>> we have been calling this year a tale of two markets. it has also been a tale of two economies, especially on the consumer side. >> we are seeing signs that the economy is cooling. if that continues it has a bigger impact from a fundamental perspective. >> i think this is going to be the best earnings season in 2.5 years. earnings are going to be healthily double digit. >> the story around earnings, around u.s. exceptionalism because of these countries, is

still retained in my mind. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: coming into tuesday on a two-day winning streak on the s&p 500 on the people of the july federal reserve decision. price action looks like this. equity futures on the s&p 500 are firmer by 1/10 of 1%. similar on the russell and the nasdaq. the nasdaq in the upper century this market. later as we kick off the mag seven earnings season for the week. microsoft today, tomorrow meta, thursday apple, amazon. this is what bank of america has to say about this. the last 12 months will tell me. today is show me. lisa: that is why when 13% of the market cap reporting today alone is why people are focused on whether there actually is the

profitability in artificial intelligence that everyone thought there would be. patience has run out for the promise but not the dollars. that is the message we have been getting. jonathan: need to talk about the economic data as well. the first taste of jobs data this week. the calendar for the jobs data looks like this. jobs and job openings later this morning. then we go through the weekend we get adp tomorrow, claims on thursday, payrolls on friday. the earnings and data seems to be the focal points away from the federal reserve. most have assume they know what that will look like tomorrow afternoon. lisa: we are data dependent, keep looking at the data. so far, it has been a confusing picture in terms of whether it is weak or weakening. the weakening has won out.

this is what people have been talking about, to bring something forward in terms of a 50-basis point rate cut in september versus a bad rate cut that signifies a true weakness. even mcdonald's was able to shake off. when you look at how the market is responding to warnings from companies, it hasn't been with much drama. jonathan: if we get these cuts in september, are they about disinflation, growth, or both? that is something we will be asking guests through the morning. mcdonald's, pointing this out, series of quotes from corporate america over the past few weeks. mcdonald's, lower income consumers are dropping out of the market. nike, softer traffic in north american stores. we have had this repeatedly from a cross-section of industries over the past few weeks. lisa: morgan stanley will be coming up. "the olympic model reads faster, higher, stronger, together."

slower, lower, weaker, together, seems a more appropriate decision in 2024. that is what a lot of the earnings have been pointing to. slower, lower, weaker, together. jonathan: someone posted this on twitter. eurozone economy is like the water quality of percent. some days it may look oak ale, but most days it is poor enough to continuously worry about it. lisa: they canceled or postponed some of the events with respect to swimming in the seine because of water quality issues. that is very apropos. you look at growth of the euro region, we saw better than expected in the periphery. guess where that appointment came? jonathan: germany. negative growth. the euro just about positive. beneath the surface, some real division. the euro, 1.0833.

in the bond market, yields drifting lower on the 10-year from the previous three sessions. this morning unchanged. real yield 4.172 four. we will catch up with a cross market ahead of key mag7 earnings. michael shepard as expectations grow around a trump-harris debate. and aditya a bank of america. we began with the rotation taking a breather. going into microsoft earnings after the closing bell. "small caps typically outperform in the early stages of economic expansions. we caution against chasing these gains at such a late stage of the cycle even though cheap valuations may offer some cushion." bob, what fun to catch up with the u.s. always. the earnings later, microsoft kicks it off for the mag7 numbers. what are you looking for and how do you gauge what investors are willing to reward and what they seem like they want to punish over the last few weeks?

bob: i think that the bar is high for these companies, jonathan. they are going to have to make those numbers more likely exceed for the stocks to be ok. people are looking for excuses to trim these names. i own some of them. let me trim it. i think that is the general trend in these names. jonathan: looking for an even bigger rally in big tech. we believe this week and the rest of q2 earnings will be a major positive catalyst for the tech sector. we expect tech stocks to be up another 15% to 20% for the year adding to robust tech gains in the first half of 2024. what would deliver 15% to 20% upside for tech stocks? bob: therein lies the debate. we will have to have a further leg in ai. we will have to have exceeding earnings expectations, earnings estimates moving up to get

another 15% to 20%. people along these stocks. it isn't like they are undiscovered. to buy more of them we will need better news that is hard for me and you to anticipate. lisa: the flipside, how much more downside could there potentially be in the tech sector? bank of america says it's time to show monetization. since the first quarter, there is nine dollars suspended in capex revision for every one dollar in additional sales of hyper-scalars. we are not seeing it translate into profits directly. are you seeing that as a reason to sell some of the stocks on an ongoing basis, or do you think that has been behind the declines we have seen so far? bob: i think that is what is behind the declines. it doesn't mean there's not more of that to come. to repeat, people have good profits in these stocks. they see other stocks beginning to move. trim these to buy some of the others. i'm not convinced that rotation is over.

it means for sloppy market as we've seen this rotation in the months of july. the market has moved to sidewise as people are trying to figure that out. you use the word earlier, it is confusing. lisa: that's the story of the year and the past couple of years. you aren't convinced the rotation is over. the rotation has been curious because it has been marked by the companies the most leveraged to the economic cycle at a time we are talking about weakening. talking about cooling. talking about companies disappointing. talking about consumers that are priced-sensitive. how does that make sense? bob: it doesn't. i agree with your statements trying to square the circle. people have gotten very complacent in my view. the economy is fine, earnings will be good, the fed will get inflation down to 2. i will hold my nose and buy stocks at 22 times forward, 26 times trailing earnings. that is a hard road for me to

ride. jonathan: i think everyone wants it both ways. when inflation was up we were talking about wider and better margins because they have pricing power.doesn't the opposite apply here ? when you see disinflation an even more disinflation in our future, it just means a loss in pricing power. it goes back to your point, why buy cyclicals here? isn't that the headwind to that that? ok companies are waking up to the fact that they moved prices up and they are getting resistance. particularly in the mid income consumers. that is new, and that cannot be sustained without more weakening. what do they do? they say we have to cut costs somewhere. we won't hire workers, we will let a worker or two go, that is why you are getting sloppiness in the employment data. jonathan: give us an idea what you're gravitating towards. bob: the common factors of

earnings, persistence, earnings per addict, and strong cash flow. that is my defense against the kinds of things we are talking about. though stocks have done fine as the market has moved up, but i think that they will show their stuff more if we get into a selling squall or sloppy sidewise action. lisa: is there reason why you are focusing on stocks? or are you trying to avoid bonds ? the risk factor and the havens factor, depending on where you go? bob: only because that is the conversation. i would own some bonds here. the economy is slowing. second-quarter earnings have been fine. third and fourth quarter earnings revisions have been to the downside. the sloppiness is kicking in and when that happens you will want to own a bond or two. lisa: what kind? longer-term or medium-term is the sweet spot? or do you think now is the time to lock things in?

