get those photos. on the other hand, u.s. voters, as much as we care about foreign policy, voters are not as tuned into that, so for her to have the opportunity to go out into the country speak to voters, that might pay off more and more. jonathan: before you go, assessment of the trump golf game? putting strokes were weird.

what did you think? jordan: it got me, jonathan, a few of the eight footers were short. for my taste. decent golfer, but i'm not sure i believe the handicapped. [laughter] jonathan: jordan, thank you, sir. fantastic exchange there if you want to tune into it on youtube. lisa: what does it say about our political sphere that the most passionate discussions anyone can have are on the golf course? jonathan: what's new about that? [laughter] lisa: i don't know, thinking about the speeches of the 1800s, they weren't talking about golf, just saying. jonathan: i think that's why people work refreshed by hearing from kamala harris in a normal speech yesterday. everyone was that everyone has disagreements, but it was normal and we haven't heard something like that for years. annmarie: she got up, sticking

to the script, didn't veer off talking about sharks, able to finish her sentence is. in a sense, it was like a normal person reading a speech, delivering a message and a lot of people enjoyed it. lisa: this is exactly it into me this is -- what did we talk about? boring competence over the u.k.. is that essentially what people are looking for the united states? they've been shellshocked by the alternative. jonathan: is that what we are talking -- is that what we are calling keir starmer? boring competence? just wondering. lisa: i mean, not exactly fireworks. jonathan: not at all. [laughter] if you want my opinion. coming up, tesla earnings falling short once again. ♪ (♪♪) (♪♪)

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jonathan: equity futures on the s&p 500 shaping up as follows, down across the board by 0.7 on the s&p, nasdaq 5 -- nasdaq 100 down by 0.9. tesla, not faring well in the premarket. more on that in a moment. if you switch up the board, check out the 10-year yield this morning. the yield, just a little bit lower, not even by a basis point. bramo, give us the numbers. i know you've got them to hand. lisa: five-year notes today,

tomorrow we have $44 million of seven-year notes coming to the fore. yesterday i wanted to say that the two-year auction went well. it was oversubscribed, overbid, whatever, people looking to that idea that the fed will cut sooner because of the cooling economic data, so how much of a bid into duration do you wind up getting with the feel that you are seeing now? jonathan: how much attention is there between the story that you described in the fact that credit spreads are tight on high yield? is that tension for you? lisa: theoretically, yes, you would be seeing credit spreads widening, over time the current quality of these names increasing dramatically with the u.s. attracting a lot of international money because the yields are so much higher, so that is the natural bid into credit, but correct, it's odd you are not seeing investors demanding a greater premium for the risk of default at a time

when people say that the economy is deteriorating at a rapid clip. jonathan: we will have that conversation later in the program. looking at dollar-yen every single day this week so far, stronger japanese yen, down by 0.6. lisa: i went looking for the reasons. why is this reversal happening, why are people pushing back from their bearish view on the end? all i could get was positioning, people getting stomped out of trades and trying to reassess. this feels like it's more of a technical trade, based on everything i've been reading and hearing. this idea that the dollar the is losing prominence, and unwinding of the trump trade, whatever you might think it was. that seems to be more of an explanation than anything else right now. jonathan: strongest yen since may of this year after hitting its weakest levels since the

1980's, giving you an idea of where the currency has been. flight cancellations once again continuing for delta following friday's global i.t. outage. pete buttigieg saying the airline is facing an investigation after more than 3000 passengers filed complaints. delta faring the worst amongst u.s. carriers. most other airlines were back on track over the weekend. something different happened with delta. lisa: the flight crews were not able to figure out where they should become a mild problem. and you heard about pilots and flight crew members of being annoyed that they could not call anyone at delta to find out where they should be. this is a widespread failure because of the way they were using the crowdstrike related applications. the interesting thing to me is that only 3000 people filed complaints because there was something like 4500 people who had flights canceled. have you never had your flight canceled, been stranded somewhere, not gotten a voucher,

had to pay a whole lot of money to house and feed yourself for a couple of days and you don't know who to call? annmarie: i want to hear what the pilots have to say. i think they feel abandoned by the system. today, the crowdstrike ceo needs to return to congress to schedule his hearing. he has until 5 p.m. today with those congressmen in the house to schedule a hearing, they want to know what happened. not just because people were stranded in the pilots felt abandoned, but the national security concerns of what happened. jonathan: we have seen tough critics on the hill, like the ivy league professors getting into it, the heads of ivy league colleges, more recently the heads of the secret service, and i wonder if that will be the same thing that the crowdstrike ceo has to face. i have that line from the pilots union in front of me, the inability to contact the company in any capacity. that's skating.

skating, bramo. lisa: it highlights how these programs were integrated into their system. there's a question here, how does the nation immunize itself from dependence on one application in a way that could potentially torpedo the entire system? yes, there will be a grilling of the crowdstrike ceo, but there is the question of how much we depend on system applications that could be important and disruptive. jonathan: more on the airlines later in the program. turning to alta that this morning, it is down in the premarket, software, the numbers were not bad. even if the numbers from the google parent company had sales that beat estimates, it's weaker than expected performance from the likes of youtube, facing lingering questions over their performance against ai competitors. we had a gas yesterday that said that in line was the new beat, but i'm not sure that's the right way to see things.

lisa: i wrote that in mind is the new miss depending on the line items. looking beneath the hood, across the board they were beaten on the top my levels. what were the mrs., you two revenue, there was an increase in spending related to artificial intelligence and it highlights how people want to see artificial intelligence producing profits. if you cannot see that path, this was the same google from a year ago where people saw it as the ad spend to search company. jonathan: very much under way, tesla shares are down in the premarket by close to 8% in early tread -- trading. the ed maker reporting another quarter of disappointing profit confirming the highly anticipated launch of their autonomous robotaxi has been delayed again. i'm pleased to say that ben joins us for more. in some ways, elon musk tried to

make it simple for us all. either you believe in robotaxis and you should be with us and you'd -- or you don't and you should say. -- cell. is it that simple? ben: i think there are some more near-term things to hang our hat on, the next generation vehicle we think will be unveiled at the robotaxi event. tesla has not had a big vehicle on the road outside of the cyber truck, so as we get more vehicles as early as next q1, i think it will be a catalyst for the stock. a reiteration of the timeline around the vehicle was an important part of the call last night. it was a one line miss. the margin, people will argue over regulatory credits being beaten on the margin. if they had it, they missed. if you didn't, the experience was ok.

tesla has the balance sheet, $30 million and managed to generate one billion in cash flow, even with investing $3 billion in capex and r&d in the quarter. so, on the dip here we are set up for different growth opportunities like energy and full self driving next-generation vehicles. jonathan: let's talk about the slippage on the timeline, the robotaxi was meant to be unveiled but pushed back to october. reporting confirmed yesterday on the release. how material is that for this company? i have been describing it since april as the carryover of the stock and maybe people like myself were wrong, it's been pushed back in that doesn't feel like a big driver here. how important is that to the story at the moment?

ben: at the bottom line it was pushed out two months. two fold, they wanted to tweak the robotaxi itself. and like i mentioned, the next generation vehicle matches with their timeline of getting cars on the road at the beginning of next year. unveiling it in october makes more sense than in august, where you had the potential to damage sales where they introduced a better new product. for tech companies and tech investors, they were right here in front of the new product cycle. lisa: there's that question of how it gets rolled out to create the profitability that people need to see. concerns over regulation with full self driving robotaxi technology. in response, elon musk said he didn't think regulatory approval would be a limiting factor. do you agree?

not a concern to you either? ben: we expect the rollout to be in select cities in tesla owned fleets. those small steps have been big implications for evaluation. as soon as investors can wrap their arms around what it's going to be, modeling it out, seeing the future profits that can be generated from this, then they start the valuation. we don't actually do that in our price target model. so, when we get there we have a framework for it. even though we are starting small and it might disappoint some people, it will also attract a lot of investors to dream the dream that is becoming a reality every day. annmarie: we heard elon musk moving into politics again, saying that trump is going to put heavy tariffs on mexico so it doesn't make sense to invest in mexico?

who's better for tesla in the white house? kamala harris or donald trump? ben: he's put himself in a position where both are good. he has strongly endorsed donald trump and has donated to aipac supporting donald trump. so, he has the ear of donald trump. as it pertains to renewable energy, as it pertains to electric vehicles, he has that. you have seen trump change his tone quite a bit since the endorsement, saying that he likes ev's, us -- a far cry from what he was saying a couple of months ago. kamala harris, as a part of the biden administration, she put in arguably the largest energy plan we have had at least in my lifetime in the inflation reduction act. i think that that will stay status quo. i think that they can thrive under both administrations. lisa: are you saying that the

elon musk support of donald trump has succeeded in currying him favor so that if donald trump becomes president, any types of policies that a lot of people think could potentially take away certain benefits for electric vehicle makers will get well back for him and that tariffs won't be as punitive? ben: i think that one mistake the biden administration made was that they never visited tesla. it's nonunion. they visited other auto manufacturers. having an administration open to talking to elon musk is better for them. i don't think that, you know, they will favor tesla over other manufacturers in any way. they might tighten up the way that the materials can be in the united states produced, whether it is lithium or other materials . tesla has already taken those steps to move their supply chain into the united states, the domestic supply chain should thrive under the trump

administration. jonathan: thank you, sir. the take away, he says, the stock is down by close to 8% in the premarket. getting you an update on stories elsewhere, let's get it across to dani burger. dani: santander shares are rising after income in the second quarter beat expectations and upgraded their outlook for efficiency and revenue growth, on track to roll out a new platform intended to lower costs across all units. spain and brazil boosted results for their key retail business. brazilian locations in particular benefited from those rate cuts. what is old is new again, apple working on a foldable out -- foldable iphone again. they had reached out to suppliers in asia, reportedly, to make components for the device, making it similar to the samsung galaxy x that was released in 2020 with reports

saying that there was an internal code for the product showing that the idea moved beyond the conceptual stage. good news if you are to travel to paris for the olympics. according to lighthouse, hotel prices for the summer games have fallen to half of their peak rate. accommodations are being listed on an average of $340 a night, down 41% from the peak rate of $575 11 months before the opening ceremony this friday. jonathan: next to no interest in being in paris for the liv-ex. annmarie: really? jonathan: based on the hotel price, others share that view. lisa: well, they are still high, jim over at deutsche bank talked about how he's bringing his family. jonathan: good for jim. annmarie: you could be going to japan instead. jonathan: exactly.

or italy. i always think that. budget italy, that's how i feel about france. lisa: that's pretty harsh. i will say, table tennis, judo? i was looking at some of the events you can go to. there is a wide panoply of potential events. jonathan: there we go, we will check it out. up next, big tech is facing big expectations. >> over the next four months, five months or so, expect to see bumping us and consolidation from the tech gains out there. got a little bit ahead of themselves. jonathan: that conversation is up next. live from new york, you are watching "bloomberg surveillance ."

