♪ >> the market is not oversold yet. >> don't have a consistent message coming from the earnings season. that is what is causing some of the volatility. >> we are maintaining our overweight recommendation on tech. >> is likely a disconnect between the earnings expectations and what is happening in the economy. >> the fundamentals matter and i think the fundamentals support this rotation. announcer: this is "bloomberg serveillance" with jonathan ferro, lisa abramowitz and anne-marie. jonathan: bloomberg surveillance begins right now with your equity market looking your

little something like this. equity features positive by 0.3%, leaving behind two weeks of losses on the s&p 500, three weeks of losses on the nasdaq 100 and three weeks of gains on the russell. that rotation continues. talk about a busy week. central-bank triple header, tons of economic data. payroll on friday and lots of earnings. >> sometimes we will say this is going to be a massive week. this is going to be argued be the most important week going into labor day because what you are looking at is not only a decision, not only some of the job stated that begat but also about 20% of the s&p in terms of big tech alone. within 30% reporting. overall just this week alone. >> 20% across four names, to be super clear about that. and the question we will be asking this morning, what is more important here, the federal

reserve decision wednesday, payrolls on friday or the earnings in between? making the point that he believes earnings will set the tone for sentiment going forward. >> a lot of people would agree with him. people are saying when you have 20% of the index reporting and micro names, you have to imagine it is important especially because of what we saw from alphabet, from tesla. there is a key question here and it is multipronged and hard to divorce the two which is how much are people lowering the bar for big tech and can they supersede that? the second one is how confident can we be that we are actually in goldilocks? the goldilocks is there, but people are still clinging to that end 11 that rotation to continue. >> it feels like wednesday is pretty well-understood. the focus has shifted to growth. which is why i point out payrolls on friday.

payrolls on friday at the difference between the september rate cut being the right kind and the ron kind. the right kind being you got inflation coming in, the labor market still strong. the ron kind being unemployment starting to shoot higher, they are super concerned and reacting to it, getting ahead of. >> it's incredibly difficult to parse this out because when you take a look at gdp stronger than expected, when you look at what personal spending is, it isn't necessarily falling off a cliff people are having trouble for the coalescing around this is truly a growth scare. andrew at citigroup says just wait and the labor market will be what you actually see. he is expecting three rate cuts and a terminal rate of something like 3.5%. this more aggressive view that talked to that more quickly decelerating growth that leads to a negative payroll. jonathan: look out for that. looking forward to seeing the

back of july? i think i feel that way. this month has just gone on and on and have many weekends at all. lisa: do you want to talk about it? jonathan: therapy time? thanks for tuning in and welcome to the program, allow me to talk about my feelings. equity features look like this. we are firmer by one third of 1%. yields are lower, we shave a bit more off a 10 year yield. lisa, the dollar yen at 1.53. lisa: massive. we've got the economic data, central-bank decisions and earnings. from the economic perspective today, get the clearly refunding borrowing estimates. tuesday -- wednesday, as well as

the q2 employment cost index and that treasury but some people say that might be the most important aspect of the week. i am biased on that front. thursday we get jobless claims in manufacturing and friday, at july payrolls report. central banks, you get the bank of japan coming out. what is the potential disappointment factor if they do not hike rates or is the balance sheet potentially going to be more important? also wednesday we get the federal reserve and thursday we get the bank of england which you can discuss how that is going to be. from the earnings, more than 30% of the s&p 500 is going to be reporting this week, 20% of which is going to be four names. tuesday we do get earnings from microsoft and wednesday we get earnings from meta and thursday, apple and amazon. jonathan: just a blockbuster week ahead of us. coming up to break down all of this, marvin lowe.

terry haynes of pangea policy on a short list of running mates for, harris -- kamala harris and back-to-back months of cooler data may be enough for the federal reserve. investors preparing for a busy week of earnings from big tech and a trio of central-bank decisions. marvin, expecting the first cuts to come in december. this is not a meeting to signal a september cut. the calendar is still in the fed's favor but more importantly data is mixed. we still hold onto december. arvin, good morning to you. lisa did a wonderful job going through the data ahead. if you could pick one right now what would you like to know this morning? marvin: i think earnings are important. communication policy from the central banks, pretty robust these days. wednesday will come and go and there really won't be many surprises, but given how volatile these earnings have

created an environment in the market. jonathan: both the bolts and the bears stash bulls -- bulls and the bears alike, which one is it? >> things are still fine. you've got a earnings and then you've got evaluation around them. the earnings have not been terrible. maybe the market got ahead of itself. practically everyone has been talking about how frothy valuations of cotton, but the story around earnings and u.s. exceptionalism because these companies is still retained in my mind. lisa: can the fed give some sort of concrete message or is it basically going to be a very neutral one that truly leaves open the fact that i they and the next payrolls report that we get will be pivotal in making the decision? this is going to hinge on one or

two data points about whether they go in september or not. marvin: for sure the data remains mixed. there have been signs of slowing in the economy for sure and the markets are excited about that, but gdp shows the retail consumer is still engaged when you look at those big components. lisa: which is more important, the bank of japan or the fed to potentially disrupt the market? marvin: the fed still. certainly if you are trading dollar yen you are going to say that the doj is the most important thing to think about, but really the fed is going to set the tone for everybody else. our view is that while the doj needs to normalize policy, they don't have many levers to work with. i think that is why we keep talking about them in this waiting period because it is hard for them. lisa: jon is going to laugh at

me but i have to go here. i think a lot of people think that i am overly obsessed. jonathan: if this treasury refunding? lisa: maybe. marvin: i appreciate that. lisa: this is important, right? this could potentially be market moving, almost more so than a lot of the other potential events. arguably this could be as important as earnings, no? marvin: qra this month" or is not going to be the most important aspect. not going to get a lot of changes but really thinking through how the cycle is going to wind up and who is going to wind up dying all these treasuries is going to be the most important thing everything out. if the doj is buying less, somebody has to buy them. and if those are treasury buyers at the moment, when we think through this, you have to ask the question who is going to wind up picking up this increase in a treasury assurance which really starts to ramp up in the

middle of next year. jonathan: smells like steepening in 2025. is that what it is for you? marvin: yeah. jonathan: what we've seen is the bull steepening set the front end of the curve. why do you take a different perspective? marvin: rate cutting cycles have a massive tailwind for everything. the natural gravitation to go long duration during rate cutting cycles is something you just don't fight. but when we had the volatility last wednesday and we had long yields going higher, you really needed to ask your question. if the relationship that exists between duration and risk what it used to be? a number of things from the perspective of the boj, whether or not they force less treasury buyers to come out of the market, whether or not you talk about debt sustainability. whether you talk about a new

inflation paradigm where housing is no longer as stable as it used the, because it's going to take a long time for this housing market to stabilize and that has an impact on inflation volatility. jonathan: what you are seeing will have huge consequences for us. are you suggesting that in 2025 treasuries won't have risk mitigation? marvin: i think you've seen that for the better part of this year and you have been able to ignore it because rate cuts are that important to the story. but when we get to the midpoint or the end of the story, you have to ask yourself where are they at the end and how much do i want to own? anne-marie: what is the risk mitigation, is it the dollar? is it bitcoin? marvin: i'm not a crypto advocate so i will stay off of that. i think equity allocations themselves have the potential to be much higher, but currency is also certainly from a perspective that we haven't seen before. jonathan: give me a 10 year yield target for next year. what kind of numbers are you

thinking about? marvin: five and a quarter. jonathan: is that politically independent or politically dependent? marvin: it is politically independent from a perspective that both parties are bad actors in washington. jonathan: good to see you. quite the call for next year. equity futures, welcome to the program. positive by one third of one person on the s&p 500 with an update on stories elsewhere. dani: nicolas maduro has been declared the winner of an as well as presidential election by the electoral authority which is overseen by the ruling regime. the opposition is rejecting the claim: the military to worse what set with the will of the people. the u.s. and some latin american neighbors have also raised concerns. antony blinken called for a detailed tabulation of votes saying it is important every vote is counted fairly and transparently. and donald trump courting cryptocurrency enthusiasts.

speaking at a piquant conference in nashville saturday, he said he would ensure that the u.s. would be the crypto capital of the planet, the bitcoin superpower of the world. the crowd cheered loudly as he said if he wins the election he would fire sec chair gary gensler's term is not up until 2026. and it was an eventful opening weekend at the olympics. simone biles and suni lee stole the chauffeured u.s. gymnastics. kevin durant power usa basketball to win over serbia and the u.s. secured its first goals with the men's freestyle relay. officials did cancel training in the seine after the rainy weekend elevated pollution levels in the river. overall the u.s. currently leading with 12 medals overall, three of those goals. that is your brief. jonathan: appreciate it. more in about 30 minutes. up next, ramping up the search

for a running mate. >> i'm not speaking on anything personal on this. being mentioned is certainly an honor. my job is to make sure, and i trust that vice president harris will make the best choice she is going to but one way or another she is going to win in november. jonathan: that conversation up next. live from new york city this morning, good morning. ♪

♪ jonathan: welcome to the program, good morning to you all. a brand-new trading week ahead of us. yields a little bit lower by three basis points, almost four. under surveillance this morning, ramping up the search for a running mate. >> the fact of the matter is where you see the policies that vice president harris was a part of making, democratic governors across the country executed those policies and quality of life is higher, the economies are better. >> have you received materials from the harris campaign? >> i'm not speaking on anything personal on this. being mentioned is certainly an honor. i trust that vice president harris will make the best choice she is going to but one way or another, she is going to win in november. jonathan: bloomberg reported presumptive democratic nominee kamala harris is down into three

potential running mates. mark kelly, josh shapiro and tim wells. the latest polling show an eight percentage points jump in favorability for harris over the last week. terry haynes giving harris a 60% chance to win the white house. strict discipline on messaging, serious democratic turnout and a vp pick that broadens the ticket appeal to independent voters. terry haynes joins us now for more. when biden was running, it seems like even more so with harris, this is your base case that harris said just this. what is it about harris that makes this race much more winnable the democrats than it was under biden? >> firstly, there is enthusiasm within the democratic base. democrats are already coming home and at think they have come home to stay. secondly, the social issue platform really appeals a lot to

independents. what you've got is a situation where you are going to scare people about their freedoms and that is the catchphrase of the harris campaign already is freedom. you are going to do that, and then you are going to play into trump fatigue as well. and finally i think there is just what i called the thrill of the new. we've always talked about donald haters and how much people didn't want this race to happen and all of a sudden there is a big alternative, a generational alternative. lisa: even when biden was still running you really didn't think that donald trump was going to win. you thought that either way he would have five -- biden eek out some sort of victory. what can you point to that there is trump fatigue anytime where he has garnered a lot of big sort of corporate backing?