bob: i would own quality, meaning more treasuries than corporate standby yields. corporate high-yield spreads are pretty tight. as the economy weakens, the questions about how long that weakness lasts, probably because of these tight spreads to widen some, and therefore probably outperform. jonathan: appreciate the update. bob doll. a big week ahead full of economic data. i mentioned jobs numbers come out later this week, job openings later this morning. sneak they get our updated survey at bloomberg for payrolls on friday, the new median estimate is down to 1.75. the previous number was two point 06. unemployment is still expected to stick a 4.1%. citi is looking for employment to come up to 4.2%. they're looking for the rate of job growth to come all the way to 250. the line coming out from andrew and the team, the labor market

is on the edge of uncomfortable. that is the view from citi. lisa: others would agree. that is why it is not just bill dudley saying cut rates tomorrow. why wait? the former fed vice chair came out in the wall street journal op-ed yesterday echoing what we heard from bill dudley saying, why wait? i can make an argument for forward guidance wanting to be predictable, but look at the signs. jonathan: i have the headline from the journal piece. the fed should cut interest rates this week from bill dudley. the former vice chairman of the federal reserve in the mid-1990's. that is mohamed el-erian as well. not saying that they will cut rates this month, but asks the question, why wait? we have seen this repeatedly from quite a few big names. lisa: the flipside is the reason they would not cut. it is kind of ridiculous saying they should, they are not going

to. he basically acknowledged they will probably do it in september. they don't want to catch the market off guard. they have been saying we will telegraph what will happen. we want to make sure that the forward guidance is appropriate. is not going to alarm markets? suggest that there is something that the fed is saying that markets are not, especially given that the rhetoric so far has been pretty cautious and balanced? jonathan: if bill was the new york fed president and put out this piece the market would be spooked. could you imagine if he was still a fed official? lisa: i think he probably would not have written it. you can correct me. jonathan: i agree. what you can say when you are no longer a fed official is different than what you can say when you are a fed official. elsewhere, here is your bloomberg brief. dani: the area economy grew larger than expected in gdp. the brazilian expansion in key

countries allowed the region to shrug off germany's surprise contraction. gdp rose thanks to growth from france and spain that beat estimates. germany had a .1% drop. shares of bp are rising in the european session this morning about 1% after it second quarter earnings report here the british oil earnings giant posted above earnings estimates from pumping crude, offsetting weakness in other parts of the business bp maintained a piece of its share buybacks and increased its dividends. the men's triathlon has been postponed at the paris olympic games, much like the european economy. there was concern about quality. organizers have cited insufficient water levels in the seann river. you meant was originally scheduled to take place this morning and will now run it wednesday at 10:45 local time after the women's race. the weather forecast continues to point towards risks of rain and thunderstorms which could further delay the event. jonathan: we heard the italian commentary yesterday.

he said that the coffee at the press office was so bad in france that it had been made with water from the river siene. lisa: pause. you can speak to this. i'm not sure if it will be ok to say this, but it seems like people in a certain country have a little bit of animosity towards another country. jonathan: not at all. lisa: a sense of superiority. jonathan: there are clearly reasons to have a sense of superiority for italian coffee over french coffee. lisa: set that aside. jonathan: so we are all on the same page, returning to the debate stage. mr. trump: i'm leading big in all of the holes in the swing states. i say this. yes, i will probably end up debating. i think actually the debate should take place before the vote start being cast. jonathan: i'm saying that italy does a great job of making you feel wanted and the country. lisa: this is other than just

coffee? jonathan: i'm not saying in countries that is not the case. just in italy it is like, welcome, welcome. from beautiful new york, this is bloomberg. ♪

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jonathan: live from new york city, welcome to the program. two days of gains on the s&p

500. we may add to that. the bond market is going nowhere. under surveillance this morning, returning to the debate stage. mr. trump: i have had a lot of debates. i am leading in the polls by i think, a lot. i don't know, i hear different numbers. i am leading in the polls, i am leading big in the swing states, and i say this. yes, i will probably end up debating. i think actually the debate should take place before the votes start being cast. the answer is yes, but i can also make a case for not doing it. i would rather run against her then him. i think that she is easier than he is. jonathan: momentum towards the first possible debate between donald trump and kamala harris. the harris campaign moving forward with the search of a running mate. the shortlist governors josh shapiro and senator mark kelly. joining us is mike sheppard. we understand mr. roy cooper of

north carolina won't be in the race anymore. can you start there? who is in the running to become the vp? who has dropped out? what reason have we been offered? mike: this is moving fast and the campaign has had to assess up to a dozen possible contenders to be her number two on the ticket and they have had to do so quickly. three names based on all of our reporting in washington have risen to the top. arizona senator and former astronaut mark kelly. tim walz, the governor of minnesota. pennsylvania governor josh shapiro. each of them brings a special strength to this competition for harris. they can try to bring in some of the swing states that harris will need to win. pennsylvania is essential. whoever wins the presidency will likely take pennsylvania and josh shapiro could flip that state back to the democrats' column.

they have been trailing there in swing state polls, including bloomberg's, over the last months. arizona is critical and mark kelly's presence could help on the immigration issue. tim walz, the midwestern region of wisconsin, neighboring wisconsin and michigan, he could bring credibility there. that is the calculus. pete buttigieg has been mentioned by his supporters and fans as someone who could argue well for the ticket, and he has done so since harris has ascended to the top of the ticket, but really those three men have emerged to the front of the pack where we are now. jonathan: can we pick out the third name and build on that conversation? i think we are familiar now with governor shapiro of pennsylvania, senator kelly of arizona. it feels like governor walz appears to come into this conversation from nowhere. when biden dropped out we had that list of names and i didn't

see governor walz's name on that. why has this become a bigger conversation in the last few days? michael: because republicans have been targeting minnesota as a state where they could make inroads. they saw softness among voters there for president joe biden when he was still on the ticket. they thought come that is a state we can take back. by putting tim walz into play and recognizing minnesota as a place where we are going to hold our ground, that also helps motivate voters in minnesota and may also help to fend off republicans in that state. it is unclear whether he has enough recognition, name recognition, around the rest of the country. he is several years older than harris. she may want to choose someone who is of her generation or a bit younger. lisa: i was doing some research yesterday trying to answer the question, where did tim walz come from? i read a couple of articles

that he called j.d. vance and donald trump weird and that got the attention of the democratic party. is that accurate? michael: it is fair to say that that certainly caught the attention of people in the harris campaign and elsewhere, but he also has a sterling reputation in minnesota. some of the stimulus grants, they are known as timmys back home. he also has the reputation as an excellent stump speaker. he is a former teacher. he used to have lunchroom duty, as he likes to say, and he knows how to command a room. he does bring that element. whether he ultimately ends up as the harris choice will be interesting. he will be a different pic then maybe we are expecting. lisa: in the meantime, joe biden is trying to govern. what can he get done? yesterday he came out with a series of pretty sweeping reforms for the supreme court.