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couple of disappointments out there that we will talk about in a moment. big tech facing big expectations. >> over the next four months to five months, expect to see bumping us and consolidation out there. every time this calendar year where we think there might be another boost up their, that's what we see for big tech, but right now consolidation is warranted. jonathan: shares of alphabet are falling in the premarket. the google parent company reporting second-quarter revenue sales that came in above estimates with investors focusing on disappointing results from youtube and lingering questions on their progress over ai. mandeep singh joins us for more. you haven't showed -- if you hadn't showed me the price action, i would have guessed it was up. i'm surprised it's down. are you? man deep: absolutely.

i think they quantified the cloud revenue in their ai contribution. that was a big positive. everyone right now is focused on how much it can generate from the ai workload on cloud. that segment also saw an increase. to me, this was a solid print. clearly, the market is focused on capex and free cash flow. but i think that this will pass. there was an important line from yesterday, the risk of under investing is greater than the risk of over investing at the moment. build that out for us. what are the leadership trying to communicate? it's a long run in terms of what you can do on the ai side. think about search, 90% share, everyone thought that it was a saturated market and now they are growing in the mid teens in doing it without impact on the

gross margin. that's the remarkable part. everyone thought that ai queries would be more expensive and hit the gross margin, but guess what, they can apply the right kind of model to the right query and it shows up in the gross market. complexity, chatgpt, all that competition that everyone talks about in search has had no meaningful impact. lisa: there's this feeling that google doesn't have the internal capacity to create the programs to adequately compete with others who could potentially, thinking about microsoft, they could supersede them when it comes to the base search. do you think that based on what we have seen they are moving at a fast enough pace with the personnel needed without making the acquisition that has proved to be difficult for them to do? mandeep: yeah, i think that acquisitions will be difficult

to get done because of the regulatory scrutiny, but the google business, they have nine matt -- nine apps with a billion monthly users. think about it. what kind of scale do they operate at? when it comes to large models, everyone talks about ok, the models are intelligent, they can reason, generate content, but where do you link the content? you have to link it to maps, owned by google. link it to youtube. the final outcome of the search is something you want to link to to make it easy for the user to be productive and google owns the assets. to me that's a big plus. even if they don't have the best large model, the fact that they own the underlying assets that everyone wants to relate to in terms of internet usage is a big positive. lisa: you are pointing out a lot of reasons for the stock to have rallied yesterday, but we are not seeing that, raising the question -- is this a time where year to date essentially in mind

it's not a bait and raise, but in line is a miss and a reason to shed exposure at a time when it's still not clear how quickly it could be monetized. jonathan: i think at the ai number that they gained -- mandeep: i think that the ai number that they gained on cloud revenue, microsoft have the same last quarter. to me it shows that they are gaining cloud. look, when it comes to how market perceives the llm leadership, they will realize over time that this company's underlying assets are a big note that no one can supersede. look, right now capex is a big focus in you will see that with met in their report. if they raise the, the reaction will be negative. that's what the market is focused on. if you are raising capex, that's the reaction. jonathan: are you saying that this will be punished next week by those other companies? mandeep: absolutely.

meda will likely -- meta will likely raise the capex and mark zuckerberg said that he wants lama to be the most used ai assistant and i think that the market reaction will be negative. lisa: there's a larger reaction hanging over it, are we overestimating how quickly -- artificial intelligence can be monetized? is this an implicit understanding that's been priced in prematurely? mandeep: right now we don't know. if gp four took $200 million to train, would five take one million dollars in capex to trade? or will it be along the lines of gpt four? and will five have sufficient improvement compared to four? if that's the case, we keep going higher. until we hear the cap in terms of the model improvement, the

capex will keep going up. annmarie: looking at youtube for the next hundred days, what are you seeing in terms of advertising spending? we had an analyst concerned about advertising. jonathan: typically in an election -- mandeep: typically in an election year the political ads are built into the platforms and i expect the same. the question is, brand ads for youtube, what are the verticals they didn't spend? they call that retail financial services. maybe other verticals in the economy aren't spending as much? to me, this is a barometer of how good digital ad spending is an typically, more inflation is good for digital ad spend. jonathan: the final word from you is saying no to google. typically we think about m&a in this part of the world breaking down because of people in washington, d.c. not wanting it to happen.

what's the signal that you take away from that start up saying no thank you we are going solo. mandeep: it's bad timing. if the crowdstrike outage had not happened on friday, we would talk about it going through, because google had the best shot of making an enterprise related acquisition if cybersecurity had complemented their offering. regulators would have let that through but clearly the company said no because they cannot garner higher valuation. jonathan: do you think they can? mandeep: if they go public in a few months, they would, because crowdstrike is going to lose business right now. jonathan: thank you there, mandeep, with a sneak peek on the names coming next week, meta is on deck along with everyone else. lisa: i wonder if the signal is to look at how far share prices have gone up and how high it has

to be for the shares to pop following earnings because right now you're looking at positivity being baked into google shares. how much is that really being punished as opposed to actual earnings that beat expectations? jonathan: meta is down by two in the premarket right now and stocks are flying. coming up next in the second hour of "bloomberg surveillance ," we are catching up with blackrock, the carnegie endowment for international peace, citibank, and credit size. the s&p 500 pulled back by .7% on the nasdaq. yields are lower, the 10 year at four .3388. the dollar is -- 4.33 88. the dollar is weaker against the yen, pulling back to 100 and 54 from 53. from new york, "bloomberg

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>> the fed is late. they should have been cutting months ago. it's really threatened by the inflation forecast. >> inflation, trending down with a few months on the road. >> the fed has changed the balance with how they are looking at things in the market is catching on. >> what we have is if the fed

cuts in september, it wouldn't necessarily be a good thing. >> in the short term we have priced in rate cuts in the economy is slowing. >> this is "bloomberg surveillance." jonathan: the second hour of "bloomberg surveillance" begins right now. live worldwide, good morning, good morning. here is the price action this morning, down .75%, the nasdaq 100 pulling back by 1%. the price action is disappointing relative to the numbers from the likes of alphabet, which were not bad. tesla numbers were not rate. the story i want to talk about is the federal reserve and the big change from a former fed official, bill dudley coming out and saying i changed my mind, the fed needs to cut rates right now. it might already be too late to fend off a recession and

dawdling now unnecessarily increases the risk. lisa: he points to the labor market as having weekend -- weakened. housing data human negative with markets pricing in the 100% chance almost, 96% chance, of a september rate cut. annmarie: bill dudley talking about the bifurcation of the u.s. consumer and of those on the lower threshold. the rest have generally depleted what they have saved from the fiscal transfer and are feeling that impact. housing construction has faltered. this is why he really thinks they need to cut rates. the steam, the tailwind coming from u.s. fiscal spending has dried up. jonathan: housing, let's build on that. redfin brokerage yesterday, 56 thousand home purchases were canceled last month equal to

about 15% of all of the homes that went under contract that month, the highest share of cancellations for june going all the way back to 2017. can't miss that. lisa: suddenly people entered deals they wanted to break. why? because of "minor issues," the monthly costs of buying a home. meanwhile, we are getting news this morning about the blackstone mortgage rate cutting their dividend, following cutting the dividend of kkr and similar ilk with office property values plummeting 40% since 2000 22 according to some of the data. looking at the headwinds, you wonder how much has come to the fore and how quickly could the weakening happen as these issues loosen annmarie: up a bit. annmarie:house hunters having trouble committing because buying a home is more expensive than ever. this is why the former president

told us in that business week article that they shouldn't cut rates before november. mortgages are an election issue. it's going to be a hot topic and if they cut twice, it's going to be very political. jonathan: we are hearing from the sitting president later this afternoon, this evening, 8 p.m. eastern time. turning to the price action, things are negative by .75 percent. the 10 year, 4.338 eight. the euro, weaker. data out of europe this morning, once again not great. pmi is really not great at all. we will pick up on that later. coming up, kate moore with a disappointing start to attack earnings as delta faces fallout over flight disruptions. and the state of the u.s. consumer, our top story is alphabet and tesla results

failing to impress investors. kate more wrote the following, "the continuation of first quarter trends. auto, industrial, cyclicals, not yet out of the woods. companies with positive earnings momentum will be rewarded. let's talk about the theme and welcome to the show. been too long as always. good to see you. small caps in the last couple of weeks, you don't think it is durable. why not? let's start there. >> we could have a whole conversation about this, but there are a few reasons. small caps tend to perform -- -- tend to perform when the economy is improving and we are at a point right now where the economy is slowing. maybe not dramatically at this point but in a way where the fed should be able to ease policy rates sooner than later and that is not generally good for companies who are price takers,

who are lower on the supply chain. who tend to not have the diversity of businesses being pushed through different parts of an economic cycle. people have made the small-cap argument around the debt profile. hey, small caps have floating-rate debt and that will be great, but they need more than 25, 50, or even 75 points of rate cuts before there is a significant impact and a lot of that for the small caps comes in the form of bank loans. we need banks to feel confident enough about the economy to extend the loans to those at the same time, so i think this is a tactical and sentiment oriented play and not based on the fundamentals of small companies. this also comes at a time when big tech names are garnering high elevations. you have been overweight the big tech darlings and even you seem

to be cooling on the margins about how much further they can go. can you explain the bifurcation of not being positive on small caps and seeing the large cap beloved stocks losing luster? you are right -- kate: you are right, it is a tricky point and we have been trimming the significant tech overweight over the course of the last number of weeks since late spring. much of that has to do with the incredible performance that we saw in the first half of the year and as you pointed out we traded at premium valuations for a lot of these stocks. we don't actually think that most of these ai oriented companies are going to have trouble with their earnings. through august, we thought that those would be the show me moments. that said, when we are at these kind of priced to perfection