what gives you that sense that he is really running out of steam? >> a lot of what you mentioned including the fundraising is pretty transactional. what i've looked for all year is very simple. the trump base does not equal the republican party and you saw that in the primaries were reapers and the people are voting for somebody other than trump. does he unify the party? can he appeal to the majority of independents? that was the winning formulated 2016, the losing formula in 2020. so far that has not filled out in the way that trump needs to become president. he has still got split in the party, number one. number two, the vice presidential picks not help with that. that is not transformational, which in turn makes it much more difficult for him to actually appeal to independents in the

way that i think harris, a centrist vp pick is likely to. lisa: is there going to be a september debate? >> i would say so. i'll give you 80% that there is. if they are haggling about which network is going to be on, they both said yes and that is the bottom line. jonathan: how do you think the message changes from the trump campaign? >> i think they are struggling for that right now. i think they try to double down in a way that isn't insulting to harris on her lack of. trump will move a little bit more presidential, i have been there, i have seen it, i know what to do. he never talks about how he will do it, of course. he will exploit her lack of experience in foreign policy, hammer on the border and economic messages and frankly make the point that the administration of which the vice

president is part made the country markedly worse. it will be a little with of a shift in tone but not a shifted message is self. jonathan: i wonder if we could see another change. do you think the former president sticks with his running mate? >> yeah, i do. i think that pie is already baked. but there's a lot of regret already. as i said, within one hour after it happened, it is a mistake because it is political small ball and it doesn't expand his appeal. that has really come home in the last week or two. that will get emphasized even further with the pick of the kind that you already talked about. lisa: can we talk about bitcoin, bat crypto? it wasn't on that bingo card that this crypto conference was going to be a rally for donald trump. i was struck friday by this

crypto conference where trump raised a lot of money, he talked about the importance of crypto assets nvm on the technological forefront of all of the new developments. do you understand kind of what this message is geared at, whether it is just a fundraising tool or whether it is something more substantial? >> i think it is primarily a fund-raising tool, a way to continue to generate enthusiasm among silicon valley backers. you think about an adjunct to tech, it looks that way. but fundamentally i think the enthusiasm is overblown. all these folks have been looking for four years for a horse to ride. they thought they were the groovy is -- grooviest people in washington and the administration was obviously

hostile to what they wanted. so now what you see is a lot of sediment saying this will be the crypto president. the path forward there is much more murky. the institutional folks who want to defend the sovereign currency i think our a bigger obstacle than trump believes. lisa: to that point, is there any connection to the focus on weakening the dollar on donald trump saying that the dollar is too strong, and the support of crypto assets? >> i think that's a very valid point. my view of trump generally is that if he was a painter he would be jackson pollock. if he was a cook he would be throwing the spaghetti at the wall to see what sticks. i think that is pretty much what you've got here. jonathan: thank you sir. some constructive views on how he would frame things. we did this on friday around the bitcoin issue.

there is a kind interpretation and a less kind interpretation. that kind interpretation is that donald trump gets a second term and would be supportive of the ecosystem, beneficial to the u.s. economy the less kind interpretation is supported the former president because they believe he has a set of policies that might destabilize the u.s. dollar and benefit the likes of bitcoin. lisa: the destabilizing of the u.s. dollar is one of the key questions especially because of the punch of in the same week areas talking about the arms of a weaker dollar, you also have a real focus on building out crypto assets. i don't know that anyone is saying he is looking to destabilize the u.s. currency in order to allow recto assets to come to the war. that i don't think is on a lot of lists of likely scenarios. it is this question of what policies can you hook your teeth into that are likely to come from the former president? janet yellen responded to some of the discussions saying a very

strong dollar could discourage exports but there is a lot more that is involved. you have to ask why is the dollar strong? jonathan: there is an activist treasury issuance going on as well. lisa: which will be today and wednesday. jonathan: the big announcement coming up this week, the quarterly refunding. lisa: did you hear marvin loh? jonathan: that the issue of this year, maybe the decade. looking for clues from the boj on whether they are going to hike. that conversation up next.

jonathan: a little bit about performance on the russell this morning. the russell up .6%. the nasdaq up .6% also. the s&p up .4%. the russell is up 10%, the nasdaq is down 3%. if you take it from the record high on the nasdaq earlier in july that discrepancy is wider. lisa: down 8% on the nasdaq. just the magnificent seven alone is down 12%. that is where the declines have been led by what we saw from alphabet and tesla. this fear of the tech giants cannot supersede expectations at

a time they are spending on things that cannot happen. jonathan: are they going to be rewarded or punished for that? we got a flavor after alphabet. since they might be punished. we look out for that with the likes of meta and microsoft. yields down about four basis points. more yield off the front end of the curve. down to 4.3668 on the u.s. two year. down 12 basis points last week. the bull steepener kicked in with a big rally at the front end of the yield curve. marvin lowe state street suggesting in 2025 you will see a bear steepener. he is looking for the long end of the curve to selloff. he is looking for the 10 year yield to breach 5% again off the back of the things you been talking about. the supply story off the treasury. lisa: thank you. you did a fantastic job.

the question will be quantitative tightening, which is essentially what is happening in this idea of rate hikes has a big consequence when it is global. if you get a pull of treasuries increasing, who will buy them. so far it has not been a problem but everyone agrees you will start to see extra premium built in to compensate for a record amount of treasury issuance. today maybe not in terms of the quarterly estimate we get later today and that on wednesday we get the actual schedule of sales. to meet longer-term this will be the question. jonathan: we will talk about dollar-yen. last week down almost 2.4%, the biggest weekly decline since may. that currency pair has been lower for four consecutive weeks and that is the first time we've seen that this year. that is yield yen strength going

into the boj decision. lisa: which raises the issue of how high is the bar for the bank of japan to meet the expectations they will respond to the weakening and the yen the way the market is anticipating. banff the macro said the bank of japan will placate currency investors by cutting back bond buying on wednesday, but will likely stay put on the policy rate to prop up growth and foster demand. this has been the issue. the economy has been not showing the same kind of dynamism. do they have the confidence to hike rates while they lead on the balance sheet? jonathan: real division going into wednesday. jp morgan sees the boj hiking. that shows how split things are into wednesday. we have the federal reserve and the bank of england later this week. that is the story on foreign-exchange. under surveillance, israel threatening further retaliation

against hezbollah after striking targets in lebanon yesterday. the move in response to a rocket strike which killed 12 children and teenagers in the bowl heights over the weekend. meanwhile talks continue for a truce in gaza. a conversation last week is we seem to be equidistant between a truce in gaza and an escalation in lebanon. that is how finely balanced things are in that region. lisa: this is usually concerning . it is the biggest loss of life for israel going back to october 7. from a strategic standpoint this is been the big question, the elephant in the room. what happens with hezbollah at a time israel is trying to defend its northern border. at what point can you cool things down when mistakes could happen? peter tchir has been talking about this. when you start doing tit-for-tat missiles mistakes happen and you can escalate without meaning to. peter tchir has pointed to

geopolitical risks at a time when there are questions about how continuous the leadership will be in the world's biggest economy. jonathan: for questions about u.s. leadership. going into earnings later on this week, people familiar with the matter telling bloomberg's apple's upcoming ai upgrades will be delayed. new features now being released in october after software overhauls in september. early testing will still happen as soon as this week. to put this in plain english, we sing the iphone comes out in september but without the good stuff from ai? lisa: yes, and when you say the good stuff it is the story of what the iphone 16 has to offer. our mark gurman has reported that other than the ai changes, the iphone 16 line does not have much by way of design difference from the previous iterations. it has leaned on artificial intelligence upgrades. other than having a faster chip

and a different way of controlling the camera. jonathan: the point you are alluding to, all of the bullish calls, dan ives have made this point that we will get this big upgrade cycle when we get a big evolution on the iphone, that will be delayed? lisa: essentially yes. one could make the argument that if they are delaying it to ensure it is perfect, then potentially it is not a problem if you waited extra month. if you delay it for a month it is not a big deal. if it is they are having difficulty understanding what ai could be deployed in a convenient way, that becomes a more existential question. jonathan: that stocks is little bit softer. later on this morning we will catch up with ed ludlow in new york to break down some of these issues taking place with apple and a look ahead to the earnings. for everybody else will be looking at central bank decisions. the fed and boj on wednesday,

bank of england on thursday. steve englander sing the bank of japan may be teeing up for a rate hike in september, sing the market will be happy enough if they give a wink and a not. does that what we are looking for this week? winks and nods? steven: exactly. one doing the left eye and the other doing the right i. i think the fed will leave the door open and sound encouraging. they certainly do not want to sound committal. they will wait and make sure the data is reasonably consistent. it does sound as if they would like to cut in september and justify the market views. with a lot of trepidation, this looks like a layup in terms of meeting market expectations and not jarring the market too much. i would not expect too much fireworks. the boj is more interesting.

we do not think they are going to cut. sorry, we do not think they're going to hike. the market only has 12 basis points priced in for september. if they give enough of an indication that they do not want to talk about tapering into a rate hike at the same meeting we think the market will be comfortable as long as they do not lowball. jonathan: dollar-yen short of 154. our winks and -- are winks and n ods sufficient? steve: to really get it moving they would have to hike. we do not expect that. given they have upped the importance of the exchange rate, and i think the kind of wink and nod you alluded to, that will be enough to keep the yen slightly stronger, not enormously

stronger. for that we would need them to show that they are moving and they are moving more aggressively and it is now priced in. lisa: are you saying they are not going to hike rates and that will be ok for the currency market where they are not going to hike rates and that will be devastating for the yen and it will go back to where it was versus the dollar two weeks ago? steve: to devastate the yen they would have to put september in question. i do not think that will happen. if you look at the market pricing, yes they have five or six basis points priced in this week. they only have 12 in total for september. if the market walks away saying they did not hike, we did not expect them to but they are good for september, i think that will be fine for the yen. it is not going to be triple or a homerun. lisa: how much does the balance

sheet matter? pantheon macro talking about how that could placate the market if they stop buying as many bonds. do you agree? steve: i think they have to give and they justify doing nothing last time by promising they will lay out their path. they do have to announce a significant. the other wrist for the yen weakening is if -- the other risk for the yen weakening is if the pace of balance reduction is so slow the market says it is not meaningful. we think they will give enough of an indication of the pace on the balance sheet flunked -- front loaded enough that it should be all right. it will be consistent with market expectations. jonathan: that is bond buying in japan. it could have implications for the kind of buying that takes place in the united states. you've seen all the studies on

the so-called activist treasury issuance. what is your understanding of what ati is and how much weight do you put on it? steve: i think ati is a modern version of what was done 60 years ago in terms of operation twist, you reduce issuance at the long end, takes the pressure off the long end of the bond market. that is -- you end up with a flatter yield curve. you can see that is what they have been doing the last couple of years. except they have not been doing it the last couple of months. it is one thing to say they are trying to take the pressure off the long end. given they have not been doing that kind of issuing this year, it is not an explanation for why the 10 year bond yields are 415 now, down from 4.70 at the end of april. i think they overstate the

impact or some commentary overstates the impact in the sense of talking about it being equal to 100 basis points of cuts. i think that is not quite there because what we have seen, the experiment being brought even if you assume 25 basis points is what of the long yield goes down 25 basis points and fed funds is held flat. it is not let's cut fed funds by 100, that will take the long end by 25 and that will have a big impact. intuitively we have had the long end suite 25 basis points four or five times and we've not seen any trauma in the market. people like us have trauma. people and asset markets worry about it but it is not as of economic activity seems to be visibly effected. by that kind of move at the long end, as long as the fed is not moving and now the market is waiting for the fed to move.