people say that they are pretty much dead in the water. is that accurate, or are any of these proposals something that could actually take off? michael: it is fair to say that they are not going anywhere this year. this is more messaging to the democratic base, especially the progressives who have clamored for this for number of years. some of the recent revelations about the disclosure of the gifts and other goodies that have come certain justices way,, including clarence thomas that there are calls to change the way that the court is run and maybe impose age limits. it is unusual to hear and 81 euro president calling for those types of term limits, but here we are. the president knows full well this isn't going to go anywhere in the house. we have heard mike johnson express his reservations and many republicans too, and it is

a hard thing to get done anytime of the year, but especially with just a few months before the election. jonathan: wouldn't this call have more credibility if it was made by a liberal president at a time that there was a liberal majority? michael: it would, because then you would see the mandate in congress and the white house to really propel this through. but we are in such a narrowly divided political atmosphere in washington these days, that doing something, even if it sounds good on paper and may have mass appeal, if you talk to many americans, their questions about the credibility of the supreme court, they are pretty evident. what to do about it is a different matter. we see that on so many other thorny issues as well, ranging from spending and taxes to the execution of foreign policy overseas. the divides are sharp and real and it makes it hard to get the hard things done. jonathan: appreciate your input. mike shepard on the latest.

to underline what he said at the end, the very fact that we are talking about governor walz is not about policy initiative. the word "weird" is more effective in campaigning than any kind of policy initiative. lisa: welcome to 2020 for. this is why, i have to be honest, this is my personal bias, my eyes glaze over when we are not talking about policy because it is name-calling. as much as i enjoy name-calling, i deal with with my children enough that i don't feel the need. jonathan: you will have very glazed eyes for the next few months. these cycles are not changing anytime soon. we will catch up with tom schapiro on the state of the housing market ahead of tomorrow's fed decision.

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jonathan: kicking off the week with two days of gains, friday into monday. we haven't seen that for about two weeks on the s&p 500. that is how choppy things have been. on the nasdaq 100, up by .2%. the russell small caps, a little bit of outperformance, up by .3%. lisa: what i thought was interesting yesterday as the russell 2000 did not outperform, which was notable when you saw a recovery came from big tech. at this point, we are seeing that reversal back to the

rotation trade, but it highlights how uncertain the lack of conviction underneath, the internals, are going to shift. jonathan: the bond market, the two-year, 10-year, 30-year, shaping up as follows. 10-year yields are lower for three consecutive sessions through yesterday. back to levels that we haven't seen since march-time, around 4.1 five yesterday back to 4.17 this morning. on the two-year, 4.39. the shape of the yield curve, we have seen the bull steepening, the front and re-rallying, and yesterday we saw able flatten our. the take away is, the whole curve has dropped lower over the last month or so. lisa: it highlights how we don't have a sense of what is going to drive it. yesterday i was obsessed with the quarterly refunding announcement and it came out the opposite of what i thought. u.s. government is set to borrow less than expected, to the tune of $740 billion versus the

expected $840 billion. is it because the u.s. is doing better with its deficit? no, they needed to reduce cache files ahead of some debt ceiling debate, because that's required under law. it is the chance of a default if they don't get anything past. it highlights why it is difficult to get right. jonathan: ultimately, we probably won't see because we never do. lisa: which is why yields went lower because they were selling less debt. jonathan: as always, the bond market making sense for you. the euro looks like this. 1.08 35. if you looked on aggregate, euro gdp was ok. france, spain, italy all positive. the negative is germany. germany has been a struggle for a while and it continues to be a struggle. the euro might be positive the germany's got problems. lisa: -0.1% versus the positive 0.1% growth.

is there anything structurally that they can do to revive some of this growth, and frankly reclaim the name as the engine of europe? right now, it is anything but. you are seeing in the peripheral regions with tourism and all the other types of services and goods, this is an issue. where will the growth come from if not from germany in a major, long-term way? jonathan: germany was the engine of europe and the engine of germany was china and china is struggling. some of the luxury firms, internationally they aren't getting tourism and demand, you're seeing with some of the auto manufacturers struggling to compete in what must be the most competitive market on the planet in any industry, ev market in china. it is a struggle for many exposed to that economy. lisa: it is a struggle to deal with the slowdown they are seeing. do they aggressively court consumers in china, open the doors to chinese companies to come into the region to lower inflation with the hope that in

return it will be reciprocal and they can sell into china? these are all angst-provoking questions and germany at a time when a lot of people are saying that the chinese do not play on fair ground. german auto many factors, you say, can you say that you won't sell into china? they will tell you behind closed doors, that is half of our profits were more. how can we possibly do that without completely reshaping our industry? jonathan: they need that market, for sure, big time. earnings later, microsoft after the bell today, the results expected to show strong growth in the cloud computing with investors focused on if the billions spent to develop ai features will pay off. show me the money according to bank of america. we have seen this with the likes of alphabet. we will see a potentially later with microsoft. lisa: bank of america had this statistic. for every nine dollars added to cap ask there was only one extra

dollar in sales for hyper scalars that was associated with it. this is the issue. you're seeing the investment but not the results. at the same time, doesn't it take more than a hot second actually come to fruition? jonathan: in an ideal world you have to wait. lisa: is it people looking for excuses to shed exposure? is it as creating a narrative around something? how many people can we get on that says, it is over? jonathan: building on the cloud business all those years ago and the same criticisms we are hearing about the ai business. it takes a while. the pushback from alphabet and the c-suite, they are clear. they said that there is a bigger risk of under investing than over investing. what you want to be doing on the margin is overinvest if you need to. certainly do not underinvest because that will be painful in years to come. lisa: people draw the parallel to the tech boom and internet

boom of the early 2000's. it is not exactly analogous because these companies are minting money and delivering profits way above what we saw from companies back then. they already have businesses. in terms of the transformation, there are questions about how quickly and dominant these players will and can be. i don't know that that can explain the whole story given the fact that they still are exceeding expectations and minting cash. jonathan: can we talk about the boj? the two day meeting for the federal reserve kicking off later this morning. the boj is very much in focus. details of his quantitative tightening plan, rate decision tomorrow. 14 of 48 economists predict the boj board will raise interest rates. a consensus ultimately still expecting rates to remain unchanged. there is a group of economists who are looking for the interest rate hike tomorrow. lisa: the issue to me that i wonder how much is baked into the market, what kind of disappointment will get played