levels with huge premiums in other parts of the market, we got risk management to trim a bit. i wanted to emphasize that our enthusiasm for the ai theme has not diminished. it's more of a tactical move we have made. lisa: other people seem to be having a similar sentiment after the price reaction to google earnings that were larger than expected. dialing it forward, if you are marginally selling the large cap names and not buying small caps, what are you going into? kate: we kind of marginally sold on the ai tech names, but nothing dramatic. we are not buying into sectors we don't have a lot of conviction in and are not adding to consumer staples at this point, but we have been selective around banks. there's opportunity there. we see opportunities across

energy. those stocks have gotten exceptionally cheap and we will continue to monitor the growth story that impacts energy and policy. i would say that there are parts of consumer that we do like and we are being selective. the moment before i came on you mentioned the mixed news for the low-end consumer. but there are consumer companies, maybe experiential consumer companies or those with very specific and well loved brands that we think it can be resilient in this economy. let's say this, we are being more selective and trimming the margins stuff that has run hard without giving up on the theme. jonathan: one of the sectors i want to tease out and then we can go to the others, energy. you mentioned policy considerations. can you go deeper? how are you thinking about that sector? kate: energy has the potential

to look very different in 2025 under one administration as opposed to another. we will be paying close attention to that at the congressional level and how the tone might change from traditional to renewable and which parts of that complex have the best legs for the next couple of years. i will say that even though we are talking about slowing growth, we are not talking about catastrophic growth. to think that there is an underlying demand for traditional energy with capital discipline that we have talked about many times from traditional energy companies leading them to look profitable and generate cash. there is a lot to do there and i think it is an interesting and exciting sector, given the polygenic -- policy changes in the u.s. and elsewhere. annmarie: can you drill down into what you are looking at and how the rhetoric could mean changes for these decisions?

hunter biden energy stocks did well, we are pumping more crude and natural gas than any country on record, even though the former president he's going to unleash liquid gold. how do you put this rhetoric into a position? kate: this is a great point, in any political cycle there is a huge gap between narrative and reality and when it comes to energy, you pointed this out well, there was an enormous gap between negative rhetoric and actual reality. what i will say is we have to understand the consensus, understand how people, not just ourselves, our interpreting policy, and we need to position ourselves around that. it's kind of like the second derivative of understanding behavior in sentiment and how people have gone into changes in rhetoric and the narrative in terms of positioning. it's a bit of art, i would say,

it's one of the fun parts of investing. i think that there are lots of parts of policy outside of energy that could look different in 2025 under either administration. we have been spending a huge amount of time talking about one set of trades versus another set of trades, but i have to say i think it's premature. i have made this point multiple times and i have to underscore it again, congress matters and we don't have a good sense for how the down ballot votes will go. if we have a sense at the end of november of what the composition of congress will look like and what policies could be enacted, it will be an easier time to put on a more specific u.s. policy trade. jonathan: you've got to wait. appreciate it, kate. we have noticed that from the sales side research houses over the last couple of days following that decision by the president of the united states to step aside, the endorsements

from kamala harris -- for kamala harris, many did not change their mind about who they thought would win but put big questions around what could happen with congress. annmarie: more interesting to me was that tammy baldwin showed up. she didn't show up when joe biden was there because it would hurt her. what did slotkin say to donors? trump is winning and it's hurting me. a different type of ticket, doesn't help down ballot? lisa: my favorite part of that conversation was how people understand the policy and gaming out what they think would be the case. jonathan: what you think lisa: is not important. lisa:not at all and i love that. for me trying to get a handle on what other people are thinking right now is just as challenging as getting a handle on elusive policy. jonathan: that's the art of the next four months that's going to drive everybody nuts. let's get you a bloomberg brief

with dani burger. dani: at&t saw a second quarter subscriber increase was shares higher by 2.6% in the premarket. at&t had the first year-over-year increase in monthly phone subscribers and the number of cancellations fell in response to the marketing push that gives new and existing customers the same deal on phones and plans with southwest airlines facing scrutiny from regulators over flight safety incidents. the faa launched an audit to include the events including a flight that came within 400 feet of plunging into hawaii in the ocean. the carrier said that they had already formed a team including airline leaders, pilot union members, and the faa to the safety management system. aston martin shares are higher by more than 8%, they saw strong demand for the supercar.

they delivered 118 of their special models in the first half of the year. it was led by valkyrie and valor metals that costs 3 million and $1 million, respectively, boosting the average selling price to offset what was a drop in deliveries. jonathan: dani, thank you. just got a message, "nice to see dudley coming around." at just dropped in my inbox. a lot of people coming to the view that july should be a real consideration, which had been his view for a couple of weeks now. lisa: that's why people are looking at that peripheral housing data, as it confirms the current narrative. jonathan: up next, netanyahu makes his case on capitol hill. >> i would like to hear him talk about what he plans to do to end the war. i would like to hear him say that he is going to initiate

elections in israel so that the israeli people demonstrating against his leadership understand that there is the potential for an option. jonathan: that conversation is coming up next. live from new york city this morning, good morning. ♪

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jonathan: yields are just a little bit lower, and under surveillance this morning netanyahu is making his case on capitol hill. >> i would like to hear him talk about what he plans to do to end this war. i would like to see them increase humanitarian aid to all of those palestinians affected in gaza. i would like to hear him say that he will initiate elections

in israel so that the israeli people who have been demonstrating against his leadership understand that there is the potential for an option. jonathan: benjamin netanyahu is speaking before congress at 2 p.m. eastern, where he is attempting to shore up support as the war in gaza continues. netanyahu set to meet with biden and harris separately on thursday, followed by a meeting with trump on friday. aaron david miller of the carnegie endowment for international peace joins us with more. this question is that biden is a lame duck president. we understand that. does this give him less space to deal with netanyahu or more space to find agreement? >> from the beginning of this conflict, the calculations, the escalation, the de-escalation, have been set by the major combatants, israel and hamas. if there is a deal, i think it

will have more to do frankly with changing calculations on the part of hamas or israel. particularly mr. netanyahu, that it will be with american pressure on one hand were american persuasion on the other. annmarie: commercial ships in the red sea are still under threat and five americans are under hostage from hamas. what kind of deterrents do you see from this administration currently? aaron: there are many failings over the administration policy regarding this war but one of the ones they are very successful on is preventing what i would describe as a major escalation. the who these will remain a problem. according to some analysts, they are southern hezbollah and have demonstrated their ability to send drones from yemen into downtown central tel aviv.

not even hezbollah has done that. the administration has to deal with a certain number of realities in one of those is that iran has benefited greatly from the use and expectation of their proxies and there is very little, frankly, pending a transformative agreement between the u.s. and iran that is highly unlikely, between now and the end of this administration. that is a problem that the united states has no solution for and will have to try to manage to the best of their ability. annmarie: feels like we continue to see red lines crossed in this conflict. what is the current policy from the biden administration? aaron: management in de-escalation and in fairness, any administration, republican or democratic, we have a strategic problem with iran both on the nuclear side and with respect to their use of proxies in the region and we have no

strategic solution. the reality is you have a regime that is highly ideological and dangerously pragmatic. they have expanded into a virtual alliance against putin and ukraine with hamas in gaza. the iranian problem, unless it is a change in regime in my judgment, will be a management problem. it is not pretty or emotionally satisfying but it is a cruel reality and i don't see the alternative. lisa: given that that is an ongoing and simmering issue, looking inward you have worked with multiple administrations trying to manage this situation. have you ever seen such a big divergence between republicans and democrats in terms of support for israel? aaron: you've broken the code. the fracturing of the

bipartisanship is unprecedented. the republican party, i have voted for and worked for republicans. maybe not these kinds, but the republican party has emerged as the israel can do no wrong in the democratic party is split. not just between progressives and main's. you have mainstream democrats who at one point or another over the last several months have publicly called for conditioning military assistance to israel. what is at stake here for the first time in the history of the relationship between these countries is the debate between republicans and democrats within the democratic party about what it actually means to be pro-israel. that, for anyone who is interested or cares about a strong and healthy relationship based on reciprocity and trust, that's a worrisome development.

lisa: so, what is a pro-israel point of view from trump as opposed to harris? aaron: no matter the resume, when they get to the white house they essentially are going to be tested. you have had four years of a trial run with donald trump indictment say it again, i have voted for republicans and democrats, worked for republicans and democrats. it's fair to say that donald trump, whose consumption of the national interest is transcended by his own personal interests and tethering to his political interests, created what i would call, as a believer in a strong u.s. israel relationship, a sort of sugar high for israel, a series of gestures and policies that were appreciated, certainly by benjamin netanyahu, with the former president having a sort of mind meld.

on balance, the trump administration, even though they deserve some credit, they also had no serious significant policy approach for managing but i think is probably the greater challenge that the israelis face , what to do about the palestinians. 15 million humans, deploying river to the sea here in an educational context, 15 million humans living between the mediterranean sea and the jordan river. what are you going to do? how are they going to coexist? in my judgment the only rational , even though it is more attuned to a galaxy far away then back here on planet earth, is separation through negotiation. the trump administration took the approach of the palestinian issue that discounted it as a factor, and i think that we see, year after year, that this problem, the hamas terror surge

is brutal and not a manifestation, in my judgment, what the more rational judgments in the palace and community want and believe they can achieve for their people. grim and important. jonathan: we run out of time, deeply thoughtful, it's always been polarizing and is more so in 2024. interesting where kamala harris will not be later today. annmarie: she will not be at the address from netanyahu and is headed to a prescheduled event addressing a sorority in indianapolis and from the foreign policy world this is getting a lot of pushback. jonathan: picking up next on the fallout from the delta cancellations.