lisa: what if the treasury comes out this week and says they are much more heavily weighted in the long end. how big for the reaction be in terms of yields rising on the 10-year or the 30 year? steve: i think the market expects to continue in the direction they have been going. if they do issue at the long end , i think it could matter. i think it is more second order. it is good to matter in terms of due yields stay where i saw them at 415 and 417? probably not. it will not take them to 4.70. 10 basis points, 20 basis points maximum. it matters but it is a second order in terms of the economy. jonathan: down to about 4.16 this morning.

steve englander there of standard chartered. on a two year down a single basis point. your guilt about 4.37. with up to -- your yield about 4.37. let's cross over to dani burger. dani: heineken shares are lower. the giants first half profit growth came in weaker than analysts expected. beer sales were expected to grow 3.4%, instead they rose just 2.1%. heineken took a nearly 950 billion charge for evaluation of its stake in china's largest brewer. u.s. weakness is crowded -- is clouding its prospects. alibaba shares are rising by the most in two months. 1.5%. it announced plans to boost service fees for merchants. alibaba will start schaller jig -- will start charging a basic software service.

merchants learned of the policy changes on friday. alibaba may waive the new policy for small merchants. the ft is reporting swiss drugmaker roche is fast tracking its weight loss pill. the company's ceo told the ft its plans were motivated by encouraging data and had a study that showed 6.1% reduction in weight after four weeks of using the medication. roche hopes it can get the pill to the market by 2028 and compete with drugs made by eli lilly. jonathan: we will see dani again in about 30 minutes. up next, setting the stage for september. >> rate cuts are definitely coming. there is not a strong case for waiting. it is time to focus on the risks of the economy. jonathan: live from new york city, you are watching bloomberg surveillance. ♪

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jonathan: a sneak peek at the payrolls. guesses for friday. the median estimate is 178. mike capon of bank of america at 225,000. no surprise because he is still stiffing for september for the first interest rate cut. lisa: and sing the economy is fine. a huge division between those who think the economy is on her precipice of deteriorating and those saying to do not see the gdp we just got? jonathan: citi at the low end. the scores look like this. on the s&p 500 up .4%. on the 10 year yields lower, down to 4.1589. setting the stage for september.

>> i think rate cuts are definitely coming. at this point there is not a strong case for waiting. it is time to focus on the risks to the economy, to the labor market, to minimize the risk of recession which always employs -- which always incurs when the employment rate goes up. jonathan: here's the latest going into this big decision. investors widely expecting the fed to hold rates steady and set the stage for september rate cut. the decision does go days ahead of a key data point. "coupled with the fed's assessment of calling labor market officials, does go back to back months of improvement disinflation may be justification for jay powell to offer the reprieve investors have been awaiting." lindsay joins us for more. everyone expecting this baby step towards a september rate cut. what you think that baby step looks like in the news conference wednesday? lindsey: if the fed wants to

open the door they want to adjust two main points. in june they said it is not appropriate to cut rates until they have needed confidence and they also characterized the improvement in inflation as modest. we will have to see the fed back off from the need for further confidence, suggesting there at that point. they will often have to increase their assessment of the level of improvement in terms of disinflation. those will be the two key points to suggest the fed is gearing up for a rate reduction in september despite the relatively solid data as a backdrop. jonathan: the backdrop including a lot of warnings that the labor market is about to break and they need to get ahead of it it cut interest rates this month in july. do you think they need to start to put more weight on the other site of the dual mandate? lindsey: they have been clear. we have heard from jp pound -- we have heard from jay powell

that the dual mandate has come into better balance so they will be focused on both of those mandates as well as price stability. the labor market is not in the precipice of breaking. we have seen a loss of momentum. we have seen less tight conditions relative to the start of the year. we are still talking about a 4% unemployment rate, 4% wage growth. nonfarm payrolls with increased volatility but an average pace of 200,000 us far for 2024. that is indicative of a solid labor market. you couple that with inflation that has been stubbornly elevated, showing now only two consecutive months of improvement with the core pce stacked at 2.6%, there is very little justification for the need for a rate cut at this point despite the fact that the fed may move forward as this is clearly a committee desperate to provide relief. lisa: within some of your

commentary you see the fed is offering up the reprieve investors are desperately hoping for. you think if the fed ends up cutting rates sooner than later, not necessarily this week's meeting, but maybe in september, that would be a mistake aimed at placating markets? lindsey: i think this is a fed that is desperate to try to achieve that soft landing. jay powell has been very clear, the committee has been very clear, that they understand the risks of cutting too late may create unnecessarily large burdens for the economy, potentially leading to a downturn or outright recession. the committee has also recognized the risk of coming too soon or too much. that could allow inflation to come back. that could allow inflationary pressures to become more embedded into the u.s. economy. when we talk about the risks, there are risks of the fed waiting beyond september, even

into 2025. when we are talking about the risks of a potential downturn versus reinstating price stability, as we have heard time and again from the fed, without price stability the economy does not work for anyone. lisa: we have been looking into the earnings. we have heard airline said they cannot charge consumers as much have in the past. we heard from auto manufacturers to discuss how much can they compete to move cars off the lots. where are you seeing signs there is resurgent inflation waiting at a time when a lot of companies are talking about price cuts? lindsey: when we are talking about price cuts we are talking about less price acceleration. prices are still rising when we talk about broadly across sectors. it is the lack of downward momentum we are tried to get from a monetary policy or a corporate standpoint lack of upward pressure that they have

been able to instill and pass on the rising prices to consumers. when you're talking about the indications of resilience, let's look at the consumer. the consumer momentum picked up from q1 to q2 suggesting there is a good amount of borrowing power, investment power, spending power in the u.s. economy. that suggests that without indications of the consumer significantly faltering, the fed still may not have done enough to reinforce the notion of instilling price stability. not hoping for price stability with the slower pace of disinflation, but getting us back to the 2% target. jonathan: i am more interested in the fed speak after the rate decision and the payrolls report on friday and i would love your view. i want to understand, if we triggered the rule on friday are we going to see a bunch of fed officials run around saying don't worry about it, is not about demand, it is about supply? how do you think this will work?

lindsey: i think we will see two different storylines from fed officials. there is a growing dichotomy between fed officials, those increasingly concerned about weakness in the labor market, and those more focused on reinstating price stability. if we do see a weaker than expected payrolls report on friday and we trigger the role i think you will hear two storylines. continue to focus on inflation and those saying i told you so, we need to move sooner rather than later. jonathan: appreciate the input. scenario analysis at the end. one individual will be saying a look at it is andrew hollenhorst because he is the one guy looking for 4.2% on friday. lisa: and that triggers the psalm role, we have talked about the psychological impact of that. people have to per degrees of how the market will respond. he has been calling for more rapid cooling. i think the jolts number may be

as important. the job openings and how they are coming down in a real-time look at how much companies are adjusting labor market needs at a time when there is cooling growth. jonathan: i think you nailed it by bringing up the companies we have heard from. can we get a clean read on where the consumer is that in america based on the airlines and the automakers and consumer facing companies? lindsey: you've seen incredible price increases in cars, you've seen incredible price increases with airlines, you've seen on the margins things may be getting less frothy. can we make the extrapolation that things are falling off a cliff, that they are not traveling, not buying cars? jonathan: cooling and not cool. how much of we heard about that? coming up we will catch up with jeanette low, ed ludlow, and amanda line of blackrock. second hour bloomberg

surveillance is up next. ♪

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♪ >> inflationary dynamics as well as the labor market are signaling that there is a necessity for the fed to start. >> i think the fed should have been cutting easier this year. they've achieved their objectives. >> these inflation numbers seem to be weighing down on consumer confidence and that is why you see some of the softening we are seeing. >> when things start to unwind and a negative direction, that is why the risk is significant. announcer: this is "bloomberg serveillance" with jonathan

ferro, lisa abramowicz and annmarie hordern. jonathan: live from new york city, good morning. your second hour of "bloomberg serveillance" starts right now. we will talk about this repeatedly through the week. what a week we've got coming up for you. it starts with economic data and concludes on friday with payrolls. the week ahead for the central bank decisions, a triple header. you will hear from the bank, the bank of japan, the federal reserve kicking things off on wednesday. and then the earnings. where do you begin and where you end? microsoft tomorrow, wednesday meta, thursday apple, together with amazon. then you wait in month, nvidia. lisa: are goodly the earnings will most important this week. just the tech giants account for about 20% of the s&p market cap. all of the earnings in addition to the likes of mcdonald's and others, amd, you end up with more than 30% of the s&p 500 at a time when big tech has led the

way down. can you get a reprieve from the four that we get this week? jonathan: show me the money, i think that is what manus cranny was talking about. you will always get a feeling a few weeks deep what investors are ready to reward and what they are going to punish. i think we got a flavor of that in the last week with alphabet. lisa: there has been this theory that you can't spend enough money on artificial intelligence and the people who spend the most will be rewarded the most, and that died last week. we saw alphabet spend more than people previously expected on and they were punished for it -- on and they were punished for it -- cap x and they were punished for it. in order for investors to continue a rally that has been historic but there is absolutely a speedbump. jonathan: for the federal reserve, i sent the -- i sense a little bit of calm. last week it was a sense of urgency from some people

including the former new york fed president who wrote the piece. then the economic data came out to settle things down again going into wednesday. do you think things are pretty settled down going into wednesday? >> there is a very small chance the fed does anything in terms of rate move this week. the question is whether they tee up a rate cut or give it the data dependence flavor that allows them to do it if they data cooperate? that kind of took some of the steam out because you got gdp going at 2.8%, and that really kind of threw some cold water on this idea. jonathan: jobless claims down, that was a key data point for us. haverhill friday. economic data still ahead. the earnings, the central bank decisions, scores and to all of that looking little something like this. firmer by one third of 1%. bond market yields lower by four

basis points now. this one thing we haven't talked about but you will hear a lot about it from a certain lisa abramowicz through the week. quarterly refunding announcement. lisa: i care about this because today they are going to give you an estimate of how much they are going to borrow and on wednesday a sense of what type of maturities they will sell at a time you're talking about ati activists treasury issuance. the idea that this treasury department is trying to weight more heavily some of the issuance on the front-end. for all those people who are falling asleep, this matters because the u.s. is selling recommends of debt and you could imagine people will say can you pass a little bit more to really by all of the stuff? jonathan: for the record, of course i am joking, i agree with you. we talked a lot about a softer consumer. certain companies pushing back and saying maybe we've reached a limit here. mcdonald's reporting just moments ago sales sliding for the first time since when?

annmarie: 2020 in the second quarter. this comes at a time when you have same-store sales falling 1%. for talk about how diners are pulling back, they are being more discretionary. we talked about the five dollar meal and how they are extending it to try to attract diners and just to give you a number, the second quarter adjusted earnings-per-share came in at $2.97 vs. the estimate of $3.07. there is an issue of how much of this political, international? at the same time this is something we see elsewhere also. in order to bring in some of his diners, these companies are having to create value meals of sorts that really give a value proposition that we haven't seen in quite a while. it is a probing -- jonathan: it is a pretty telling quote. reliable, everyday value as diners become more discriminating with spending. herded from delta and some of the airlines as well.