out in markets with respect to a weakening in if the bank of japan doesn't make a move? can the bank of japan offset in action with the idea possibly not buying as many bonds through the quantitative easing program? to me, that highlights how high the stakes are at a time when you're seeing some strength, finally, which is a huge relief to authorities who have been talking about this. jonathan: the yen strength over the past few weeks, weakness this morning, 152.84. the central bank is widely expected to leave rates unchanged and signal a september rate cut. tom shapiro of gtis partners, global real estate investment firm, writing that the fed should have enough comfort soon to start cutting rates. the worst of housing inflation may have occurred months ago. tom joins us for more. let's start with housing inflation. let's start with a provocative question. how big is the spread between

shelter measured in some of these indexes that we read inflation and the real world? how big is that spread? tom: thank you for having me. it's big. to put into perspective, shelter is one third of cpi. cpi numbers are showing up 5.2% in june. that is not the real world. cpi is at 3%. if you include housing cpi, it is 1.8%. we own a lot of rental property. i can tell you that shelter is definitely not up 5.2%. it is flat to down. why is that? shelter has two components. one is owners equivalent rent and the other is actual rent. three quarters of the shelter component is owners equivalent rent. how is that determined? they call people and ask, if someone were to rent your home today, how much do you

think it would rent for? how many people really know the answer? i don't. obviously, you have a lot of miscalculation in the shelter number. if you took out shelter today, we would be below the fed target of 2%, 1.8%. it is definitely delayed. there is no way that shelter costs are up 5.2%. we will see over the next three to six months the shelter number coming down to zero, and we will see cpi coming down to that level because of that. one third of cpi is shelter. jonathan: do you think that we are past the cyclical bottom in real estate? is that behind us? tom: we are already starting to see some signs of that today. look, we have seen tremendous impact and cre pricing. overall valuations are down 21%. office is of course the worst of that, down about 37% to date because of the demand shock given work from home.

if you look at the office in san francisco, chicago, new york, the buildings there are down 60% to 70%. we are starting to see people anticipating an increase in pricing. we are starting to see what is called investor expected yield starting to come up in some of these markets. pricing is starting to come up, particularly in multi-family. multi-family, you could have traded a multi-family three years ago for 3.5% cap right. today, about 5.5%. we are seeing it come down 5.25% today. it is not a huge amount, but we are seeing it come back. you have to look beyond just interest rates. you have other factors. i mention that you have work from home issues from the office perspective. you have expense issues. insurance has come up dramatically. taxes, wages are factoring in.

we are seeing op x issues and some of our properties. there is more to it than interest rates, the interest rates are huge component. your cost, mortgage has doubled. lisa: markets have benefited during the pandemic, florida, flattening out in terms of home price values as well as an increase in builder incentives to bring people into new constructions. there is a theory out there from a lot of people who join us that as soon as the fed cuts rates this reverses. you start to see the pricing pressure again reassert itself because there's so much demand and a chronically under -supplied housing market. do you agree? tom: somewhat. homebuilding has been the darling and it has gone through the downturn unscathed because there is very limited supply. you have a 3.5% mortgage you are not selling your home. the amount of homes on the market are less than one million

existing homes. there is a double-edged sword. on the one hand, if interest rates get cut it is positive in the sense that it makes housing more affordable to buy. and the other sense, you will see more inventory come on the market. we are starting to see for the first time a little bit of weakness in homebuilding. i don't think that it will be dramatic. incentives in texas and florida are now 6.5% versus what they were at 4.8%. mostly what the homebuilders are doing is they are using a sickly their playbook -- using basically their playbook to buy down mortgages. if you are buying an existing home you're paying 7% but a homebuilder will pay 5% because they are buying down the mortgage for you. people will look at their monthly payments, what they can afford. i do think that it's not necessarily going to mean the list will shoot back up, because it has been such a dramatic positive market for so long.

we have been seeing this for over a decade. it has been our largest investments to date. we are not stopping investment in homebuilding. we like the sector a lot, but i think we will see moderation. lisa: when he first started talking about how you expect housing inflation, the renters equivalent rent in the real market, falling to zero or very close to it or at least in that direction it would argue for rate cuts, but essentially this is restrictive policy and it's actually reducing inflation more than some people would estimate. would you then talk further about how much there could be a renewed bout of inflation with home prices going back up as soon as the fed cuts rates? it raises the question, is that basically what you are arguing for? this is a sufficiently de -inflationed economy, or is it highlighting how sensitive the housing market has gotten at this point to rates? tom: keep in mind that home

prices are not in the cpi because it is viewed as an investment. it is rent that is. just because home prices go up, it doesn't mean your cpi goes up at all. i do think that there will be a push-pull in the housing market. it has been so strong. if rates come down, i'm not talking about a 25 basis point rate cut. you will see a lot of people who want to sell your home. how do you sell your home when you have a 2.5% to 3% mortgage? that has been the hangup. i'm not sure that it will play out that way. i think we will see a pretty good housing market. probably not as good as people think it will be. i don't think that that means housing prices will shoot the moon, because we will see supply finally coming on the market. we have the most we have seen in decades on the market of existing homes. i think that it will change and we will see supply on the market.

that will counterbalance the demand side. jonathan: we have to do this again soon, let's get you in the studio. shapiro on gtis on the spread between the data and the real world which is apparently pretty wide. lisa: especially considering when someone asks you, what to do you rent your apartment out for? $1 million a month, do you want to buy? jonathan: it is like inflation expectations. lisa: i knew that you were thinking that. you would skew it. if someone is calling you up and said what do you think that the rent would be? jonathan: i would say 20% lower than it is right now, for sure. lisa: $5. jonathan: with your bloomberg brief, dani burger. dani: standard chartered shares are gaining up 6%. earnings beat estimates and it expanded its share buyback program. they will purchase a record $1.5 billion, looking to return at least five billion dollars to

shareholders by 2026. shares have advanced 9% so far this year. on the others, diageo is tumbling, 6.7% drop. the british distiller reported its first annual sales declined since the pandemic. diageo said that customers have chosen cheaper options like latin america and they still have a stockpile of spirits from the covid boom. tesla is recalling 1.85 million vehicles over the risk of software failures and detecting an unlatched hood that could fully open, obstructing the driver's view and raising the risk of a crash. the national highway traffic safety administration says that tesla has released an over the air software update to fix the issue. the impacted cars include certain model 3, s and x vehicles made between 2021-2024 and model y starting in 2020.