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.

jonathan: welcome to the program. we are about two hours away from the opening bell. just a flavor of the price action for you, starting with the s&p, pulling back by .6%. on the nasdaq 100, down about one full percentage point. if you add up the weightings of alphabet together with tesla, you're talking about 8% of the nasdaq 100. and both of those names are down in the premarket. we'll pick up on those earnings in just a moment. want to turn to the bond market, sit on the 10-year. yield at the moment on a 10-year down by a basis point or two. the headline this morning, not from the earnings, not from the data, but from a former fed

official. i think we have to sit on this quote from a former fed official, and that former fed official is the former new york fed president, saying he's changed his mind. the facts have changed. his view has changed. although it might be too late to fend off a recession by cutting interest rates, unnecessarily increases the risk. he thinks they should make a move. we've been talking about this for a number of years. bill dudley is no uber duff. he was very hawkish and thought this fed should get a move on, and he was talking about five when hardly anyone was talking about five interest rates. up until recently, he was saying there's a risk of inflation, but this is a big change. when you go through the body of this piece on bloomberg opinion, this opinion has built up his view of what's developing in the labor market. that's front and center for a lot of economists at moment. lisa: which is the reason why jobless claims are going to be really important. the idea that that's risen to the highest level since 2021,

how quickly this is deteriorating, that's why the red fin data was so interesting. deals are collapsing at a record pace in the housing market because people are assessing the monthly costs and wondering what they can actually afford. there is this feeling that things are deteriorating at a faster clip. maybe not falling off a cliff, but maybe signaling a bit of a change in the economic cycle. jonathan: feels like things are starting to pause, housing being one. i'm thinking of another, let's say tesla, elon musk saying i'm not going to make that investment in mexico until i know the outcome in november. the note on chain is notable, basically suggesting china is holding back on fiscal stimulus to wait and see if they get a trump shock in 2025 that they need to respond to. just a lot of pauses across the board here. >> and a lot of pauses from consumers making certain purchases. and again, you talk about how difficult it is to read this earnings season. g.m. comes out with better than expected earnings because they're selling trucks, and yet

dealer data shows they're providing the greatest numbers of incentives for cars more broadly to move them off the lot. you're seeing in the e.v. space, a real weakening. right now, you can't really get a clear read, but the pockets of weakness are being shown in many more corners. >> and what happens in the united states? a note today also in a statement talking about this uncertainty when it comes to economic and geopolitics. i feel like the c suite has finally this week basically woken up to the concerns and the political unis not ahead of november 5, which basically says to me these decisions are not going to be made until they have a clear-cut view on not just the white house, but the composition of congress as well. jonathan: without a doubt. it's about the policy in toe 25. for a number of months, a key phrase on this program, flying blind into toe 25. let's finish on foreign exchange. another day of japanese yen strength for you. dollar general pulling back. we're down to about 154, 154.45,

negative .75%. three-day strength of yen strength, haven't had bun since early may. that's how bad the japanese yen story has been. our top story, president biden addressing the nation tonight at 8:00 p.m. eastern from the oval office. it will be his first on-camera address since he ended his re-election bid on sunday. biden has been isolating at his delaware beach home since last week when he tested positive for coughed. he's had a few -- testedded positive for covid-19. he's had a few days. what are you expecting to hear? lucy: the president has told us he was staying in the race unless three things, the lord almighty came down, data, which we saw in the polls, someone said you couldn't win, or if there was a serious health concern. then all the sudden he releases a letter twitter without addressing the u.s. he's a sitting president. he's not seeking reelection. this does not normally happen. we should be seeing the president of the united states. so i just want to hear why he

has changed his mind. was it the political pressure? does he feel like he cannot serve out another four years? does that mean that he feels up to the job until the remainder of the year? >> people are going to look at the tone. they want to see that he's really going to come out with a strong message of support for kamala harris, but also does seem cogent to that point, the idea of just being a presence that can remain in office for the rest of this year. jonathan: there's so much criticism coming from the right. the question was being asked after sunday, if you can't campaign, if you can't run, can you govern? so really, it's right they're going to put even more pressure on. if we have a shaky address again this evening, you'll hear more calls. he's had a 50-year career in politics. he deserves a graceful exit. let's hope he gets one over the next few months. the policy issue the next six months is what really interests me. i wonder how much space he has just to follow his political instinct around issues like israel now. given the fact that he doesn't have to worry about campaigning, he doesn't have to worry about

november. he doesn't have to worry about the progressives anymore. he can just follow his political instinct in a way that he might like to. >> potentially lean a little bit more into israel, because you can already see this week, two separate meetings netanyahu is having. one with the president of the united states, currently joe biden, and one with the presumptive nominee, kamala harris, who, in march, was the first one to really come out and call for the cease-fire, then reporting since then has been that she has told the president he should take a little bit more of a heavy hand when it comes to bibi. >> his hands are tied, because kamala harris is the continuation candidate. so if he goes really rogue, that could end up on her campaign as well. jonathan: alphabet, tesla, shares are falling in the premarket after their results failed to impress investors. numbers from tesla weren't great, down by more than 8%. one analyst says facing the story, new product line, rubber taxi, new automobiles. he says you should buy this dip.

alphabet is a confusing one. if you go through the numbers from google, they really weren't that bad, with the exception of maybe weak performance from youtube. and getting punished for higher cap ex spending was interesting, too. mandeep singh was with us earlier this morning, and he made the point if meta comes out with a similar story, they'll get punished as well. >> this is buy the rumor, sell the news. this stock is up 30% year to date. people saw the earnings. they were not bad. they were good. but they weren't out of this world. they didn't promise some sort of new increased revenue. putting that together with what kate moore was talking about, the gains are so good that some people are just taking chips off the table, whatever cliche you want to say, in order to just pause. it goes back to this pausing, the feeling that maybe we need to reassess at a time of transition. jonathan: how many things go on pause over the next few months? my favorite line from mandeep earlier on, the crowdstrike issues haven't happened, cybersecurity firm would have made that deal with alphabet,

and it fell apart because they can do better on their own based on that. that is a big opening now. >> and he said they probably could if they go public in the next three months. let's see if they go public in the next three months. jonathan: we need to talk about that jump friday. one company in particular that's still struggling, the u.s. department of transportation opening an investigation into delta. flight can't haitians continue after friday's global technology disruption. transportation secretary pete buttigieg saying 3,000 passengers have filed complaints with the department. lisa did 1,000 of them. steven trend of citi joins us for more. you're surprised there weren't more than that. i think other people were too. typically when you see outages like this, there is this favorite word we often hear, transitory. it comes of sort and goes, it doesn't leave a scar on the stock. do you think this moment is different for this airline? excuse the pun, they've been flying high for quite a while now in this country. >> oh, thank you very much for having me, and good morning. when we see outages like this,

this is a little worse than one would typically see from a network outage, or from some kind of weather event. people think, for example, back to southwest in december of 2022, you saw that carrier's cancellations around low 70's for a day or two, which is considerably higher than what we're seeing for delta today. so delta we saw a couple of days where the cancellation rates were in the 30's, but indeed it's a couple of days. delta did have a technology outage in 2016, and that resulted in, for example, 2,300 cancelled flights. at this point unfortunately the carrier is above 5,500 since friday. in terms of scale, it is a little bit tougher than most of what we've seen in the past.

jonathan: you know these companies inside out. what is it about how delta operates that it's found it much more difficult to respond and make sure they can come out the other side of the faster than other airlines have? it feels like it's back to business at american, at united. why can't the same be said about delta when they all experienced a similar shock? stephen: absolutely, so not every airline has the same technological setup. it's conceivable, for example, that the other carriers do not have as much exposure to crowdstrike, and maybe some of the carriers don't have any exposure. over the last couple of weeks, for example, to its credit, we saw very little disruption with southwest or alaska airlines, for instance. where at delta, for instance, they have something like over 10,000 individual systems that it has to restart as a result of

this crowdstrike outage. so the relative exposures are not the same. >> i guess there's a larger question here, stephen, and we've been asking it, how do you diversify away from being so dependent on one system that you could be vulnerable to this type of thing happening? has anyone been examining the vulnerabilities, not just in delta, but other airlines as well, in terms of united was really sunk when there were problems with specific boeing planes. there is this question now with delta and crowdstrike. are there sort of key vulnerabilities that people are studying within the airlines that could sink entire systems all of a sudden in a flash? stephen: yeah, it's a hard one, because i think the group thinks about these kind of risks all the time. so, for example, exactly as you said, if you're an airline that's operating only boeing 737 maxes, you have a difference set of supply risk, for example, versus a competitor that has

boeing, airbus, and other airlines, for instance. so that's always a risk. in terms of whether these airlines need to have different systems set up, you know, that's something that i think the group is probably going to be looking into, at least elements of the market are going to look into that. you know, on the other hand, there are other risks with having too many suppliers. just look at global supply chain today. you basically need everything to go right, and i know it's not exactly the same situation, but you need everything to go right. and two or three suppliers can really screw up the works, so to speak. i think in this case, certainly i would panel elements of the group are going to look at how to have some fail safes in their technological supply going

forward. >> i was struck by saying pilots felt abandoned by the system and the company. how does delta close the trust gap they're going to have with their suppliers, bus also their staff? -- but also with their staff? stephen: yeah, so i think you have a situation like this with thousands of flights cancelled, very easy to say that for anybody involved, it's a very emotional situation. and i don't want to dismiss what frustration you maye from pilotm pilots or flight attendants. certainly they have very real frustrations, and many of them have had really bad weeks. i get that. i think when the dust settles on the root causes of this, and how it might be mitigated going forward, i wouldn't say it's there to take the worst point of consumer and employee anger and

project that forward. you know, this problem did not start with delta. delta is not the origin of this technological problem. they are collateral damage, as were hospitals and 9/11 call centers and various places. so i think the actions that the carrier takes going forward present an opportunity in terms of it'll relationship with those constituents. jonathan: great to get your thoughts. appreciate it. stephen trent from citi on delta airlines with a buy rating on the stock. i can tell you, the amherst community incredibly bullish on delta. 21 buys, one hold, and not a single sell on that company, even with all these pictures of people stuck in airports. >> ultimately, and i'm not speaking personally, but if someone were to get caught in an airline, you might have some sort of ptsd, but you actually fly another airline. if you have certain loyalty and you have certain, you know, perks, etc., it becomes

challenging, and that is what they're facing with. jonathan: do you want to talk about something? >> no. jonathan: stuck in atlanta and still flying with them? >> it was horrible. i feel like i'm the only one that fly delta over the weekend and only had a two, three-horridly, and it was fine. jonathan: you were one of the lucky ones, without a doubt about it. let's get an upstate on stares. dani: shares of visa are down in the premarket 3.4%. it reported its first miss on quarterly revenue since 2019. it had $8.9 billion in revenue for the fiscal third quarter. that is just barely shy of the average estimate. but credit card spending worldwide has been holding up. it climbed 4.9% from the year earlier. in the u.s., where visa gets about 40% of its revenue, spending advanced 5.1%. but morgan stanley analyst investors were focused on the slowing travel spent in july. and some good news for the plane maker boeing. the company resumed deliveries of its 737 max aircraft in

china. the announcement comes after a two-month pause imposed by regulators in china to renew information about batteries used in cockpit voice recorders in boeing planes. boeing still grappling with leadership upheaval after being forced by u.s. regulators to slow production over concerns around its manufacturing safety standards tied to the alaska air 737 max door pleaout. and the blackstone mortgage trust is cutting its dividend by 24% as defaults pick up and borrowers struggle to make payments or refinance their loans. the $3.4 billion provides loan to commercial real estate groups, and most of the troubled loans are on u.s. office buildings, which make up about a quarter of its loans outstanding. and also authorized a share buyback up to $150 million, yet the stock is still down nearly 7% in the premarket trade. in a statement, the c.e.o. said they were still well positioned with "strong liquidity, accelerated repayments and an

emerging pipeline." jonathan: more from dani in about 30 minutes. up next, cracks in the consumer. >> consumer spending has been much weaker. it's grown in the first half of this year, but at a much slower pace than the second half of last year. it's a really material change in the environment. jonathan: we'll talk about the cracks up next on the show. you're watching "surveillance." ♪ (♪♪) (♪♪) (♪♪) (♪♪) sandals rhythm and blues caribbean sale is now on. visit sandals.com or call 1-800-sandals.