lisa:lisa: at what point is this a broader economic signal vs. something specific to companies that have been raising prices dramatically over the past few years? how much is it a competitive edge of execution and how much is it consumers falling off a cliff? we are walking a tight rope right now where it seems to be on the edges fine, but definitely showing consumers pushing back. jonathan: stocked down by about 0.5%. we will catch up with linda as stocks gained ahead of a big week for tech earnings. jeanette lowe, and amanda lynam of blackrock. stocks attempting to bounce back going into a busy week earnings. central bank decisions and economic data. results from microsoft, meta, apple and amazon plus interest rate decisions from the fed and boe. joining us now to discuss is linda at federated.

i want to get straight into these earnings, thank you very much for joining us. we've seen it from consumer company after consumer company, warning about maybe a softer consumer here. how much weight do you put on some of these warnings over the last couple of weeks? >> good morning and thank you so much for having me today. of course we are very interested in what the consumer does, but we've all been waiting to see them fall off a cliff. retail sales do continue to surprise. notwithstanding what mcdonald's is saying today, it is a lower income cohort that we no out of the excess stimulus first, and it is really all about jobs. as long as we have jobs, the job market is still tight. unemployment is going up but it is still historically low. as long as we have jobs we are going shopping and i think that the consumer remains underestimated. jonathan: is this a loss of pricing power or just poor execution? lisa: it's definitely a loss of

pricing power for sure and it has been an easy road for a lot of companies in the last number of years. we have historically high inflation but if you could push that through, your top line looks good and to the extent that we have lots of endless money, which we have had, just running out of it the first time this year now, we would spend up for it. that is why we are watching in the earnings season for what profit margins and the outlook is still fairly early on in the earnings season. lisa: given that the consumer is still strong on your belief but is definitely price-sensitive and you definitely have seen a lack of pricing power from companies that cater to some of the lower end, do you think that the outperformance that has been historic in small caps and some of the other non-tech names makes sense? >> small-cap was historically oversold.

it had never been this inexpensive vs. the s&p 500 since before the tech bubble burst. if you look at the s&p 600, the ratio on a forward earnings basis is just about 17. that is 21 times the s&p 500. they remain historically inexpensive and what is interesting also about small caps and where they start their move up this year, yes it has been hard and quick, but they have never been historically so exposed and their trading to what was going on in the 10 year treasury bond. very exposed to what has been going on in interest rates and you just mentioned the 10-year right now. we think we will be in a range of 4.5% for the time being in that area. that is a nice spot to stop to catch your breath, especially small-cap growth stocks.

lisa: there are probably people saying really, you're going to talk about small caps before big tech when you've got apple, amazon and meta all reporting this week. a lot of people saying it is so important because of the significant reaction from alphabet and tesla. how high is the bar for some of these tech giants to really exceed and will restart a rally that has really sputtered out with a true correction? >> i guess the bar is pretty high when you consider the top 10 names in recent weeks represented 37% of the weight of the s&p 500 on market cap. they also represented 31% of the earnings, and you've never been that high. that is way higher than when the tech bubble burst, which means that if any one of them falls off, so many of us own every one of these names. we will celebrate away. notwithstanding the fact they are probably still very, very well-healed, lots of cash flow

and excellent prospects going forward. that is just part of the volatility we were thinking you would see the summer. it is just a trigger that you pull and then you step back and say wait a minute, they are not historically as expensive. i was there with that bubble burst. it's not nearly like that. these companies are still extremely profitable. jonathan: it big week ahead. linda of federated hermes. i've got muhammad ali area on one shoulder whispering and now shouting listen to the companies so let's listen to some of the companies. nestle in the last week or so, value-seeking behavior among consumers. pepsi a few weeks back. there is clearly consumer more challenge than pepsi. this is mcdonald's. the first slide in sales going back to 2020. they will remain focused on reliable, everyday value as

diners become more discriminating with their spending. lisa: is this an execution question or a broad-based pullback by consumers? it is tricky to know the answer because on one hand, you have certain companies, coca-cola, i could point to, that outperformed. this is particularly difficult this time around. mcdonald's in particular, there is this issue of protests internationally which they said is dragging on their earnings. you start looking under the hood and you hear that consumers are pushing back and it is hard to extrapolate how far. jonathan: a similar story from starbucks as well. mcdonald's is up by about 0.7%. equity futures positive still by 0.4%. let's get you an update on stories elsewhere this morning. dani: another attack on france's infrastructure during the olympic games.

this time a number of fiber-optic cables cut overnight. the cables carry broadband services across the southern and eastern reasons. the olympic telecom partners of the connections into paris and the olympics were not affected. on friday, coordinated fires on french rail lines had disrupted trains ahead the opening ceremony. president biden will call for term limits and ethics rules for supreme court justices later today. it is part of a sweeping new proposal that also calls for a constitutional amendment to ensure that former presidents can be tried for crimes committed while in office. the plan faces a difficult path in congress. democrats have increasingly called for reforms in the recent controversies but passing these changes with wire support from the gop-controlled house. prada is set to open a flagship 8000 square-foot store in hong kong luxury mall according to people familiar. instruction will begin soon and the store is expected to open early next year. it will become product's first

major new location in hong kong for years. local luxury brands have been increasingly returning to the district attracted by property prices that are trading at much lower levels than the pre-pandemic levels. jonathan: that is certainly a demonstration of confidence. thank you. up next on the program, less than 100 days to go. >> that form is not filled out in the ways that trump needs in order to become president, he has still got splits in the party, the vice presidential pick that makes it much more difficult for him to actually appeal to independents in the way that harris, a centrist vp pick is likely to. jonathan: we will continue at conversation next, just around the corner. this is bloomberg.

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♪ jonathan: the focus has shifted to growth. in the words of mike wilson of morgan stanley, which is why for so many of you, looking ahead to the week ahead, there seems to you more interest in the earnings and the data than the federal reserve on wednesday. lisa: it doesn't seem like the fed is going to move so of than that, how many times do you need to hear about data dependency before you to now? the data is going to be well be the dependent upon a note for the fed as well as earnings,

which are not only data points in their own right for the economics, but also dictating a massive part of the s&p base earnings so far. jonathan: just a week of conversations about a baby step toward a rate cut in september. lisa: that is exactly how i wanted to start my monday. jonathan: the bounce back continues up by 0.4%. yields are lower by three or four basis points. under surveillance this morning, less than 100 days to go. >> we've always talked about double haters and how much people didn't want this race to happen and all of a sudden there is a big alternative. so far that form is not filled out in the way the trump needs in order to become president. he's still got splits in the party, number one. number two, the vice presidential pick makes it much more difficult for them to actually appeal to independents in the way that i think harris

and a centrist vp pick is likely to. jonathan: donald trump and kamala harris hitting the content -- campaign trail. trump returning to bloomberg, pennsylvania on wednesday. the latest poll showing harris and trump tank next. jeanette, if the democratic ticket was a stunt we would call this a post biting relief rally and we would all be asking questions about the earnings releases in the two, and i would be saying what makes it durable, tell me the fundamentals going forward from here. can you .1 us fundamentals with the for harris? >> the biggest thing that we've seen in the race is that there were this absolute lack of momentum or enthusiasm from most americans about the two candidates they have. so biden getting out of the race, we were really starting to see his numbers go down since the debate, really starting to impact the down ballot races across the country, and that is where we are starting to see the change with harris at the top of

the ticket. you are seeing the polling revert back to where it was pre-today. states like pennsylvania, wisconsin and michigan all within the margin of error. you have an enthusiasm, a gap closing which he saw over the weekend, and you are starting to see people just engage. all of the calls that happen over the past few days, people really getting engaged back into the democratic side of the campaign. obviously it has just been one week so we still have a lot more to see what actually happens how does this messaging start to play out if we do have a new debate in september? does that change the dynamic just because you will now actually see the policy differences between the candidates? that will be important to see. but the momentum factors change the race here. jonathan: with biden at the top of the ticket we were talking almost exclusively at one path toward victory potentially in that pat was narrowing. political reporting over the weekend that maybe, and i think you might agree with this, we've

reopened the conversation about sunbelt states. would you agree? >> i would. there was an emerson poll came out last week that showed harris the closing the gap particularly in georgia, so that is important. that is one of the states she is really going to be looking toward. north carolina is another state that she would like to target, the democrats have been targeting for quite some time. she does actually have more options. if she were to lose one of the blue wall states, she could potentially win one of the sunbelt states and that can still help her get over the . -- the finish line. lisa: how important will be her running mate especially now that we have a short list of about three? mike kelly, josh shapiro and tim walz? >> in general a vice

presidential candidate does not do a lot for the presidential ticket. you can only usually add but they could also subtract, but they don't usually add very much. in the past it has been easier for a candidate to win their states, that has been less true in more recent cycles but i think harris has some options. she has been looking at more of the moderate candidates along the lines of mark kelly or josh shapiro. tim walz would be a little more progressive so that would be a potential change or she is going to have more of a progressive ticket than a progressive moderate ticket. but arizona is one of the states she is not doing particularly well based on current polling so mark kelly can certainly help with that. he also provides this national security, this defense component that she may be lacking which could be very helpful to her. josh shapiro can help her deliver pennsylvania so she is worried about getting that, that is a key attribute of him and he could also help her and the other blue wall states like michigan and wisconsin. but they are also thinking that

tim walz is going to be a really good bulldog on the stage, something you do generally look for in a vice president also he is from a state that trump is targeting, minnesota. that could help make sure that state is shoring up but also helping other midwestern states. lisa: libby cantrell came on here and said we should all have cocktails and go away for august and come back in september. who is in the front seat to be the leader heading into the election? michael is yeezus -- michael of morgan stanley, the business market is likely to matter more than the election cycle. why is it important to watch the policies at a time when you said this election is still a referendum on this -- on the speed of de-globalization? >> now that we have harris at the top of a ticket, it is less of a referendum on biden and his acuity about policy. we have less than 100 days to go and harris still kind of needs

to figure out some of her policy positions. is she going to continue the policies she had as a 2019-2020 candidate? is she going to moderate these positions? this is much less like what you would normally see in the u.s. election were we have nine months of and painting. i do think the next couple of weeks will be quite important. what happens at that convention, what kind of policy proposals are you seeing, are you seeing momentum that is going to be a key component of this? but there are still vast differences between the candidates on taxes, trade, regulation policy and that is going to be really important for those investors. what does trump vs. harris mean for trade, tax policy and regulation? that is where we really have to be focused over the next couple of months. you do start to see the election start to price in. we do have a metric that shows that the market can actually predict about 80% of the time whether or not the incumbent

party is going to win the party out of power is going to win and that starts around august 5. jonathan: we should do this every time, just 100 days, a sprint to the finish. the most revealing thing took place going into the weekend. it was a reporting from abc and they said this. j.d. vance set americans without kids should be taxed at a higher rate in a 2021 interview. it just revealed how polarized this country is. we saw so many people react to this, reflexively exposing their own political bias. the people in news who thought it was news and the political commentators who tailor their response to that quote based on the author and not on the content of the. lighted by their biased so they weren't able to see that that actual policy already exists in this country. how ridiculous was that going into the weekend lisa: you do get tax credits if

you have kids up to a certain income. there is this issue of whether people can actually look at policy or whether it ends up young this social issue. j.d. vance has said a lot of things that are getting a lot of attention. i think there is a certain tom keene who would agree with you that it should always be a 100 day spread. i'm just saying. jonathan: how can we have a conversation about policy when that is where things go in this country everything of time? lisa: that is exactly the reason we are not talking about policy and why people come on here and there eyes just rolled back in their heads. jonathan: let's ignore this and keep ignoring it. from a beautiful new york, good morning. (♪♪) (♪♪) beaches rhythm and blues caribbean sale is now on.