jonathan: yeah, that is a problem. it's critical that you can fix it over the air, though. lisa: they just program it not to fly in your face? jonathan: more on that story later, may be next, the fed's balancing act. >> the risk, rightfully so, the fed has been pointing to this, the fed speak has been pointing to this, the labor market is becoming more of the issue. they aren't going to wait to get to percent year-over-year on core pce until it is mission accomplished. jonathan: he was great yesterday. really enjoyed that. we will get the view from bank of america next on the program. ♪ waterproof leather. breathable fabrics. spikeless traction. the most comfortable golf shoe in the game. grab your pair today at olukai.com.

jonathan: live from new york

city from our global headquarters, welcome to the program. a flavor of the price action on the s&p 500 firm or by .2%. yields lower for a fourth consecutive session down one basis point on the 10-year, 4.16. the fed's balancing act. >> the risk, rightfully so, the fed has been pointing to this and the fed speak has been pointing to this, is probably that the labor market is becoming more of the issue. this is the part where you try to assess out what is the actual inflation rate that they become more comfortable with? powell has said they won't wait to get to percent year-over-year on pce or core pce until it is mission accomplished. jonathan: the fed's july meeting a starting today with investors expecting the fed to leave rates unchanged and signal a september rate cut tomorrow. payrolls on friday. "with smaller deviation in inflation and unemployment from target, the fed's attention can be more balanced because the economy cools and inflation

slows or both. i know that you have a base case in december with a little bit of a tilt towards september. walk us through the base case, why december? the last line in your quote is important. this could happen because the economy cools because inflation slows or both. give us your sense. aditya: powerpoint now is that september is not yet a done deal -- our point now is that september is not yet a done deal. inflation, you had the inflation annualizing more than three every month. then you had two good months. for sure, the drop in housing inflation was helpful. if that continues will make september close to a base case, but it was one month. if you look at the activity side of the data, two point 1% gdp growth over the first half of the year, that is trent-like, if not likely above trend.

most of their indicators still looked pretty solid. jonathan: we should draw a distinction between what you think they will do and others think they should do. can we talk about the should argument? former new york fed president bill dudley, mohamed el-erian, name after name, big names in the world of economics, saying they should be cutting this month.new have sympathy with that view? aditya: if they cut this month they would indicate a sense of panic. that something is fundamentally broken in the economy. that doesn't seem to be the case if you look at the broad data. going back to gdp growth 2.1%, you are adding jobs according to nonfarm payrolls roughly around trend. this looks like an economy that has decelerated from above trend growth that was never sustainable at 4% the very much a trent-like economy, and that is the sweet spot as governor waller said.it sounds like his base case as of

a couple of weeks ago was that they don't want to cut in september. lisa: that said, there is the idea of what the signal is to markets and what the policy actually does the fact out of borrowing conditions, and if it is appropriate at this point because of slowing growth to have a lower fed funds rate. are you sympathetic stripping out the market's reaction with that view that there is no need to be worrying about runaway inflation or a re-acceleration in inflation, or the idea that the genie is still out of the bottle? are those arguments gaining favor with you? aditya: we were much more concerned about rear acceleration at the start of the year. things look better now. that is why we think they cut this year. september is a pretty reasonable base case. our point is that it is too early to call that a done deal. if you get strong payrolls on friday and you get an above average expectations number, around 25 basis points, on core pce for july, that is going to make the case much harder to cut

in september because, why are we cutting? lisa: the flipside is, how close are we to the idea of weakness rolling over to weak? the idea of some of the commentary from companies becoming something deeper, we are basically uci consumer that is strapped and unable to spend more -- where basically you see a customer that is strapped and unable to spend more? aditya: if this is a normalization or the economy rolling over. our case is that the economy is normalizing and not rolling over with the caveat that there is always a risk that things could be rolling over. the consumer, things seem to be holding up fine. you look at consumer spending in the second quarter, all of the components looked ok. it wasn't one component holding things up despite issues with auto sales, which are a big driver of fluctuations.

overall, things look fine. not superstrong but not super weak either. we had concerns for the consumer for a while, and we are happy to stick with that for now. jonathan: the payrolls report on friday, there is the possibility unemployment is 4.2%. that is the guess the estimate coming out of citi with it on the edge of uncomfortable. goldman sachs is offering why we should not fear high unemployment there has not been an increase in layoffs that could trigger a vicious cycle of income less and reduced spending -- income loss and reduced spending. the fed is 525 basis points of room to cut if necessary and no reason to hesitate. should we be comfortable with what is increasingly looking uncomfortable in the labor market? aditya: what is interesting, while it is a point of concern, is that some of it has come from flows from outside the labor force into unemployment rather than layoffs, which would be

flows from employment into unemployment. some of the increase in unemployment rate has happened for good reasons. you don't want to put too much weight on that, but it is a reason why we've gotten from 3.4 to 4.1 with the economy growing around 3.5% over the last year. jonathan: it is good to get the update. the unemployment report on friday, federal reserve report on wednesday, and why they are sticking with december as the base case, but that could shift to september. lisa: the above consensus view of the consumer i thought was interesting. when you look at the ongoing strength it is brought-based without the sense of falling off the cliff. to me, that could underpin the case for why the fed is not missing the boat i cutting -- by not cutting tomorrow. jonathan: here is the lineup for you. all of that and more is just

ahead. from new york city, this is bloomberg. ♪

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>> this is a fed that is desperate to try to achieve the utopia soft landing. >> the fed will set the tone for everybody else. >> i think the fed will leave the door open and sound encouraging but not committal. >> all of the fed speak has been pointing to this, the labor market is becoming more of the issue. >> i think this is the window.

it won't be easier to make the inflation case in the back half of 2024. >> bloomberg surveillance with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: the second hour of surveillance begins now. good morning, good morning. let's start with the flavor of the price action, drifting higher once again for a third consecutive session on the s&p 500 up by a couple of tenths of 1%. outperformance once more on the russell. small caps up by one third of 1%. let's go through with a little bit of purpose starting with the earnings. microsoft coming later than the bigger players through the week. we will hear from meta, apple, and amazon. the economic data, first taste of what the jobs data may look like through the week with jobs openings coming up later this morning. i hear the voice of mohamed el-erian all the time on my show. listen to the companies. what are the companies telling us about a consumer now?