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jonathan: the open in about one hoyer and 42 minutes. good morning to you. we're down about three-quarters of one percent in the s&p. the 10-year, 422. let's call it 4.23. cracks in the consumer this morning. >> i can understand why the fed has been so cautious after the whole transitory fiasco, but i think i'm getting close to the point where i think they're too late now.

the fed actions are beginning to kick in. consumer spending has been much weaker. it's grown in the first half of this year, but at a much slower pace than it grew in the second half of last year. that's a really material change in the environment. >> here's the latest. investors looking for insight into the state of the economy with g.d.p. and initial jobless claims due tomorrow morning. the former new york president of the federal reserve, bill dudley, writing this, the facts have changed, so i've changed my mind. the fed should cut preferably at the next week policy meeting, although it might already be too late to fend off a recession by cutting rates, toddling now unnecessarily increases the risk. this line, i think it's getting to the point where they're too late right now. what do you make of that and what we've heard from bill dudley already this morning? >> well, i think the change in tone that we are seeing kind of across the market is quite notable. we went from pricing in 200

basis points of rate cuts at the end of last year to no rate cuts, the earlier this year, as economic data came in stronger than anticipated. and now we're seeing a shift again. i think the big takeaway is people are having a really hard time tracking where exactly this economy is going to go. now we do agree with bill dudley that we should probably start to see rate cuts sooner rather than later. we have a september rate cut penciled in. and rate cuts continuing their actor of every meeting at a 25 basis point clip. and that's very much predicated on the consumer slowing that has already started to materialize and probably will continue, at least through the second half of this year. jonathan: lisa told me a long time, when the economy get bad, credit spreads get wide. i don't believe her, because i don't see it. 300 basis points, we're less than 300 now. does credit give you that cyclical signal that it used to give you all those years ago, or has something changed?

>> the big change we're seeing now is the yield environment is still very different for a lot of investors in the post-g.p.c. era. we still have high-yield yields closing in on 8%. investment grade north of 5%. as we balance the spread proposition to the yield proposition, people kind of look at credit yields and think, oh, this is ok, but the reality is spreads are very tight. and with july being a seasonally very strong month historically, we have been recommending that clients start to go up in quality, sell into some of the strength, and really put cash to work in the things that have gotten cheaper relatively speaking, and the higher rate versus the market. >> that said, winnie, usually the correlation between small caps and credit and credit spreads, and what you're seeing is actually a rally in small caps, at the same time we're seeing a shift in tone. it all is circular. is this really just a valuation play at the time when people see

softening is not being a wholesale recession? >> yeah, it's really interesting, because within the world of corporate credit, there have been a handful of sectors and issuers that investors have basically saying nope, we're not willing to extend these capital structures. we think they're overleveraged. we think there's some sort of secular decline within the business or within the sector more broadly. we're seeing the rotation into small cap equities, so it is a head scratcher, those two different dynamics. generally, i do think that credit markets tend to get things right. they are the driver of where liquidity goes in the system. they're still lighter on the year, despite this recent rally in small cap equity. >> there's also this larger question of how quickly things are deteriorating. there was this feeling from bill dudley's column it's actually faster than he thought it would be. we heard the same kind of tone

from shepard son. it is too late at this point to get ahead of a recession. is there anything in the granular data that you're hearing that suggests that things are truly rapidly deteriorating in real time? >> so this is a rail interesting question -- really interesting question, and i rely on my analyst team to help me navigate some of these nuances. i would say my consumer team in particular has been highlighting probably the past three to six months that consumer behavior is shifting quite notably. they say that in management commentary. they see that in earnings results. reflecting a down trade in terms of store brands versus regular brands, deceleration in restaurant traffic, restaurant spending, different types of spending versus services, versus goods. and so we are very focused on some of those morgan lawyer data pieces that our consumer team has been seeing and highlighting

for the past three to six months or so. jonathan: awesome to get your perspective. looking for that consumer-led slowdown. citi also look fog the same thing. they're looking at housing. citi saying the housing sector is often a leading indicator of broader economic strength and suggests softer growth is coming in the coming quarters. housing data not tremendous in the last 24 hours. >> yeah, we got negative data yesterday. not only the red fin data you were talking about, but just in terms of some of the home sales coming in much lower than expected. existing home sales coming in, falling to 3.8 million, versus 3.98 million, falling to some of the lowest levels in many months. this is the question. are we seeing a real-time deterioration that doesn't happen in a linear way? that is really the concern. the red fin data, i want to sit on that for a hot second, because it indicates that people are taking a look at their expenses after making a deal and saying this is not going to work, and they're doing it en

masse. there's something significant in that. jonathan: i'm really looking forward to chairman powell this time next week and his characterization of the labor market. it was only a number of weeks ago that chairman powell was addressing the country, financial markets, economists, basically saying the economy is ok, the labor market is still strong, and because of the labor market strength we have time. and now you're getting warning after warning about just how much time we have, and just how strong this economy and this labor market actually is. >> two things. he can either signal the that definitely they're going to go in september and set that up. if he goes this week or next week, rather, there will be concerns about what the political sort of understanding of that could be, especially because of some of the recent political turmoil. jonathan: this is the difference between being a sitting fed official and a former one. if a sitting fed official used some of the language that bill dudley has used in this bloomberg opinion column this morning, i think it would speak this market big time. like get a move on, you might already be too late.

that is spooky stuff if that came from the federal reserve directly. the third hour of senior senior up next. ♪

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>> we want to be a little bit more defensive. it's the larger cap, because growth is slower. >> in the small business sector, the squeeze is quite intense. >> in pockets of small caps, there's still more opportunity. >> it's an ideal scenario for the stock market. >> this is "bloomberg surveillance" with jonathan, lisa, and anne marie. jonathan: "bloomberg surveillance" begins right now. 90 minutes away with tons of stuff to get to. let's start with equity futures on the s&p 500, pulling back on the s&p by something like three-quarters of one percent. much bigger move on the nasdaq 100, down by one full percentage point, with tesla dropping by a little more than 8%. another disappointment for the e.v. maker, led by elon musk. lisa: this is a fourth straight miss versus expectations for tesla at a time when this is becoming an increased hope trade more than reality in terms of justifying valuation. i say hope with respect to the

tax getting up to speed. the real question is how much longer can he hinge on that hope versus just actually delivering over the longer term. jonathan: this gets big tech in the earnings season really going. over the next week, it picks up even more. you'll hear from the big players, apple, amazon, microsoft, meta, all next week. there is momentum building here. a lot of people start to come on the program and talk about the need to cut interest rates and cut interest rates like right now. we heard that from one analyst. others have followed this morning. bill dudley, the former new york fed president, making the same point, i changed my mind, the fed needs to cut rates at this meeting in july. most people don't expect that to happen l. it be a live meeting? i've got no idea. based on the communication from fed officials over the last few weeks, they've been pretty consistent. we're getting closer. we're not there yet. what's behind some of these worries is important. let's tease it out. it's concerns around the labor market. that makes jobless claims even more important.

lisa: because we have an seen that has been fairly steady, al bee the from a very low rate. here's the issue. are things truly deteriorating that quickly, or are people just reassessing the data already out there? the earnings are not providing a clear picture on that. the rhetoric isn't necessarily clear. and the markets' action also very confusing. there is no reason if people are truly worried about a truly we cannenning consumer, you see small caps outperforming and credit duly wonderfully. sort of contradiction. anne marie: jay powell said the labor market appears to be fully back in balance. at the same time, what we hear and what dudley is talking about is the fact that consumers are, there's this bifurcation, and what we're seeing is the hiring is not the same. is that going to happen now across the socioeconomic spectrum? jonathan: that deceleration is notable, that's for sure.

we're looking at 1% for the fashion and leather goods revenue in that division. 1% growth. go back 12 months. you're looking at double digit growth. now we're talking about double-digit declines in the region that includes china. it's been a terrible time for luxury players over in europe over the last few weeks. we've talked for a long time about easy financial conditions, equity still near all-time highs. that's still the story. credit spreads are incredibly tight. equity markets not a million miles away from a record high. but citi published this just moments ago, and they've been making this argument for a while. you're going to get the slow down in the economy, and when the fed starts to cut interest rates, they'll cut rates more than you think they will. this is awhat he has to say. the commencement was supposed to be a risk for markets. instead it's got a different view. equities are is willing off just as the fed prepares to low interest rates. the selloff, if continued, lisa, could provide another impetus for more dovish fed policy. it's quite a big call.