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jonathan: good morning. the july meeting will signal the fed is on track to cut soon and open the door to cuts in september but will stop short of explicitly pre-signaling that decision. there is another step if they want to take it. lisa: people are expecting that to be the time they give a sense of what the ship is going to be. there's a 4% chance of a rate cut this wednesday. there is more than a 100% chance of a rate cut in september. this is the de facto position currently in markets.

jonathan: what is the destination here? do we have a decent understanding of what kind of economic regime we are in now? lisa: what is the backdrop in terms of fighting off slowdown or prolonging this recovery and expansionary cycle? is this the good cut or bad cut? the reason why the jobs data will be really important. jonathan: the difference between the wrong kind of rate cuts and right kind of rate cuts, payroll is friday. the scores going into all of that look like this. s&p futures up by 0.4%. the outperformance on the russell over the last few weeks continues, up by .75%. lots of discussions about earnings. we have to talk about mcdonald's, the first sales slide in four years, notable for that chain.

lisa: especially as they talk about consumers being more discretionary in the need for reliable, everyday value. they are extending their five dollar value meal. but -- that is one example of bringing diners back to the chain. jonathan: companies are saying things are slowing down. where does the topline growth come from? does that mean pulling back on jobs? will that show up in economic data we see every first friday of every month? let's turn to the bond market, yields lower by double digits, down another single basis point this morning. we are down three or four on the 10 year. lisa: this comes ahead of a big week. not only do we get economic data and the fed decision but we get what debt the treasury is going to sell at a time when a lot people said this would be the

factor that underpins how much of a premium there is. there is a sentiment of buy or sell the news, sort of buying duration ahead of what could happen because the fed is biased toward cutting rates so you cannot get burned too badly. that is the feeling in markets and you can sense that as things coalesce around rate cuts in september. jonathan: it was part of the catalyst for a selloff we saw going through to october. lisa: i like this. this is giving a sense of why this is important. this is giving people a sense of the real-world consequence of record amounts of borrowing by the u.s. government. is this week going to be the trigger? we shall see. jonathan: he thinks the supply dynamics will reassert themselves deeper into 2025 and his call on the 10 might surprise you.

he is looking at a return to the fives on a 10 year yield next year. lisa: he said potentially they could not be the haven assets they have been in the past and that would cause a reassessment of equity valuations as well. he is not in consensus, but he is not alone. jonathan: some of those trays certainly worked over the last four weeks. dollar-yen is down. the path to 150 seemingly undercut if we get a strong tilt toward a rate hike later this week. lisa: right now, the market is making it about two rate hikes from the bank of japan this year. unclear whether they are going to hike into september. the issue is they are facing weakness and a sense the consumer is getting exhausted by the increase in inflation, so

how do they toggle between currency depending on the normalizing and a consumer that may be running out of seem -- steam? jonathan: under surveillance this morning macdonald trump the crypto world caught telling a bitcoin conference he will fire the sec chair and replace him with someone who loves cryptocurrency if he is reelected. trump returning to butler, pennsylvania this wednesday a little over two weeks since an attempt on his life at a rally there. where did this come from? lisa: lots of money in the crypto world. i'm looking at people now supporting him. it includes elon musk. and you have venture capitalists . those are some of the people starting to back him as he talks about tech prowess.

jonathan: is he implying people who look like models often do not have brains? controversial stuff. that is my take away. i can move on. let's get to political tensions in venezuela. president maduro claims in electoral victory. the opposition party members are disputing his win, san they have accessed 40% of the tabulated votes showing gonzalez winning 70% of the most shofar. so a dictator says he has won election. now comes the challenge. lisa: especially when secretary of state tony blinken said there are concerns that the results do not reflect the will of the venezuelan people. the international community is watching and will respond accordingly. the u.s. has been more friendly toward venezuela recently than

they have in the past in part because of oil and gas, so it is interesting at this moment when elections matter and are reshaping the diplomatic venues. jonathan: let's turn to the earnings. big week coming up with four of the seven reporting. microsoft kicking things off tomorrow and now bloomberg supporting this about apple. apple's upcoming ai upgrades will be delayed. ed ludlow joins us for more. i think we have to start with the apple story. are we saying a new phone comes out in september but it lacks the goodies? >> the big run up in apple's shares was on the hopes that we's's will finally get apple offering for generative ai. what was reported is basically chronology, so in september you will get the new generation

iphone and when they announce that they said that is when we will give it to you with the new generation launch of that phone. what markets are reporting is they will stagger it. they will say you will get the new iphone and the new ios and then several weeks after that -- it is a delay of weeks -- we will make this available through an update. jonathan: why do i want a 16? ed: you have to decide how much in any given upgrade cycle you care about incremental improvement in speed and processing power. and camera. that is the main point. we are waiting on the software this time around and if you are an investor that is nervous about ai you have to wait a few weeks longer than expected. lisa: not to be skeptical, but is and -- isn't part of the

whole upgrade -- how much of people buying the new iphone is because it looks cool and you can show the gadgets and different types of attributes to her friends? how much can ai really add on that front at this point given where it is? ed: it puts into question how much faith you put into third-party data. with apple reports for earnings are usually the opposite of what data has proved true. the first quarter of the year, there is evidence that the chinese consumer was satisfied the i-15 generation and the shipment data. it would indicate that they have bought in and that will be it for some time. he would not come back and buy annually a new generation of iphone. the other point of difference is apple intelligence will be available from the 15 hardware generation anyway, meaning you do not have to absolutely buy

the 16 to get to it. your existing headset is fine. it is all strategy from apple and most people would say they are satisfied. a lot of people in the consumer use case -- microsoft has been good for a long time even before i was born at giving -- selling software that you could otherwise get for free. that is where we are now in how humans use generative ai. i like using it, but i am not willing to spend. lisa: you mentioned microsoft. we will hear from apple this week. we are going to hear from amazon. we have been asking this all morning. how high is the bar at this point given how punished alphabet was? for simile investing more than people expected? ed: the story this week is

simple month that no one is yet able to say clearly for every dollar you have put in how many dollars come out and they all have a different way of putting it. last quarter, microsoft said they had had $.31 of growth in cloud and 7% of the growth came from ai sales. for the market, they basically say we expect you to invest but we reserve the right to be disappointed. if you cannot give us something we understand. that was the story of google last week. they said they had made billions of dollars from generative ai, another way of saying we made money basically for the business of cloud that does both those things but we are not want to quantify for you how much came from the generative ai side while infrastructure came in higher than expected. lisa: if you could have any of the earnings now, which would it

be? ed: alphabet taught us everything about everything. the street went, we thought this was about ai and you are telling us the thing you have always done is most a portent. that makes amazon interesting. aws has a revenue run rate of billions but increasingly advertising is important for them and we get a gauge on the consumer. you probably do not get that with microsoft. microsoft sells software. they are good at it. you do not learn much from it as you might from amazon. jonathan: looking forward to covering stories with you. equity futures now positive by about 0.5% with an update on stories elsewhere here is dani burger. dani: mcdonald's shares up slightly in the premarket.

sales declined for them for the first time since 2020. each of their geographic footprint saw sales declined for an overall drop of 1%. the estimate was for 8.8% growth. the comfy ceos said consumers were being more discriminating with their spend. mcdonald's and competitors are offering discounts to lure customers back in. their latest is a five dollar meal deal launch last month. and a lot of land purchased in beijing to expand electric car production. the move follows the early success of a debut sedan. they have already delivered 30,000 vehicle so far. the company is on track to reach its initial goal of 100,000 goal -- cars by november. it is aiming to bring in suv's to market as early as next year. disney's "deadpool and wolverine" has shattered

records. it scored the best ever opening for an r-rated film with more than twice the ticket sales of 2019's joker. the latest entry in the marvel cinematic universe continues after pixar -- continues disney's hot streak after pixar's june release. jonathan: next, too little too late. >> i think the fed should have been cutting earlier this year. they have achieved their objectives. the markets feeling a little squishy. why take a chance? mission accomplished. jonathan: get a move on. we have heard that over the last couple weeks. they are not going to get a move on. that debate is next. you are watching bloomberg surveillance. ♪

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jonathan: equities right now on the s&p positive by 0.4%. yields lower by three basis points. under surveillance this morning, too little, too late. >> i think the fed should have begun earlier this year. they have achieved their objectives. you're going to wait for something to go wrong before you start cutting rates? is into that -- isn't that too late? jonathan: the fed expected to set the stage for a september rate hike -- rate cut when it meets this week but some market participants are wondering if the central bank is behind the curve.

we have moody's saying get a move on. we have others saying get a move on. what is the excuse to wait? >> i do not think there is a strong sense of urgency for the fed to cut but we are seeing loosening in the labor market in addition to the earnings you have been citing this morning. you have the philadelphia fed credit card data that shows consumer to link one sees on credit cards at a 12 year high, so the consumers is feeling the pain. the fed has been communicating this pending rate cut for a long time. inflation has been moving in the right direction since april so we see the case for a rate cut in the july commentary. the question is what is the depth of the rate cutting cycle? how much relief does that give consumers and corporate

borrowers? and the drivers behind this rate cutting cycle are important. are they cutting urgently in response to deterioration in the labor market or just normalizing monetary policy? jonathan: where would you look in credit to discount these issues on the horizon? credit spreads are tight. they said there is nothing to see here. is that right? amanda: there are pockets of vulnerability. spreads well below the post financial crisis average, but in addition to the well telegraphed themes many talk about, there is one point that is important and explains resilience in credit spreads, that companies are staying private longer. they are staying in that private lending ecosystem longer so when they get to the high-yield market they are more diversified

companies and that is a defining feature of the cycle. triple c's are showing this. they have not kept pace with the overall rally and there is bifurcation. some trade at 700 and some we refer to as almost broke in capital structures. lisa: you said companies are staying private longer. are you going to see distress in a more pronounced way first in the private credit sphere before disruption in the public markets? amanda: the important offset is the underwriting process in the private market is different than the liquid markets. these are exposures held on a few balance sheets. they are held for the maturity of the loan. i think it will be difficult for new entrants that do not have incumbent business models, so i do not think this is a rising

tide lifts all boats. is the growth backdrop supportive? our view is you need either trend or above trend growth as a prerequisite for the ongoing resilience we have seen, so that is what we are looking for. we are not expecting material near term interest relief. given that, you need a growth backdrop to keep profits and margins elevated and they are already getting squeezed. to circle back to the high-yield spread comment, it shows this cycle is unique because we often look to the 1990's and early to thousands and the credit markets are different. the best analogy you can make in terms of valuations in credit is mid 2021 where that was the local peak for spreads. yields were lower then, so the