never mind the economic data. kimberly-clark, mcdonald's, delta, pepsi, the loss of pricing power and a more choiceful consumer. we hear the same thing again this morning. lisa: from procter & gamble, the maker of tide detergent, diapers which they were not able to innovate on because of supply chain constraints.here they show the prices increased 1% in the period compared to the year earlier, the lowest increasing nearly three years. it is the loss of pricing power and innocence in order to keep their customers they have run out of room to keep jacking up prices and and -- jacking up prices in a significant way. jonathan: the transcripts from the consumer-facing consumers, mcdonald's lower income consumers are dropping out of the market. the first sales slide for mcdonald's reporte yesterday sinced 2020. this is stacking up which is why the likes of mohamed el-erian

are saying that it needs to take a move. stop taking comfort from friday's payrolls report. listen to the companies telling you that things are weakening. lisa: they tell you they are running out of pricing power. some will say that this is by design. you look at procter & gamble, shares are up 16%. mcdonald's rose on the day because of the promise of a five dollar meal. it's not that the companies are running out of room to keep making money. when you look at what everyone has said, inflation when it comes down tends to cause margin compression because companies cannot raise their prices as much as some of the increase in prices they are absorbing. some of this is the fact no by design. how do you parse out what was expected in a healthy cooling and what isn't? yes, listening to the companies gives you a sense that things are shifting. is it a good or bad one? jonathan: the argument has been made that inflation has come down enough that we can have an insurance cut, and they should do that. front load it, don't wait for

the economic data to weaken. you mentioned this 10 and its ago, these are big names. bill dudley, the former fed vice chairman, mohamed el-erian, the list goes on and on. lisa: they're looking at the idea that the weakening is usually not just one point in time that stops. if you see a labor market that's starting to cool, there's a good chance that there is more cooling ahead because of a delayed reaction. they are trying to get ahead of that saying let's put that into motion now. when you look at borrowing costs, there is a lag. they are worried that that is going to come to the fore in terms of how high rates are currently and it will take time when rates come lower to really work towards this easier monetary condition.you do see a tightening in financial conditions based on the recent selloff in equities. jonathan: do you know what it's like?

get a move on. neal, you too. s&p 500 positive by 0.2%. we have had two days of this. can we make it day three? lisa, can we make it day four? lisa: it has been fueled by the idea that maybe the treasury department were selling -- were not selling quite as many bonds as expected yes, inflation is cooling. if you get this commentary, do you get the ongoing sense that the base is killed? today we get the jobs opening data at 10:00 a.m. eastern and that will be pivotal. it used to not matter. people would say that it's messy data. now it matters quite a bit. the more the trajectory is significantly lower that is showing that companies need less labor and are not having trouble finding it. jonathan: then adp, jobless claims, and payroll on friday. edward jones with the tech

earnings on deck, we catch up with bank of america with unrest erecting in venezuela, and the fed beginning its two-day meeting. we begin with u.s. stocks looking for a third straight day of gains as the rotation out of big tech takes a pause. edward jones saying that this , we believe the rotation has legs. perhaps not without bumps along the way. broadly we see the theme of the broadening of market leadership in both tech and non-tech sector is continuing in the back half of the year. mona, how difficult is that going to be when we hear from consumer-facing companies that say that things are slow and we are losing pricing power? mona: this is still a scenario where we see a soft landing in the economy. yes, we are seeing a cooling coming through not only in consumption numbers but as you noted the labor market shows signs of cooling from its position of relative strength.

perhaps, the silver lining is that we are cooling but still positive in economic growth. we see not the 3.5% economic growth annualized figures last year, but maybe 1.5% to 2% going forward. this positive number still mean that we are executing a soft landing in the economy. that's one of the tenants you need in place an order for markets to be supported and for the broadening of market leadership to continue. you combine that with a fed that looks poised to cut rates and inflation will probably continue on this bumpy path lower, those are some of the ingredients we would like to see for the broadening to continue through the year end. jonathan: do you think the unemployment rate can stabilize in the low four's? mona: it feels like our view is that unemployment remains low 4.5%. it's interesting to note that we are at 4.1 percent which is above the fed's 4% forecast for 2024. we know that the fed has been

focused on both sides of his dual mandate, inflation and the labor market. we think that the fed is looking more closely at the uptick in the unemployment rate and softening in the market. one that will probably reinforce jerome powell's message that perhaps they're set up for rate cuts in the back half of the year, but, two, the wage growth figure has serious implications for services inflation. that is the part of inflation that has been more sticky. cooling and that wage growth figure across the board for companies means that a large part of their cost structure may be moderating to some extent. that is good news for services inflation in particular. lisa: a lot of this sounds rosy in terms of the soft landing in companies making money. hasn't a soft landing been fully priced in? mona: to some extent the price landing -- to some extent the soft landing has been priced in.

there is some concern we may slip into a recessionary environment, and we are hearing more of that as we are getting consumer confidence numbers slipping. you are seeing pmi data that is back in contraction. the risk of a recessionary environment is not off the table but in our case it is not a base case scenario. there are some uncertainty in the marketplace, but we are getting more bouts of volatility. we had another 5% correction in mid july, and maybe we are stabilizing through that. that as we head towards the back half of the year and we think about election season. historically, there is volatility ahead of that. i think you will see some nerves and anxiety in the marketplace flareup, but in our view, at least with what the data is telling us now, that won't translate into something more if various, like a bear market or a recession on the horizon which usually leads to a bear market. that period of volatility we think is the opportunity that if

you haven't diversified your portfolio you will get opportunities in the months ahead. lisa: do you think there will be a reversal of some of the rotation trade? you will see big tech reassert itself and then you can buy everything else?or is this that some of the less-loved stocks, tech stocks down 12%, you want to start buying those? mona: probably a combination of both. i think if you haven't yet, a lot of folks have positioned themselves to be part of this tech ai trade. it has been the darlings of the market for the last year and a half. only more recently have we seen that part of the market slip more meaningfully. to some extent, a lot of investors remain underweight or don't have as much exposure to some of the value cyclical parts of the market that really may play catch up and have started to play catch-up in recent weeks. we think that when we look towards the back half of the year, if the theme for 2023 in the first half of this year was narrow portfolios are what will

be winning, we think towards the back half of this year into 2025 that diversified portfolios is the winning strategy. if you don't have exposure to one side or the other in a meaningful way, we would say to start using these periods of volatility as the opportunity to get yourself there. keep in mind the investors that are still overweight money markets, cache-like instruments, also opportunities for dollar-cost averaging down into more strategic allocations in bonds and equities. lisa: bank of america came out with a note talking about how it is a lot of "show me the money" moments in ai. but suggest that valuation suggest paltry price returns for the next few years but dividends should contribute to healthy real returns. is that how you are viewing the world as well? mona: it will be an interesting next five to 10 years and financial markets broadly. we have talked in the past about how yields, while they will