lisa: it's also quite a few steps from where we are. it's not as though the market is falling out yet. the areas that you will are the areas that did the best so far this year. that said, it sort of shows the asimilarrity tree. markets go to record highs. that's not a reason not to potentially cut rates. but if they start falling, that is a roone to cut rates. do they really go back to that kind of relationship? jonathan: let's get into the equity market. counting you down to the opening bell. equity futures down in the s&p. bond market, yields are lower by a couple of basis points. foreign exchange, the euro, a snooze. i think dollar yen up just a little bit more. three days of yen strength, haven't seen that since early may. lisa: coming off some of the weakest levels that we've seen in many decades. a question of how much this is a japan issue heading into the bank of japan next week versus a u.s. dollar issue as people look

to an almost sure thing of a fed rate cut in november. jonathan: that's a divergence if we get a cut from them. here's the lineup this hour. there's a fourth straight quarter of profit losses, and michael kushma and david welsh and sebastian page. we begin with the big issue. the results coming just as investors start to rotate out of tech and into small caps. sebastian page expecting markets to broaden out, saying this, we're not in an internet bubble, but in 2001 when the tech trade unwound, value outperformed growth by 45% in 12 months. stickier than expected rates and inflation could favor value. seb johns us for more. good to see you. good morning. kate moore of blackrock said she had doubts about how terrible this might be. up don't seem to have the doubts.

sebastian: more confident on the value side than the smid side. within small, we like mid better than small caps. look, it's not a pound the table call. we are overweight value. you saw my quote about the tech bubble. this is not the tech bubble, and here's an interesting thing you can do. adjust price earnings ratios historically for return on equity. and what you'll find is we're in an environment where mega cap techs have unbelievable return on equity. unbelievable fundamentals relative to the tech bubble. but nonetheless, trees don't grow to the sky. these things can revert really quickly. even in 2022, you had value outperform by 20%. if you look at the election and some of the possible catalysts, we're on value. jonathan: mandeep singh made the point some of these names might get punished for increased cap ex, even if there is this huge amount of enthusiasm for her

that particular theme. what do you make of that call? could we see these companies be punished for the investment decisions they're making if the revenue story doesn't follow and follow quickly? sebastian: these companies are doing really, really, really well. the problem is the way markets work, the expectations are just really high. i've said this before on your show, the secret to happiness in life is low expectations. that's a problem for mega cap technology companies. so yes, they understand point, because there are four stocks in this earnings season that are expected to grow by 56%. i think the market is extrapolating this kind of earnings growth a little terrific. they're expected to outfor growth stock. just wrap your head around that. i don't think the market is pricing that right now. lisa: the rotation is selective

within the big index, not necessarily beyond that. as you look to stocks that haven't necessarily been bid up as much as others, how much are you still aggressively neutral? sebastian: yeah, we actually have half a percent overweight stocks, but it's not worth talking about. we are confidently neutral, and this -- lisa: downgrade? sebastian: aggressively confidently neutral. the reason why i emphasize that is you have a risk tolerance that you work on, say as an individual investor. there's a lot of work that goes into that. that's what i'm arguing for. i'm not arguing for being in or out of the market. as an investor, what is your term risk tolerance? this is kind of where you want to be right now. the bears on our committee are talking about decelerating economy into high valuations. that's compelling. but we have raging debates, because what are the bulls

saying? they're saying earnings are coming up and rates are coming down. so these are tough debates to have as investors. figure out your risk tolerance. it didn't have to be 60-50. if you're far away from retirement, it should be more. but stick to that. lisa: is it 60-40, bears and bulls? basically the 60% sit on one side, the 40% sit on the other. has there been a shift where more people are getting more cautious, or is it still aggressively balanced in those debates? sebastian: it's fairly balanced. to let you in on something that happens in asset allocation committees a lot, the bond managers tend to be more cautious. lisa: oh, you don't say. jonathan: i'm shocked. sebastian: when you have these discussions, you kind of know where people stand with their biases, and then you adjust for it. but this is the market environment. i got to say, we've never had this intensity of debates between bulls and bears. jonathan: you've got a paper coming out later this year on

leadership. you can share some of the details of that with us now, if you want to. just give us insight into how you help the committee come to an agreement when there is that kind of division between the bulls and bears around the table. sebastian: here's the key things about the committee. a huge improvement or decision making process, and the research shows this helps, bring an independent view to the table. we have a pre-meeting survey where every member will disclose what they want to do in terms of tactical asset allocation shift, not knowing what the other members are suggesting. so we have independent expertise brought to the table and then we debate it. that's an improvement in the decision making processes. on the psychology of our business, i've become quite passionate about this. john, there's a huge link to sports psychology. sometimes you win, sometimes you lose. you control your process, but you don't always control the outcome. doesn't that sound like sports? jonathan: sure.

sebastian: how do you build resilience to setbacks and narcotics there's a huge unexplored research body, or body of research that can apply to money management that we haven't. so i'm putting out this article later this year. lisa: the psychology of paralysis right now is something that i'd love you to comment on. there have been a number of people, guests on the show this morning and in the past week who seem rather mired in this period of uncertainty ahead of an election, potential policy shift, and frankly, dig dense between the bulls and bears. how do you set away from that paralysis? sebastian: staying on the side of psychology, there's something called core beliefs, which is how people look at the world, their biases to events and make decisions. well, investors have core beliefs. if your core belief is that you should stay invested for the long run, then maybe call it paralysis, but maybe call it

just good investment discipline. i don't equate -- i think you need to stay invested, stay diversified. this is very trite. but you step back and ask, what are your investment core beliefs. are you a follow the trend investor, or are you a valuation-focused investor? jonathan: let me pick out one, and i think this might be interesting to explore. we're getting deep in the weeds here, but we got a few more minutes. i think if you are raised and you have a career exclusively in the united states of america, your core belief is to stay invested. i think if you have experience outside of america, you have experience knowing that that doesn't always work, and there are such things as lost decades. a question i would have for you as an asset al indicator who has a core belief i know to stay invested, when people offer the example to you of what has happened elsewhere, in stock markets in europe, japan, elsewhere too, what do you say back to that? do you maintain this core belief

that america is different and it will always be the case that you just stay invested and you'll be rewarded for it? sebastian: john, i do, because this is the engine of growth for the world economy. innovation, the way we run our country generally, i tend to be an optimist. the entire post-world war ii experience shows us that it pays off over the long run to be invested in stocks, and that is different from different experiences. now, it's probably a longer topic, but i am worried about the level of government debt. and this is kind of a longer term problem that we need to think about. jonathan: lisa agrees. good to see you. we'll have a longer conversation next time. i think we all agree on that point, what would undermine the u.s. exceptionalism? what would change that story? it's a big question you've got to ask. lisa: potentially that's the reason why the government debt becomes an issue. there's also this issue of just politically are certain countries try to diversify away

from dollar assets in some of their holdings? there's a longer term question, but ultimate it does comes down to the currency and to the debt market. jonathan: that got deeper than i thought. when you publish, come back and we'll talk about that. let's give an update with your bloomberg brief. dani: crowdstrike, the cybersecurity company at the center of last week's massive i.t. outage, is blaming the issues on a defect in a content update. the company said a bug in the safety mechanism allowed flawed data to go out to customers. it added that a new economic is in process in order to fix the faulty content voluntarily dater that failed before rolling them out at large. crowdstrike c.e.o. has been called upon to testify before congress over the meltdown. and there's some rare good news for the we lookerred plane maker boeing. the company resumed deliveries of its max aircraft to airlines in china. the announcement comes after a roughly two-month pause imposed

by regulators in china to review information about batteries used in cockpit voice recorders in boeing's planes. boeing is still grappling with leadership upheaval after being forced by u.s. transport regulators to slow production over concerns around its standards tied to the alaska air 737 max door blowout. elon musk has confirmed that he has donated to a super p.a.c. supporting trump's presidential campaign, but he'sness pledging to give the $45 million a month that was previously report. in a post on x, musk acknowledge would that he had donated to the america p.a.c., which focuses on get out the vote efforts. but he did not say how much he contributed. america p.a.c. raised $8.8 million in the second quarter, spent $7.8 million and started july with a little less than $1 million cash on hand, according to a recent filling with the federal election commission. and that's your bloomberg brief. jonathan: thank you. appreciate it. more from dani in about 30 minutes' time. up next, we'll get you morning

calls, plus bloomberg's david welsh on tesla's disappointing result and the delay at the rubber taxi. that's up next from new york, good morning. good morning. ♪ (♪♪) (♪♪) sandals rhythm and blues caribbean sale is now on. visit sandals.com or call 1-800-sandals.

jonathan: let's start with stocks, then turn to bonds. equities on the s&p 500 dunn by close to 1%. there's a couple of reasons, we can talk about them throughout this morning. one is alphabet, the other is tesla. want to talk about the bond market. yields lower by two basis points, 4.2252. lots of conversations about the shape of the yield curve, including one around this table. lisa? lisa: basically the curve steepening does continue, basically has the smallest negative unversion curve for the two. basically two-year yields are the least amount higher versus

the 10-year yield. going back to the beginning of the year, this is basically a bullish steepening. people expect the fed to be consulting rates at a time where they can still avoid some sort of recession, so you're not necessarily seeing longer term yields fall out of fed. at the same time, they're not either rising dramatically. it's not necessarily punitive. it's what people have been wanting to see. jonathan: this is what we expected at the start of the year, and then things changed. certainly that changed the story. that's the bond market. let's get you morning calls. one stock in focus, tesla. citi lowering its price target to 258, keeping a neutral rating on it. the stock is set up only bruise if consensus is lowered and shares pulled back. we're pulling back right now by more than 8%. lifting the price target,

they're saying this is the reason behind the downgrade following lackluster earnings results, and finally outperform and 300 price target on the name. i'm just saying he wasn't looking for major fireworks this quarter, and now expects the failing to unleash the beginning of a $1 trillion a.i. story. ok, i've got another call for you. let's squeeze the fourth one in. new street research, this is a downgrade on the name, downgrade to neutral, 225. the headline, march engines will take time to recovery. there's a lack of catalysts. we downgrade the stock to neutral, going read this in front of you. the stock is our target price, trading on 50 times our estimate. we see limited and unreliable valuation and limited risks of material positive revisions. the next inflexion in the stock is unlikely in the next 12

months. david welsh of bloomberg joins us for more. that's the south side. let's deal with the numbers, what you and the team were looking at yesterday afternoon, and what you heard on the call as well. what jumped out for you, david? david: the numbers for the e.v. business we knew weren't going to be great, but they do just continue to deteriorate. a big number to look at is automotive gross margins, and part is they're not getting pricing. down from 164 in the first quarter to 14.6, this is something that's just been declining for them for a while. it's just a lot tougher for them to make money in the e.v. space. they do have the cybertruck out there, but it's not selling in huge numbers. it is selling in good numbers for an electric pickup truck, but it's not the growth engine that tesla really needs to get interest in the stock again. so we've got this a.i. story. the revenue was strong, but a lot of that the is the energy storage business and also regulatory credits. i think the credit side, they can sustain for a while, but that's not why people buy the