yield based buying happening today is a strong tailwind for spreads and we are wider than those levels today and we did not have the yield support, so i think there is an opportunity cost for being materially underweight credit. lisa: are you saying you can see a rolling over in economic activity without credit spread widening because of the balance sheet situation? amanda: i think the case for a broad-based deterioration is difficult. our theme for the past few quarters has been dispersion but not widespread market disruption, so they most likely outcome is that you see these canary in the coal mines in certain issuers, certain sectors, parts of the high-yield market and private credit market, but broad deterioration is difficult because the cycle is unique. you have technical tailwinds

from supply, so not a lot of new money. yield based buying. a third viable option of funding and private credit and gdp growth. even if we slow from here, we are probably still at trend. jonathan: what i hear is spreads could remain tight for longer than you think because the yield opportunity is great now compared to where we have been. amanda: not exclusively for that reason but coupled with the fact that corporate under this period from a solid balance sheet position. you have this other viable funding in the private markets and technicals have been supportive in terms of supply. there has been a lot of supply in high-yield and leveraged loans but it has been skewed toward refinancing. corporate's are chipping away at early 2026 maturities. when you think about high-yield widening, you go to what is the catalyst. it is unlikely to be -- the

balance sheets are in such -- jonathan: we have put that story to bed? amanda: i do not know if it is to bed for every single corporate. there are some lower quality issuers struggling to get into a sustainable capital structure, but corporate's made great progress. lisa: looking at high-yield bonds, it is close to what it was in 2022. if the fed cuts rates, does that make financial conditions easier? does that lead to lower borrowing costs for companies or are we stuck here for a while, that spreads can compensate for decline in yields? amanda: if the fed cuts rates, it could bring cash.

corporate seven issuing irrespective of rate environment, so a 25 or 50 basis point cut this year, i do not think it is game changing for high-yield corporate's. the commentary from large banks with debt capital market syndicate operations has said activity in the first and second quarter was a pull forward from later this year, so i think the calculus for corporate's has been less about the rate environment and more about how to short my balance sheet and be proactive. jonathan: fantastic breakdown. it is good to see you. >> this has been the reason people have pointed to why they are not nervous that there will be big selloff. they say, look how tight the credit spreads are? maybe credit spreads are not going to respond as quickly. may specific credit spreads will route -- will respond but not

broad-based. jonathan: it is not the credit market of 20 years ago. lisa: it is not your grandmother's credit market. jonathan: is that hold your grandmother is? 15 years older than you? you aging people. how about that market? in the next hour, on bloomberg surveillance, james camp of eagle asset management. that is up next. this is bloomberg. ♪

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♪ >> the market is not oversold yet. we think this correction continues. >> we don't have a consistent message coming from the earnings season. that's what is causing some of this volatility. >> while there could be some

stumbling we are maintaining our overweight recommendation. >> there's likely a disconnect between the earnings expectations and what is happening in the economy. >> the fundamentals matter and i think the fundamentals support this rotation. announcer: this is "bloomberg serveillance" with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: live from new york city this morning, good morning. the third hour of bloomberg surveillance begins right now with a massive focus this week once again on the u.s. consumer. just some of the highlights from corporate america over the last few weeks. there is value seeking behavior among consumers. from pepsi, in the united states there is clearly a consumer more challenging. for mcdonald's, they will focus on reliable, everyday value because diners have become more discriminating. lisa: it's coming from every sector. the airlines, the goal is cutting prices, being competitive even with china which they said had a 30% pricing advantage over them.

cost advantage, i should say. at what point is this just a tempering of the massive run-up in new prices and pricing power we've seen from new companies vs. the real beginning of a softening cycle by the consumer? jonathan: which is why mohamed el-erian says cut interest rates. it is why we say why take the risk this week? it is why the former fed president says get a move on. you separate those calls and you look at the jobless claims and where the labor market still is and you ask yourself is there a rush? lisa: especially in a time you are not necessarily seeing broad-based layoffs in response to shrinking profit margins that we were talking about. it's unclear because do you really want to wait until something breaks? do you want to wait until we see the pain at which point it is going to be too late? this what i very much want to hear from the fed this week.

how much are they trying to loosen the pressure for the consumers who are actually selling some real strains and will be affected by lower borrowing costs on the front-end most directly, considering the companies have already locked in pricing and necessarily will it in same sort of manner? jonathan: which is why for this story specifically this week i'm not so much interested in the federal reserve decision, the boj, the bank of england. it's all important that there are other things more important. for this conversation exclusively, it is payrolls on friday. payrolls on friday is going to be the difference between the right kind of cuts and the wrong kind of interest rate cuts. if you're cutting interest rates , good stuff. if you're cutting interest rates because unemployment is getting away from you, that is the wrong kind of cut and that is going to be the difference going forward from here for the next several months. lisa: when you say the

difference, it would be determines whether rate cuts are going to spur a risk rally or whether it will spur a risk selloff. that is the distinction here. if you get rate cuts in response to weakness, that will signal there is a problem. these stocks and corporate bonds are going to do as well and people will sell. if it is to simply prolong the expansion, let's go back to the party. jonathan: too little too late for back to the party? -- or back to the party? up by 4/10 of one person on the s&p. down four basis points on the 10 year. rally continues. double-digit decline. just keep chipping away, shaving away at that yield across the curve. and announcement on supply later this week as well. lisa: people are expecting them to come out. today they will give an estimate of how much they are going to

borrow and on wednesday they will break down in terms of which denominations. you were talking about activists treasury issuance. if the treasury starts to issue more, how much does that prop up yields on the long end leading to a bear steepening? this idea that the long end is seeing a selloff in response to supply issues, not because of dramatic growth and front-end really getting a rally. jonathan: marvin lo earlier saying the same thing. a5 handle again on a 10 year. lisa: that is pretty bold. can you imagine what stocks would really do? lisa: tell me where the economy is and i will tell you what stocks would do. coming up this hour, why he says the great rotation will continue.

consumers start to pull back. and zach griffiths on whether the market is pricing in a dovish hold. we begin with a big issue. the cost of correction. a rotation at a big tech dragging the nasdaq down. kevin gordon of charles schwab saying that rotation continuing, saying the normalization process will continue to pull up the laggards but it won't be smooth. much of this is starting to take place given the recent snapback in small caps. small caps are really just doing what they were supposed to do more than a year ago. please to welcome kevin to the program right now. your framework for thinking about things at the moment, rolling recession, rolling recovery. is that still how you view things? >> for the most part it has kept up with the economy this year. it has been a more choppy process for the recovery part. when you think about areas of the economy that went through their own recessions in the

2022-2023 period, those have now started to enter recovery but it has been choppy. of course, the consumer has been under some pressure and now you are starting to see it more for services. more meat on the phones as to how much the services it, or if you can get that nice roll through on the manufacturing side and it is just softening and services, you keep everything afloat. to the normalization part, i think an air view you still have the laggards that were cyclical in nature, smaller in nature, that really struggled as the cyclical parts of the economy struggled. now they probably have more runway to at least normalize or catch up. jonathan: surprising for us all with the airlines. we came into this quarter, we all went to the airport.

what do you make of all the commentary referred from the industry? kevin: it's tough because now you are at a point things have started to soften. not only on the demand side, but more aggregate income growth cooling as well. and it is not this armageddon scenario where you have to start comparing to prior recessions, which in gdp terms or labor terms was not that cataclysmic, but i do think that some of the discretionary spending and the choices that consumers are starting to make and being a little more selective and decisive on where they put their money, that has become a bigger part of the story. but we also have to keep in mind in many ways, we've been calling the year a tale of two markets. there's also been a tale of two economies especially on the consumer side. you look at inflation for nondiscretionary vs. discretionary.

if you look at the discretionary items, it's basically flat. because you are starting to see that income growth slow and consumers are having a harder time especially down the income spectrum on deciding where they are going to put their money, even if they are still fully employed, it is a choice they are making. lisa: if we look at traditional metrics we are actually in a recession. kevin: the unemployment rate itself, one of the psychos who could look back to, what is interesting to me in one of the most fascinating recessions to study is the one from 1973-1975. for the first nine months, payroll growth was actually positive. it was decelerating, but you were still adding jobs even at the unemployment rate and up to the mid-5%. you didn't start to get that waterfall until the very end of the recession. it speaks to the fact that we have seen a move up in the unemployment rate.

it has been more driven by expanding labor supply, although that is typically what happens even in a recession. but if you are going into one that is more traditional in nature, you are by definition already in it. the peak is when it goes back to the start of the recession. i don't think it needs to be this bombastic going into an epic recession. you had some that are more mild in nature, some that are more severe. the sample size is just not that large. lisa: i like katie tried to talk down the analogy because a lot of people will start extrapolating out stagflation and hyperinflation and all how do we get out of it? at this point is the bigger risk the deceleration on the labor market or a stickiness of inflation that creates a sort of something that rhymes with 1970's? kevin: the risk, and rightfully so, and the fed has been pointing to this, is probably

that the labor market is becoming more of the issue, that they want to be able to at least get ahead of even if it is a couple of rate cuts. i think they are trying to signal us in that way. this is the part where you try to suss out what is the actual inflation rate that they become more comfortable with? powell has said they are not going to wait to get to 2% year-over-year until it is mission accomplished, but the labor market becomes more of a dominant piece of the puzzle let this point and it is a very different scenario. even just six months ago when you had all of these inflation metrics, they were showing we were at 2%. but the labor market was still relatively tight. now you are at a point where the labor market is not as tight. jonathan: the destination we are going toward, i'm thinking of lower interest rates, lower growth and higher unemployment rate. it doesn't scream cyclical, small caps and banks.

kevin:kevin: we think that this rotation, if you want to call it the great rotation or the great reaction, i think it has room, but probably more for the profitable and high-quality parts of the market. when you look at the initial thrust, it was kind of an everything rally like most of 2000. now, even if you go into the past year and use just one criterion of profitability, whether companies have profits or not, the profitable group is up by almost 20%. so you seen on the part of the market, more selective miss when it comes to that index. i think that will probably continue. but i think it is more of a normalization because we have to keep in mind the russell 2000 is still not back in the november 2021 hide if this with the case where we were just ripping from those highs and you were at the same stage or a similar state of the s&p 500, it would be a little more worrisome.