likely come down, we are not coming back to the zero balance. we'll get back to the 2.5% to 3% range on fed funds, which means that the treasury yield environment. that backdrop, yes, valuations matter more. dividends and value investing is probably balance with your ai tech growth portfolios, but bonds also play a meaningful part of your portfolio. we think that the structure portfolios will look a little different in the next five to 10 years. that is a healthy thing is you're getting closer to retirement. you are getting real income from areas like bonds, like high dividend quality players in addition to your equity portfolios. we do think that equity profiles overall may soften a bit, but really a nice pickup and other parts of the market, including bonds and dividends to your point. jonathan: i think that we also have to appreciate the update we are getting from corporate america, from corporations

worldwide. kimberly-clark, solid price increases. procter & gamble, lower price increases. a loss of pricing power. we see the same thing on both sides of the atlantic from the airline business, delta, united, american. in europe, we had the same thing from ryanair. two of the biggest food and beverage companies in the world, nestle and pepsi, also indicating the same thing. nestle, value-seeking behavior among consumers. pepsi, the consumer that is more challenged. in two weeks we will hear from walmart. i wonder how much of this starts to show up in their numbers. how much business they are taking from elsewhere. lisa: as they deal with customers who are trading down, looking for bargains, which has been why they have been able to accumulate a bigger market share. when you take a step back, there's a very clear message coming from corporate america and corporations worldwide.a lot of

consumers arguing sick of paying so much. these are some of the businesses raising prices by double digits. toilet paper during the pandemic, you remember the hoarding. tide pods, etc. there is a question of come isn't this kind of what we want to see to get inflation down to what we need? or is it because frankly consumers are flat out? that continues to be the debate and will for the foreseeable future. jonathan: they are losing pricing power. i mentioned chris harvey a wells fargo a few times this morning. he is asking if the weakness is migrating up the income spectrum. it isn't just the low income consumers. maybe the higher income consumers are pulling back given what has been happening in luxury. i know that there are execution problems at gucci, but this is across the board with luxury. lisa: people are not upgrading to the same degree. we heard this from the likes of gucci as well. how much do you end up with a situation where everyone is feeling this impending slowdown

and are going to behave as such? at the same time it was said that we have been above consensus consumer data in the credit cards. jonathan: there still looking at 1.75 in our survey. 175,000 jobs on friday. the payrolls report is a few days away. elsewhere with your bloomberg brief, dani burger. dani: a quick check, down 1.7 percent flipping from gains to losses in the premarket. it be profit estimates. the block buster immunotherapy drug continues to dominate the market. shares of the cancer medicine rose 60% and the second quarter but merick's forecast was mixed. it downgraded its adjusted eps outlook due to one-time charges that it made from acquisitions.

berkshire hathaway cut its stake in bank of america again. the company disclosing its third share of sales at this month meaning that it paired by more than $3 billion this month. berkshire still holds about 962 million shares. worth about 39 point $5 billion at monday's closing price. buffett is taking profits on bank of america with the stock up 22% this year. the men's triathlon has been postponed at the paris olympic games. organizers cited insufficient water quality in the seine. the event was originally scheduled to take place this morning and will now be wednesday at 10:45 a.m. local time after the women's race. the weather forecast points to the continued risk of rain and thunderstorms which could further delay the event. jonathan: more from dani in 30 minutes. betting big on ai. >> people who are frustrated and uncomfortable with the fact that there has been an enormous amount of spend need to take a

breather. we still feel convicted this will be the most powerful theme of the next couple of years. jonathan: we will get another view on the program from new york city. good morning. ♪

jonathan: just a really busy couple of days ahead of us starting with economic data later this morning and then

after the close tons of earnings through the week starting with microsoft. equity futures s&p posited by close to .2%. under surveillance betting big on ai. >> people who are frustrated and uncomfortable with the fact that there has been an enormous amount of spend but still an enormous amount more to go to embed this technology into all of our different businesses need to take a breather. we have been cutting a little since the peak that we had in mid to late spring, but we still feel convicted this will be the most powerful theme over the next couple of years. jonathan: a massive week of tech earnings after the closing bell with microsoft. investors are waiting to see whether billions of dollars in ai is paying off. keeping a buy rating on microsoft with a 520 price target but highlighting potential risks saying that an increase in capex spending could hurt longer-term trajectory of ai adoption is slower than expected. we're joined now for more.

what fun to catch up with you. this seems to be a theme over the last week, last month. can we take a step back? what are the tech company spending money on, and what our investor starting to lose patience with? >> good morning. thank you for having me. microsoft is spending a lot in terms of their capex on ai. that includes buying gpu's, land to build data centers, power, cooling centers, stuff that you need to operate these gpu's. they are seeing enormous amounts of demand. last quarter, they commented that their capacity was below where the underlying demand levels were. in some ways they cannot build a lot of the stuff fast enough. with the end customers are doing is deploying things like microsoft 365 copilot, building a lot of these large linkage models to unlock value across a number of use cases across their businesses.

jonathan: you said the demand is there. the monetization effort, what is the timeline to ramp up as high as capex has done over the last year? tyler: yeah, if you look at last quarter microsoft had an enormous quarter. they grew bookings close to 30% year-over-year. total revenue is only growing about low double digits. it's clearly they are booking revenue faster than they are actually recognizing. these are from big corporate enterprise clients, from nationstates around the world. everyone is trying to get their hands on capacity to ultimately build use cases that involve large language models.microsoft has an exclusive partnership with openai which provides some of the most powerful foundational models across the space. a lot of that is related to openai. the demand is pretty widespread?

lisa: is it frustrating to come up with a one month,, three-month price target at a time talking about years-long investments in a technology that has not been fully realized in terms of its potential applications? tyler: certainly. our target price is a little further out, we take a 12-month view on target prices. when you have capex ramping up with this type of intensity and ai ramping up in terms of this contribution, there are a lot more uncertainties. i think the important thing is what you are seeing from microsoft as the valuation multiple has not massively expanded. we are talking about roughly 30 to 35 times earnings multiple including earnings compensation. while there are additional costs that microsoft is incurring as it relates to funding these data center projects, they are continuing to offset that with costs and deficiencies elsewhere in the business.

you are still seeing earnings growth very nicely, and we think that that can continue to support the stock. we don't feel like things are overheated relative to the historical view evaluation. lisa: a lot of people are some pathetic to your view with respect to microsoft. -- are sympathetic to your view with respect to microsoft. there is a fear or a sense that there are going to be some winners and losers from the ai boom. how do you parse through what is overvalued at a time when money is being thrown at something that is not fully established? tyler: i think that the truth of matter is that we are still very early in the space. as i look outside of microsoft and software there have been a lot of concerns. this year has been rough for software stocks.

is ai cannibalizing other parts of i.t. budgets? i think that the answer is, it is possible some of that is going on, but there are also other factors at play. at the beginning of the year we saw a interest rates than expected. we saw some budget flush in q4 which prevented a lot of software companies from having good bookings quarters in q1. i think that areas, you think about big cost centers like contact centers, developers, those are areas where you are seeing a lot of ai having impact. automating code completion processes. over times this could affect jobs and the labor force, but it is still very early in terms of who are the outright losers within the technology space. jonathan: we will see how patient investors are willing to be later this afternoon. thank you, sir. looking for something like 520 on microsoft.

if you go through the analyst community, 65 buys, 5 holds, not a single sell. there could be another 15% to 20% upside for some of these tech firms. the return potential is 18%. that is pretty much consensus on the south side at the moment. lisa: if you think big tech will get back to its record highs a couple of weeks ago, it is already down 12%. so that is some of your payback if you think that it will reassert itself. jonathan: people are just not willing to be patient over something that will be with us for a long time. the road is long. lisa: i see that with progeny. i want to get rich. good luck. [laughter] jonathan: do you want to say anything else? lisa: no, that's good. ♪ and relentlessly work with you to make them real.