stock. now we're sort of back to where tesla was, kind of over a lot of its history, where fundamentals aren't great, so elon musk is bringing up the story that the cavalry is just over the hill with a new growth engine, this time being a.i. and self-drive. that's really, you think, a tough one for investors to get their arms around. the reason there's still hope with tesla is because a lot of people are betting against elon musk. but if you look at autonomy, take alphabet with waymo, they've been testing these vehicles for 13 years, and still they have a modest number of vehicles out there in certain markets, bringing in a little bit of revenue. it's still in the test phase. how does tesla get out of that quickly to show big growth and that they're a leader in autonomy, which is a very difficult space and technology to master. you've got believers and doubters on that front. tesla is once again a battleground stock based on what you think about autonomy and their prospects there. lisa: based on the fact that

people do believe in genius founders, and that's one of the big argument to go with tesla, that's why it's not valued as a car company, it's valued as a company that innervates, this call that john was reading out and talking about also includes this line, full service driving remain longer term moon shots. david, do you get the sense that people are losing faith that elon musk can con mize some of his innovation frankly truly genius ideas into something concrete? >> yeah, i do, and it's want necessarily that they're doubting elon, there's just a lot of doubt anyone can. you've got really good minds out there who have been working on in for years now. and also with a.i., particularly in the auto space, with autonomy, it's always failed,

it's never failed to disappoint. we had a lot of startup that is got funded, and they all died. crews and waymo, a lot of people thought they'd be doing more than they are right now, and they've been at this for a long time, and they haven't. and elon musk promised there would be a lot with autonomy years ago, and now it's the new thing he's got. we don't see his car being tested on the road in the way we do with others. you don't see a lot of miles being driven. you don't see a lot of reports with california, for example, so there's just nothing tangible for investors to grab on to and say, yes, testing is going well, so we're going to see a real business that rolls out and starts to bring in a lot of money. so the doubt may not be specific to elon musk and sell l.a., it's just that autonomy really isn't difficult technologically speaking, and also tough business case, because no one has figured out how much robo taxiing can charge, what the margins are really like. so many question marks here going forward. it's hard for an investor to

say, yeah, i'm going bet on this. and by the way, we're only going to see prototypes in october. it's not like you'll see revenue a month later in november. it could be well beyond that if we're only seeing prototypes in november. a lot of to be seen here in the future from tesla. jonathan: elon musk was pretty blunt about it. if you believe in it, keep the stock, that's pretty refreshing. he's done that kind of thing before. lisa: ultimately that was the biggest argument to buy tesla, you believe in him and the promise of the company. if you up don't, don't buy it. jonathan: been a story on that front. up next, michael kushama from new york. new york. ♪awkward question...

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jonathan: 60 minutes away from opening bell. equity futures pulling back on the s&p. a little bit more on the nasdaq given the weighting to the likes of alphabet and tesla. the alphabet story being punished around the investor side of things. mandeep singh was discussing that. that's also infecting meta going into next week. we're down by 1.4 on the nasdaq. i want to sit on the bond market. on the screen you'll see the five-year, 10-year, 30-year. i've got the two-year in front of me as well.

lisa: yesterday the two-year auction, we lost the auctions. it was very strong, and that actually kicked off this front-end rally as people looked ahead to fed rate cuts. it would get ahead of any sort of down turn, which is the reason why all of the declines you're seeing are bed by high flyers. here's the question. how much can we continue to see this given the fact that the fed is going to cut rates in september? but then it becomes unclear how much they're going to cut when there is debt. i think it gets more interesting heading into later this year, but right now people are getting what they've been waiting for. jonathan: this move picking up this morning, can we share any of that with the equity market, down a down draft, a risk aversion developing there too? lisa: there is an argument to be made that it will get the fed's

attention. however, the down draft is being led not by necessarily the most consumer facing names. it's being led by alphabet. it's being led by tesla. it's being led by a lot of names with problems. you still don't have the likes of g.m. selling a record amount of big trucks. you start wondering which messages to listen to. jonathan: it's down by 8.5% in early trading. the story in the last month that the rubber taxi would be delayed. we got confirmation it's being delayed just yesterday. ed is going to join us going into the opening bell. must-watch reporting for you in about 15 minutes. i want to turn the page to foreign exchange. look at the strength in the japanese yen for a third consecutive session. that's three days of yen strength monday, tuesday, wednesday, and again dollar-yen lower by one full percentage point. there's talk about rate hike conversations taking place in japan and elsewhere at a time when we're talking about rate

cuts here in america. that's the divergence people are looking for. >> which is the bigger pull right now? is it the increasing expectation for rate cuts in the u.s., or is it the likelihood, increase the likelihood of a rate hike at the bank of japan next week? how much do they dial up 1-800-powell and say what are you going to do, and then we'll if you go out how much do we need to do? jonathan: federal reserve independent or something like that, they tried to make that point. i'm not sure how independent the b.o.j. is given what's developing in the channel around dollar yen. under surveillance this morning, president biden delivering an address tonight at 8:00 p.m. eastern time. biden addressing his decision to end his presidential campaign with just over 100 days until the election. first sight of him yesterday since late last week. lisa: he said he was doing well, but tonight this evening, we're going to hear from the presses after he released this letter, and he's going to outline why he

decided to step aside. i find it interesting, because over the course of the entire month his story kept changing. it was lord almighty, it was the polls, then if there's a medical illness, and it ultimately came down to his own party. the dozen of lawmakers that came out and said our chances are going to hurt if you remain at on the ticket. donald trump is writing a letter, or his lawyer is to the main broadcast networks saying actually, given the legality of the, it sounds like it's a campaign speech. he's going to endorse harris on camera. they want equal time. jonathan: what kind of debate are we going to get between harris and trump? annmarie: trump said he's preparing to debate kamala harris and would be up for more than one. jonathan: let's see how much we get. september is the date and time? annmarie: yeah, but on what network. lisa: currently abc. trump wants it on fox. annmarie: maybe, if he's willing to do more than one with ms. harris, maybe fox will get

one, or bloomberg. we do an economic debate. jonathan: you want to do a proper economic debate? there might be interruptions along the way. can't guarantee we'll sit back and moderate, but we'll be here for it. more trouble for the airline industry. southwest now facing a f.a.a. audit over a series of recent safety incidents, including an april flight that came within 400 feet, just 400 feet of plunging into the pacific ocean. every time i hear that story, it's frightening. anyone that's flied to hawaii, just awful. elsewhere, delta, news not great there either. the department of transportation investigates its handling of last friday's global technology outage. flight cancellations continue this week. there is hope by tomorrow things get back to normal based on recent reports. that's the latest on delta. i think this is really noteworthy this morning. on bloomberg opinion, former new york fed president bill dudley out with a bold call, saying the central bank needs to move, writing this, the facts have changed, so i've changed my

mind. the fed should cut, preferably at next week's policymaking meeting. although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk. joining us now to discuss is michael kushma, alongside derek burleson of f.d. bank. what did you make of the note this morning? let's go, let's move. >> well, we moved a long way in terms of the actual economic performance of the u.s. economy. we're growing much slower than last year when we had all the bull market expectations of rate cuts. we got through the inflation blip in q1, where we had the surprising, very sharp increase. now we're back to that deteriorating trend, or improving trend of inflation. by the end of the year, we get to the forecast for inflation targets. so we should be having less restrictive policy. but the question is how much

less restrictive. jonathan: things are still pretty split. we had barclays saying why not wait? derek, which camp are you in going into this july meeting? >> i'm in the wait camp. things are slower, but they're not slow. we'll get evidence of that in tomorrow's g.d.p. data, personal spending data, friday for june. inflation has rolled over, which is great news. but you still have the economy that's fairly resilient, and powell has been saying all along that resilience gives the fed more time to be patient. so i do think that taking july off would be the best bet. lisa: september is the right timing that, there isn't really a chance of dramatic weakening, and yet in the tone we heard from bill dudley, from the red fin data we've been talking about this morning, about housing deals falling apart at a record pace in june, how much is

there a sense that actually the economic data is moving at real time and suggesting more of an urgency? >> commercial property office, office property, even residential property is under stress from high interest rates. but a lot of other sectors of the economy are doing just fine. in fact, the goods producing sector, manufacturing output is up nicely. talking about the old economy versus the new economy is doing just fine. compared with today's situation to 1994 and 1995, greenspan vivid quickly in 1995, which kept the expansion going. policy rates, they are restrictive. why not have less restrictive policy, not easy policy, but less restrictive? the economy is growing at 2%. inflation is close to target. do we really need 5.5% interest rates? get ahead of the game by nudging them lower, but not necessarily

initiating a rate cutting cycle going forward. lisa: one argument against this i presume would be this idea of concerns that it could reignite inflation. that would be the only argument not to reduce some accommodation at this point given that inflation is slowing. derek, are there signs that inflation truly is sticky and could reaccelerate even with a 25 or 50 basis point rate cut by the federal reserve? >> yeah, just look at the service component. it's still quite high. i know we've seen some improvement of late, but i don't think the inflation dragon has been fully slayed yet. our baseline is in the camp that, you know, that chance, this is a false gun, we're going to see another big leg up in inflation. we don't buy into that, but you can't rule out the risk. and for a central bank that is a risk manager, clearly they're taking that from accounts. so i'm worried still about service inflation. you know, the job market has slowed. vacancies have come down, but

real wages are still positive growth, and the employment market is still quite strong. so, you know, we could see a bit of a pickup and spending above trend from below trend to above trend in q3, and i think these are the things that the fed has in the back of its mind when it's trying to balance do we move sooner or later. jonathan: they're trying to get confidence about getting back to soon. are you concerned about returning to four or getting stuck at three? >> no, it's getting stuck at three. things have changed. i think we need to acknowledge savings have been pretty much fully withdrawn. things have slowed. those rates are in the housing market. some of these areas are showing more evidence of struggling. so i don't think we're in environments to go back. of course, anything is possible. you're looking at some of the rates backing up, you know, some