right now it seems a little more reactionary. staring down the barrel of a labor market still softening doesn't make a whole lot of sense to me as to why small caps would automatically rip the baton from large caps. jonathan: this line in your note was music to bramo's ears. life is simpler when you keep politics out of investing. lisa: i love that line. i really relate to it. i think you are basically like please do not ask me about it because i don't know the answer. jonathan: you are in good company. thank you, sir. the to give you an update on stories elsewhere this morning with your bloomberg brief. look across to dani burger. dani: israel attacked hezbollah targets on sunday and threatened further retaliation for a rocket strike that killed 12 children. they also signaled openness to a truce with lebanon. prime minister nine yahoo! return early from a u.s. visit where he was seeking to drum up support. his office so the prime minister

held back-to-back consultations with military chiefs and basic early cabinet. president biden will call for term limits and ethics rules for supreme court justices later today as part of a sweeping proposal which also calls for constitutional amendments to ensure that former presidents can be tried for crimes committed while in office. democrats have increasingly called for reforms amid recent controversy, however passing the plan faces a difficult path requiring support from the gop-controlled house. and it was an eventful opening weekend at the paris olympics. simone biles and suni lee stole the show for u.s. gymnastics, both qualifying for the all-around final. kevin durant power usa basketball to win over serbia and the u.s. securities first goal with the men's freestyle relay. the u.s. is leading the overall account with 12, three of them gold. china has five gold medals and nine overall. jonathan: my olympic medals population table adjusted.

australia always punching above its weight. lisa: especially in swimming. incredible. jonathan: when you go on vacation, notice who is up first. it is always the australians. they've already done a hike by the time you set down. lisa: i feel like we are going to get in trouble for this. jonathan: that is a real thing. do not deny me my real life experience. it is my lived experience of my vacations. australians are up early, they are fit. that is what i see all the time. lisa: congratulations. jonathan: the olympic table back that up. consumers pull back on post-pandemic revenge spending. that conversation up next. from new york, this is bloomberg. ♪

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australia for good reason. positive by 0.1% on the s&p 500. first up, morgan stanley naming tesla as its new top pick within the u.s. auto sector. maintaining an overweight rating, citing cost cuts and restructuring that have had to restrict the downside to tesla's ev business. that stock is up by 1.7%. your next call coming from city, rising upside of second-quarter earnings and a modestly raised outlook encouraging signs of relative stability. stockist a lower by 0.7%. a price target of 109. analysts saying softness in a

multi-price point strategy. thank you very much for being with us at a time when the consumer is very much front and center in our minds. we are trying to work out how different companies are gauging where this consumer is at the moment. mcdonald says maybe this consumer is slowing down. a similar story from nestle, pepsi. in the companies that fall under your coverage, what do you see? >> we are also seeing a slowdown in spending. what is a little funny in my coverage, i cover a lot of the box retailers, a lot of these retailers have been seeing a slowdown pending for the past two years. i think we are talking about it more now because you are seeing weaker spending in the services side. spending on goods has been softer the last two years, especially discretionary goods. bigger ticket discretionary items. now that we are seeing a softness in the services side,

we are talking about the softening of the consumer a little bit more. consumers are trading down, opting for cheaper brands, even opting out of certain categories. just being very discerning in their spending. but like i said that has kind of been the trend for the last year or two now for at least the big-box retailers. jonathan: it certainly reminds me of the difficulty of the likes of target had in the last few years. amazon, walmart, costco. when i hear trade down, i think walmart. is that the winner in all of this? >> walmart has been the top pick for the last year, year and a half now. not just in grocery which is what they are predominantly known for, but also in the general merchandise categories. you don't really think of walmart as being a general merchandise retailer but they are really growing out that business and predominantly

because of their e-commerce platform growing pretty significantly. they've introduced a walmart plus subscription program. these are all high-margin distances for walmart and on top of that walmart is also growing out there advertising this, something we don't really talk about a lot with retailers. the advertising arm for many of these big-box retailers are growing attractively and that is a much higher margin business than selling core goods. that is why i think the stocks for a lot of these are up and i think a lot of it has to do with the fact that sales is changing and if they are not just in known for being a goods retailer, they are selling advertising. it is health care, financial services. these are much higher market businesses than goods. lisa: it is sort of a question of how do you get a view of the true consumer? maybe walmart isn't the cleanest read because of these other types of businesses. certainly amazon isn't. with dollar tree, is what is good for dollar tree data for

the rest of the economy? when those types of companies do well, it signals real weakness for the rest of the consumer spending space. >> these dollar stores, dollar general, dollar tree, they have been struggling more than other retailers over the last year. why? they are more exposed to that lower income household. which as you know is a little more exposed to the effects of higher inflation, higher interest rates. it is the middle retailers were doing much better. i wouldn't say that dollar stores are doing well either. they've been struggling in this environment. it is walmart that is really gaining marketshare at the expense of these dollar stores. but our expectation is these dollar stores will start to recover in the second half of the year. with dollar tree specifically, before they were introducing this multi-price point strategy in their stores and introducing

new price points. i want to make it clear it is not because they want to raise prices, they just want to introduce new assortment in their stores. for dollar tree, 80% of their goods are going to be at that entry-level price point. 20% are going to be at these higher price points. that is a way to attract more consumers into their doors and early signs are showing that it is a success right now. the stores were they have these multi-price point products, the consumer basket size is two times larger, so people are putting more items into the basket when the stores have these multi-price point products, which is great because right now we are in an environment where basket size has been shrinking. but for dollar tree it seems like with the stores they have, people are putting more items into the basket. lisa: i've been waiting for them to read bank -- rebrand as five dollar tree but evidently that is not happening. when you talk about walmart on

advertising and some of the online spending, how much are they winning market share not just from other retailers, but from amazon? the one that kind of coined the whole online marketplace? >> amazon is the big gorilla in the room especially in the e-commerce space. now other retailers are trying to catch up. walmart a few years ago introduced walmart plus, there subscription program intended to compete against amazon climb. -- amazon prime. walmart doesn't necessarily release membership statistics, but we do see that subscription-based growing. even target is a little late to the race, but just a few months ago, target introduced their own membership program called target circle 360. memberships are believed way to drive consumer loyalty at traffic into their stores and a way to grow margins and invest in your business.

you are going to see more retailers try to offer these membership programs. the problem is how many memberships cases -- consumer subscribe for? i think the retailers that will be winners are the ones that have a very wide assortment of products. the amazons of the world, walmart. cosco is also a subscription program given the warehouse model. target is also going to be a winner of the subscription program and like i said before, these programs are also a way to grow your e-commerce business which will also help you grow your advertising business. right now advertising is where the markets really live. these retailers are really leaning into the advertising to try to help grow profits. jonathan: just an amazing turnaround. appreciate the update. just kind of frame it at the end, how much of a challenge these companies have become to the likes of amazon. i know we've said this before, but the advertisement business

becoming a bigger and bigger part of these companies. >> walmart has really been ramping up its online presence in a much more significant way. i love how some of these consumer facing companies are anything but. airlines are actually credit card companies. walmart is actually an advertiser. it's not really good just to be consumer facing. jonathan: things have changed a lot. equity futures right now positive by half of 1%. one hour from the opening ballot, the list continues. we will catch up with james camp and zachary griffiths, just after the commercial break.

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♪ jonathan: if you missed friday and went to the beach early, good for you. i will repeat it again. the mag seven down 12% from its peak 2.5 weeks ago. the russell 2000 outperformed it by around 25%. that just kind of frames have vicious this rotation has been over the last few weeks. lisa: some people say it is because we are dealing with how underpriced some of the small

caps have been vs a statement on this incredible growth way. other people say this is the beginning of a really good time when the fed is going to be cutting rates. jonathan: it continues this morning by 8/10 of 1% on the russell. the small caps continue to rally. large-cap tech is all right as well. a massive week for big cap tech. some big earnings tomorrow, microsoft wednesday. amazon and apple on thursday. we drop another single basis point this morning. it is the data through the week including payrolls on friday. lisa: you nailed it. the good or the bad kind of rate cut because at this point, we seem to be having this you can have your cake and eat it too kind of moment. the economy is softening, you

are ending up with a fed that is cutting rates proactively, what could potentially gut check it, a labor market that comes in weaker than expected or the idea that issuance pushes up yields at the long end, you get some sort of disruption the challenges something cold like that we've been hearing. jonathan:jonathan: and you got to grapple with the politics as well which is just as messy. terry haynes of pangaea came on earlier and he said basically that it quite simple. he think that harris wins and you have a slick congress and you can move on with life. i'm not sure things are ever that simple. lisa:lisa: what does that mean from a policy perspective? it is almost easier to talk about this is saying this and this is doing this. what does that mean for markets? kevin gordon said the best thing you can do is just keep politics out of it. jonathan: everyone is calling at the honeymoon period. i think we are going to call it the relief rally of the democratic ticket.

the stock is rallying because the former ceo dropped out. no need to see what is your plan after you had that initial bump? lisa: how moderate with a person be and which states will they be catering to to reshape? are we talking about a blue wave, these sort of rust belt states, or are we looking beyond that to other places? what happened to andy beshear? i don't know how the bachelor works. maybe it is a wildcard. while around. i don't know. jonathan: you've been watching it, haven't you? i just know the roses bit. lisa: i know the roses but i don't know how it is selected. jonathan: there's a wildcard round? stop making stuff up, we are on tv. what are you doing? up by a 10th of 1%, the bank of japan on wednesday. this came from jp morgan.

looking for a big cut in bond buying as well. the key issue to watch may be the terminal rate and the timeframe for it. it will be a test of whether the boj will make policy decisions based on its assessment of the economy and inflation in a forward-looking manner or will refrain from policy changes unless responding to immediate market pressure. what kind of boj have we got? >> people are wondering how much they are going to cater to the yen. really the key is going to be the balance sheet could potentially be the most important over there because essentially they could stop buying so many bonds, but keep rates where they are. that might be sufficient for markets. i think from a market perspective the bank of japan might be more consequential than the fed. jonathan: possibly, given that they actually might change something this week. lisa: well put. jonathan: we've got dollar-yen

down to about 153.93. last week that currency down by 2.36%. that is the biggest week of the yen strength that we had going back to may of this year. under surveillance this morning, our top story for you, one of the presented democratic nominees. governor harris raising $200 million in her first week as a candidate. this is a new poll showed harris' favorability raising to 43% since president joe biden's decision to drop out a week ago and let's talk about some of the names. governor shapiro pennsylvania. senator kelly of arizona. and then governor wells seemed to come from nowhere as a top three over the weekend. lisa: from minnesota, a statement donald trump is going after. i am curious what the goal is one of these potential candidates to bring. is it a more moderate voice? the location they are in? to bring in certain states on

the fence? i'm curious how it is framed in terms of a ticket that is a policy prescription in some capacity because people still don't have their head around exactly what a harris presidency would look like and whether it would be different from a joe biden presidency. jonathan: when we were talking about the prospect of five and still running we were talking only about the rust belt. then we have this conversation with juliet which talked about how we have opened up the sunbelt again and we can start having real conversations about places like arizona. i guess we will see. feels like governor shapiro is still right up there at the leading candidate who knows, --, but who knows? lisa: i'm curious where the emphasis goes on that as well. whether it is simply a swing state or something more in terms of policy. jonathan: we had some news overnight on the apple front. the upcoming ai features are now

expected to be rolled out later than anticipated, which is all a little bit odd. we got these ai features you now have to wait for the software update later this year, but you will get the hardware update before all of that with the iphone launches in september. is that the right chronological order? lisa: it is not that big of a stylistic increase. it was supposed to come from the software update which would include some of this ai technology. there was one bellwether that we were watching, which was whether one jonathan ferro would actually upgrade his phone and by intuit. -- buy into it. jonathan: big data point. lisa: sounds like there is some skepticism on the jon ferro schedule. jonathan: i don't think i will be upgraded in september. but then when you get the phone just wait and get updated month later or something like that? lisa: you will actually get the upgrades, but what are the upgrades? what will ai provide that you are not getting currently in