of the risks, these are going out the next three, four months, there's lots of question marks, but yeah,. jonathan: you gave a nod to the bond markets, so let's talk about rates. michael, i want to talk about that now. lisa has led this conversation this morning. negative about 17 basis points. the curve is uninverting, let's call it that, sort of normalizing. i'm not sure you can call it steep. it's steeper, but still not steep. still very much invert. you can be led by the front end, rate cutting cycle, or it can be led by the long end, it sells off, yields are higher, and there's plenty of reasons for that to happen. what do you expect from the yield curve and what do you decide? >> i think it's clear we're moving to a rate cutting cycle. i think all of it has been discounted with notes where they are. i don't think the fed is going to cut rates enough to justify

two-year notes or lower than that. back end, i think if the fed is clearly moving in advance of economic weakness, if we do move one to two rate cuts this year, another one in q-1 next year, it boosts confidence in the yield curve and may slow down the inflation progress on that front, but the balance would be i'd rather preserve employment gains rather than disinflate faster than otherwise. so i think they're balancing off the two types of risk, which leads both to steeper yield curves. moving too quickly or faster than the economy weakens will bolster long-term yields. on the other hand, if they wait too long, long-term yields may continue to drift lower. lisa: it sounds like both you michael and derek are kind of talking as though you disagree with each other, but you agree more than it actually seems. it's compelling you said the two-year yield kind of has gone pretty far in terms of how many rate cuts it's already priced in. are you saying that it's

something you should fade the rally at the front end? >> thinking about, because markets tend to overreact and overshoot. we saw that last, the fourth quarter of last year, where there was a major rally with six rate cuts priced in, and obviously it didn't materialize and we had a major selloff in q-1. i'm not talking about major selloff because we're getting closer and closer to the transition point to actually cutting interest rates as opposed to speculating about some point in the distant future. but i do think there's likely to be disappointment as to how much actually happens over the next several quarters, but the data today has been leaning that direction. until just recently, we've had weaker economic data, weaker labor market data in some ways, and we've had better inflation data. so how is this not good for bond yields or for expectations of rate cuts, but the cumulative amount seems to be overshooting to the upside. so at some point, if we get 4%, borrowing some catastrophic risk factor in the world, which is

flight to quality or flight to risk-free assets, it looks like we're going to be pretty solid right now. lisa: you agree this is basically a matter of when they begin to tweak some of the policy, not necessarily whether we're entering some massive recession or whether we're actually going to grow strongly. is there something in the data that gives you confidence that we are not seeing a rapid deterioration that could lead to a more pernicious weakening, which is what was the implication of bill dudley's column? >> yeah, i think the june numbers, it's only one month, but certainly we had a series of downside surprises on data. now as the pendulum swinging to where it's an upside surprise. it seems to be the pattern in the u.s. economy, we got three or four good inflation reports, and then two or three bad ones. so, you know, i just think when i look at the u.s., productivity is still very strong. employment is still healthy.

it's the economy i still think that stands out. i'm not of the camp that we're going to get close to a recession in the u.s. and we're going to go around. the goldilocks type environment, you know, avoid the worst-case scenario. there's lots of potential risks, the election, some of the unis not there, geopolitically, lot of potential surprises. but if i look at the u.s., i think it will do just fine. jonathan: appreciate it. derek and michael, these conversations take on additional importance given we get jobless claims tomorrow. we get some p.m.i. later as well, 9:45 p.m. eastern time. that comes from s&p global in the united states on manufacturing and services. let's get an update on stories elsewhere with your bloomberg brief from dani. dani: at&t saw a second quarter subscriber increase thanks to a promotion and lower churn rate.

shares higher nearly 3% in the premarket. at&t had its first year-over-year increase in new monthly phone subscribers, while the cancellations fell like until response to a marketing push that gives new and existing customers the same deals on new phones and plans. a bit of good news if you're still looking to travel to paris for the olympics. according to travis insights company lighthouse, hotel prices have fallen to almost half of their peak rate. accommodations are now being listed for an average of $340 a night between this friday and august 11. that's down 41% from the peak rate of $575, around 11 months before the game. meanwhile, a mediterranean heat wave is set to hit the european continent over the next few days, with spain bearing the brunt of it. temperatures will climb as high as 115 degrees fahrenheit in the river valley on wednesday. most of the country also faces an extreme threat of wildfires.

meanwhile, temperatures in greece have pulled slightly after weeks above 105 degrees. the wildfires and violent storms still remain a threat. there were 62 wildfires in the 24 hours through 6:30 on tuesday. and that's your brief. jonathan: dani, thank you. that term, heat wave, has a very different meaning to anyone in the u.k.t. means this, summer, it lasts about three days, and it's the high 80's. you've lived it. lisa: sometimes it is like a week. it's very exciting if it's seven days. jonathan: you get three to seven days, game on, summer, heat wave. everyone goes nuts. everywhere else it's dangerous. in the u.k., it's summer. lisa: it's different when it's the 80's for a week versus 120 where you can crack an egg. jonathan: in the fountain, stripping off, taking days off work, too hot. up next on the program, setting you up for the day ahead. you're watching "bloomberg surveillance." ♪

jonathan: equities on the s&p 500 shaping up as follows. futures negative. we're down by almost 1%, gunning to the opening bell. the opening bell about 40 minutes away. your trading diary looks like this. at 2:00 p.m., israeli prime minister benjamin netanyahu addressing congress. and after the closing bell, more earnings, we'll hear from ford and i.b.m. then at 8:00 p.m. eastern, president biden addresses the nation from the oval office. we'll get u.s. g.d.p., another round of jobless claims, and rounding out the week friday with sentiment and p.c.e. earnings next week, we'll hear from microsoft, meta, apple, and amazon. we've had the flavor of things in the last 24 hours. the likes of alphabet and tesla,

ed, one name, let's talk about it, i want to get to tesla before we turn to alphabet. you nailed it when you said that would be delayed. the rubber taxi announcement from august has been pushed back to october. what did you take away from the call from elon musk? ed: the idea of a couple of months delay for prototypes doesn't seem that important. i mean, the stock is down 8.5%, and the conclusion is in the near term, the core business is suffering. the business is hard right now in the moment. but the main takeaway is the investors just don't see the big picture still. they don't see the jump of all the narrative and excitement around the driving software to a world where that's the biggest part of the business along with the robot.

that's really reflected in the premarket trading this morning. jonathan: this stock is struggling. i have to talk about this, alphabet. numbers weren't bad. stock is down by 4.5%. you spoke in the last 12 hours or so. what's the takeaway from that company? ed: i had an opportunity to give the street more, to give the market more. i think when it comes to a name like alphabet, and indeed, the rest of what's to come, investors demand the evidence you're willing to put money into and fight in the competitive field of a.i. and a.i. infrastructure. but they reserve the right to be disappointed if there's no immediate top-line growth. i don't want to dwell too much on how the sausage is made, but it was interesting, because on the call is we speak to ruth just before the analyst call. i asked her, did you know that. a.w.s. gave us a negative run rate specifically for generative

a.i., would you also be willing to do that, and her answer was i'm going to talk about that on the call, so i'll give you another question. and on the call, what happened is she explained that year to date a.i. infrastructure and generative a.i. had generated bill i don't understand of dollars of revenue, but that's a bit of a hedge. a.i. infrastructure and generative a.i. is basically the entirety of their cloud business. in summary, the stock down in the premarket, investors said show us something. you spent a lot, they raised their capital spending commitment to about a billion dollars more than the street was anticipating in the quarter, give us some sales, give us data on that side. lisa: sebastian page was on earlier, and he said the secret to happiness is low expectations, which makes you wonder, are google investors bound to be unhappy because expectations are just so high? ed: yeah, i'm not an investor nor am i a psychologist. i'm a locally and humble reporter. that's the -- i'm a lowly and humble reporter. that's the problem. we went into it with the

expectation that because of all the headlines on enterprisen gaugement with a.i., that would translate to boom. the problem that google has that is at this point a pretty distant third-place player in the cloud market, where a.w.s. and microsoft azure do have tangible evidence that they're taking money to the bank from the infrastructure investors they made for open a.i. investment and years gone by. the other thing is a.i. is super exciting, and then the main message from management is the biggest contributor to growth this quarter was surged. the bread and butter business, i think psychologically, to borrow that term, that also impacted investors, because they were like, oh, i thought we would have moved on from search by now. annmarie: i want to go back to elon musk and tesla. a little over 1100 days to the election. where does he stand on how much money he's giving the former

president? ed: you're talking about the $45 million figure. i'm glad you asked. i would just point out one thing. on july 12, bloomberg reported that elon musk was making a "substantial" contribution donation to the america p.a.c. but it did not disclose a specific figure and cited anonymous sources. i believe it was the "new york times" that ran with the $45 million figure, but at no point did elon musk say publicly he would do that, nor did bloomberg report that themselves. so my take is just that musk is confirming the original report from july 12. a little detective work along the way would show it's been a circular route to get there, but that's what happened in last night's comment. sorry, in the podcast comment. jonathan: ed, super sharp reporting, sir. good to catch up. that's the latest from the west could on some of the earnings.

we got about a minute, just takeaways this morning. momentum building, a lot more people starting to say let's go in july. and then on the politics, i think we're all on the same page here, just the amount of companies that come again saying, you know what, might be time to pause and wait to see what happens in november. lisa: it feels like we're at a pivot point with growth and just how much companies have the conviction to make big moves because of the political unis not. the paralysis that we were talking about with sebastian page. annmarie: i feel like the c suite has just woken up. the consequences for 2025 are going to be impactful for the market and business decisions. but tonight, we will see the president. one month tomorrow since that worrisome debate that sparked all these concerns. jonathan: 8:00 p.m. eastern time, look out for that. coming up tomorrow, from new york, that's it for us.

thank you very much for choosing bloomberg tv. this was "bloomberg surveillance." surveillance." ♪ (♪♪) (♪♪) (♪♪) (♪♪) beaches rhythm and blues caribbean sale is now on. visit beaches.com or call 1-800-beaches.

the moment i met him i knew he was my soulmate. visit beaches.com "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.

>> we are looking at futures that are off big league. i'm matt miller. >> i'm sonali basak. and i'm katie greifeld. bloomberg "open interest" starts right now. ♪ sonali: coming up, tech disappoints. tesla poses as alphabet faces pressure to keep up on a.i. matt: blackstone cuts 24% after

b