other ways that we don't even realize we are having certain ai-infused programming? i don't know exactly how well they can be a personalized thing. jonathan: is that what they are touting? apple is down by 1/10 of 1%. big week of central bank decisions coming right over the fed, very much in focus. fomc widely expected to keep rates on hold that stage for a september rate cut. joining us is james camp of eagle asset management alongside zachary griffiths. great to catch up with you both. zach, give us a read on what you are expecting this wednesday and how we can set us up for september. zach: we are looking for the fed to make adjustments to its policy statement, to indicate more of a concern in terms of the labor market or at least dial back their strength in the labor market and continued to emphasize progress on inflation front. we expect chairman powell to indicate a willingness to cut in

september. we don't think you will be very explicit, but keep options open, keep that data-dependent mantra. we think the data supports a cut in september. jonathan: of course we are all much more interested in the 100 basis points after that. what is the destination you think the fed is heading toward, and what kind of economic regime to you think we are in? >> good to be with you. we are in inflation regime. we have a new economy, and that new economy has more start inflation. we've written about pricing power, entire labor market. i think the fed does cut in september. this is the clearest data they are going to have. but the basic facts are going to come back -- the base effects are going to come back in the fourth quarter. i consider this the fed getting back to more normal funds. but i wouldn't extrapolate this

september meeting which is likely to be maybe even 50 basis points into a protracted policy adjustment over the next couple of quarters. this is a late 2025 kind of phenomenon where we will see what the terminal rate will actually be. lisa: did you just say there is a real possibility that the fed will cut by 50 basis points in september? >> i do think that is the case because i think this is going to be the clearest data they will have two given the inflation copper and i think they wanted to move the last couple of hikes off the table, so i think this is a window. this is a little bit of spit bowling with the inflation data but we know if we look at the data, it's not going to get easier to make the inflation case in the back half of 2024. lisa: so basically they have an opening, so let's go. what do you make of that? is that a feasible positively the fed is going to cut by half of 1%? >> i think that would perhaps

spook the market a little bit in terms of that big of an adjustment when just a couple weeks ago, policymakers were saying they need to see a lot more data in terms of being confident or sustainably moving back to 2%. i would almost think about is having the same input. perhaps there is more to be concerned about. we do think the fed is going to be easing at a steady clip, really trying to bring that policy rates back toward something that looks at least a little bit more neutral. we think we are coming from a pretty restrictive rate now which is not of the economy needs. we are seeing signs of slowing. we expect that to be a bigger market driver in the second half of the year. jonathan: to be super clear, are you making a growth call here? >> that was a call on growth coming down, moving back toward below potential. what you are going to see over the next 12 months, we had extremely strong growth and still had inflation coming down

just a bit. with inflation where it is, we are already seeing signs that the economy is cooling. we think that continues and starts to have a bigger impact from a fundamental perspective on what credit spreads do from here, which is why we are in a bit more of a defensive camp than we have been for much of the past two years. jonathan: you set us up with the market conversation, let's go there. where is the 10 year, what level credit spreads are you looking for into the growth slowdown that you're expecting is going to trigger quite the easing from the federal reserve? >> we are looking for the 10 year to go back to three and one quarter, a pretty big move lower from where we are today. investment-grade credit spreads going to wonder 20 basis points. now i terribly huge move in terms of spread widening as we think the technical, the cash on the sideline wants to be put to work.

we are expecting the fundamental concern to be driven by a more notable economic slowdown then was currently priced into consensus expectations at this point. lisa: both of you kind of highlighter to sign that the debate right now and i think is a wonderful thing to have james, you think the fed is going to cut the right reasons. james, what makes you think that this is going to be a good kind of rate cut in the sense that it is simply to adjust policy midcycle, to allow growth to continue? >> i think there's two financial conditions we have to look at. they companies are extremely loose. this is the bottom 80% of our income strategy, credit card debt is high. credit card payments are high. the federal reserve policy has directly impacted as downmarket consumers. equities at all-time highs.

credit spreads are very tight. we had a very bifurcated economy and i think the federal reserve have to be mindful of the fact that housing affordability is that year lows. -- is at 40 year lows. i think this is more an opportunity, a window for kind of get closer to where the policies should be, but i will tell you that the inflation data is not going to be constructive in the back half and they are not going to have this wide-open field to begin a real significant easing cycle. lisa: do you agree with zach that it means probably wider credit spreads and you could end up seeing? basically, potentially a reversal of the small caps and the sort of reversal of this belief in a cyclical trend, do you think we are going to see that kind of a response or do you think that people are going to welcome some sort of adjustment by the fed and

allowing that to right size itself, allowing the cycle to continue? >> i don't think corporate spreads are bound much wider from here. there's a lot of demand. we know that at peak fed, the municipal credit, the bonds outperform every time. go back to 1989, you have five fed tightening cycles. that rotation that began july 11 with a more benign inflation data, what we have now is a very generous income market for investors and we also have a market that will be underproductive for cash. cash yields today will not be cash returns over the next 12 months. the income space looks extremely generous both on the dividend and on the debt side. jonathan: what is your response?

zach: the huge differentiator here is are you total return or access return focused investor? if you are focused on the access return and that credit spread component, it is a little more difficult. overall we do think it is a positive environment for fixed income, but you need to keep an eye out for that. jonathan: this was great. zach, james, thank you very much. looking ahead to a massive week with the federal reserve and all that data coming right up. lisa: you know what we didn't get to? the quarterly refunding announcement. and you know who is going to talk about that? zach ricketts. -- zach griffiths. jonathan: is he still there? have we let him go? we can do this in real time. lisa: all right, we can let him go. jonathan: he is their right now,

i got him back in. lisa: quickly before we let you go and we brought you back on just for this, how important is the quarterly refunding announcement? >> we think it is important but we are not expecting any major changes this week. i would be focused on what happens this afternoon with the quarterly borrowing estimates. i think that is more likely to surprise the market than what we hear wednesday morning, but that is going to be huge. there is a lot of focus on it now, something i've focused on for many years. overall, no change. not expecting that to outweigh the shift in monetary policy and the economic landscape which pulls yields lower. jonathan: what that was anti-climactic. thank for jumping back. going to go now, ok? let's get you an update on stories elsewhere. dani burger: a check on mcdonald's shares, up more than 1%. sales declined for the first time since 2020 from international to u.s. locations. each of their geographic footprint saw a sales declined

for an overall drop of 1%. the company ceo said consumers were being more discriminating with their spending. mcdonald's and its competitors are now offering discounts. mcdonald's latest is a five dollars meal deal that launched last month. and another attack has occurred on france infrastructure during the olympic games. this time, a number of fiber-optic cables were cut overnight. the cables carry broadband services across the southern regions. the connections into paris, and thus the olympics, were not affected. friday, coordinated fires had disrupted french trains out of the opening ceremony. and disney's deadpool and wolverine shattered box office records, bringing in a $205 million. the superhero film scoring the best ever opening for an r-rated film with more than twice the ticket sales of 2019's "joker." the latest entry in the

ever-expanding marvel cinematic universe continues disney's hot streak the summer after inside-out 2 grossed almost $1.5 billion since its june release. jonathan: thanks for this morning. up next we will set you up for a big week ahead from new york. you are watching tv. -- you are watching bloomberg tv. ♪

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♪ jonathan: the opening bell for the first trading day of the week about 40 minutes away. equity futures going into that positive by 0.5% on the s&p 500. a long week, a busy one. yields lower by three or four basis points. in foreign-exchange exchange, the dollar showing if it of strength against a weaker euro.

0.4%. in a lot of focus will be on the dollar-yen. the dollar-yen having four consecutive reach -- weeks of strength. positive this morning by 1/10 of 1%. the trading week looks like this. this is the lineup. tuesday, jobs and consumer confidence data. a decision on both the boj and the federal reserve followed by a german pal news conference. thursday, another round of jobless claims plus a bank rate decision. friday, u.s. payrolls report tons of earnings in between. results coming from microsoft, meta apple and amazon and just for lisa, the quarterly treasury refunding also coming up on wednesday. mike mckee dropped by to give us his thoughts on the week ahead. all that data, just where is this economy right now going into the fed decision on wednesday? >> the economy is in pretty good

shape, it is slowing down and it hasn't crashed. inflation is coming down according to all the latest data and fed officials say that people are still relatively optimistic. we are probably set up for the fed to hint at a rate increase -- rate decrease ahead. i was thinking it is like one of those gender reveal parties were maybe we give jay powell a piñata and instead of boy or girl, it comes out as september or november and we see which one they are actually going to do. jonathan: are you going to get that the chairman pal? >> the ratings would go up. a lot of people would watch. jonathan: i lisa: imagine they would. lisa:between the bachelorette that is going on with vice president, gender reveal for the federal reserve, what kind of country are we coming to? jonathan: i would have payrolls on a wednesday and the fed decision on friday. >> but that is a problem for the

fed because they don't know what is going to happen. if we do get a 1/10 percent rise in unemployment that should trigger the rule and while the fed is not particularly worried about it, it will obviously worry the markets. are they going to be able to cut, we will adjust on wednesday. and then friday they behold story. lisa: that is not going to happen until jackson hole. wednesday is going to basically be them saying we are data-dependent and any data point could be live and could tip us over the edge. is that not what we are going to hear? >> they pretty much have to give some sentiment about september because the market is all focused on it. why do you wait until jackson hole, you don't need to. if they think that rates should go down now, you can say you are going to cut rates in september or hint strongly added and then rates are going to go down because people are going to

start pressing it in. you've got a lot of people saying now the fed needs to cut right now. lisa: they should ask christine lagarde to pre-commit to a cut. >> that is why they would dance around. they won't say september. lisa: there is this issue of some of the sleeper data points. ism manufacturing. what are you watching in terms of some of those tertiary indicators that could be as telling or market moving as some of these other, bigger data points? >> we are watching eci on wednesday to give the fed follows that in terms of pay and compensation. it will look at the sub indexes, and jobless claims.

everybody wants to know what is happening with the labor market, so that will be interesting to see. jonathan: just short of 180 of the median estimate. the 100 70's. that changes as we get more estimates coming through. appreciated, sir. the latest massive week ahead. lisa: that might end up with a gender reveal that says september or december. it is a massive week and we have really broken down the idea of economy we got decisions from central banks and we have earnings. everyone has been seeing earnings are so front and center. jonathan: light on politics, how relieved are you? lisa: very. anne-marie is not even here. jonathan: even anne-marie is taking the week off. lisa: it will insert itself somehow. jonathan: have a wonderful week,

a busy week ahead of us all. thank you very much for choosing bloomberg tv. this was "bloomberg serveillance." ♪

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>> 30 minutes until the start of the cash trade. i'm matt miller. >> bloomberg open interest starts right now. >> coming up, a trio of central bank meetings this week with decisions from the boj, the fed and the bank of england. matt: we also get earnings from a quartet