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jonathan: equities on the s&p 500, 0.2% with gains on tuesday looking to make it day three, the nasdaq at a quarter of 1%. the bond market, something we haven't seen since the middle of june, four consecutive days of yield 10 year. 416 85. lisa, quarterly funding announcement with a bit of detail in the last 12 hours. lisa: 100 billion dollars less than people thought would be the amount borrowed over the quarter

. the explanation sounds bullish, it's so good, the economy is doing so great. that's not it. basically there's a lot of cash and you cannot have too much cash in the coffers heading into a debt ceiling debate because that is considered patting the books. that's the reason why some people are saying that there is this sort of adjustment. make of it jonathan: what you will. jonathan:some of the things you have to consider the treasury are ridiculous. it really is. lisa: i enjoyed reading about this, it's kind of counterintuitive. logically you would think it is because they are in a better position, but no. jonathan: yields are lower on the front end of the curve by a single point. sitting here for a couple of seconds, gdp out of the euro zone is actually ok, but when you break it down, italy, spain, france are doing all right, germany is not. this has been a story theme for europe for quite a while now. lisa: especially because they

hinge on china. we also just have to keep sort of reiterating that germany is getting slammed because of their dependence on russian oil. they shifted gears and are including more natural gas and other products from qatar, as well as many others but are now highly dependent on china at a time when there is a real question about the national security component of that and it seems like europe is increasingly breaking away from the u.s. in terms of its approach to china, taking a slightly different stance. giorgia meloni of italy heading over to china, even. jonathan: the german model is broken. we have talked about this repeatedly. relying on the united states for security, military security, russia for energy security, china, everything about that, it snapped in half at some point in the last few years. lisa: what will be the pillar of growth in europe if that is ultimately going to be the ongoing story challenging the

engine of growth for so many years, germany. jonathan: german bond yields, going nowhere. under surveillance this morning, top story, donald trump saying that he plans to eventually debate kamala harris in that the debate should have been before the early voting begins and the harris campaign saying that she will be at the september 10 debate previously scheduled for joe biden. he wants it earlier, is that where we are at? lisa: he's laughing, or showing up with no one else there? the other thing that you heard in the clip was trump saying -- ok, well, i can make an argument for being there, i can make an argument for not being there. it's not clear exactly what's going to happen. either way, it highlights how we have very different, different debate stages, very different presidential election. really, it's a lot of throwing things against the wall. see what sticks. jonathan: this is going into the

veepstakes. i find the senator kelly loeffler pick interesting, only a key a few weeks ago, arizona was almost unthinkable. that was a wish and a prayer. now it's something they can do given how the polls have turned. lisa: they were talking about keeping the rust belt and now it's about the sunbelt and turning those states. it will be an indication where the battleground is and we will get a sense of where the vice president is. what you think of this whole veepstakes thing? pitching their case but not too aggressively because it seems presumptive? it's like this courtship thing. jonathan: i think that trump wishes he had waited longer but he couldn't because of the convention. i wonder how much the experience

of the last few months will change elections for the next few decades. if you can, push the election really late. think about the primaries in four years, whenever we have to do this again. when we have done it and it's completed and they have picked a nominee, how many are going to come on the program and say let's see how the polls go, maybe they change candidates. back to the future. lisa: a lot of people would like to see it return to that truly open convention. jonathan: maybe it's the beginning. the latest on china boosting consumer spending to meet growth targets, communist party leaders pledged to roll out new measures to support the economy without providing much further detail. economic worries are weighing on country expectations recruit demand. we will spend some time on this in a moment. it's not just in oil but in the likes of commodities, soybeans, cocoa.

you mentioned the supply story but the demand on all of this, copper, it's been there since march this morning, it's all coming to the surface. pulling lower. lisa: throwing this in, having to stimulate demand by cutting prices and cutting out borrowing costs hasn't really shown signs of igniting true credit creation. it's a demand story, not a supply story. jonathan: recession, it needs a fiscal stimulus to address it and there doesn't seem to be a willingness to do that right now. turning to the latest in venezuela, protests and with socialist leader and president nicolas maduro claiming victory following sunday's election. the opposition claiming that they had proof of fraud and that gonzalez is the rightful winner. joining us around the table, francisco, great to see you here in the flesh in new york.

let's get you into this story. not going to ask you about the political gyrations, i want to understand your understanding of the situation and what it might mean for crude supply in the months to come. francisco: there are two elements to the story. first, will approach end up leading to financial disruptions ? the market doesn't seem worried. as lisa just pointed out, commodities are running down because it is a lack of demand story. in the case of venezuela, potentially it could be a worse factory if we get disruptions on the supply side. long term if there is a change in venezuela, remember the opposition has run the campaign on three pillars. first, reuniting families. 8 million venezuelans have moved abroad. there is an element of eliminating the other price distortions in the economy.

very importantly, privatizing the oil and gas sector. if we go down that route with a change in government, you could have the unlocking of what is effectively the world's largest energy reserves. don't forget, venezuela has nonconventional but the world's largest. we again have so much more technology today that if that were the case, you could have enormous growth in the country should that get to that point. i'm not saying it's going to happen. jonathan: i get all of that, a highly speculative conversation, certainly not revealing your base cases or your calls, but i think the scenario analysis is worth it. what is it like in terms of crude and what could be on the line if you start to privatize? francisco: right, venezuela, pre-chavez, produced a lot and

it has been on a slippery slope ever since, the big strike in venezuela was in 2002 and the bull run in commodity markets that we saw in the 2000s really kicked off with the strike of 2002, basically the workers of the national oil company facing off against hugo chavez. since then, oil production has been heading down over the last 10 years and really collapsed. down to 5000 barrels per day 8 -- 500,000 barrels per day. it's a fraction of what he wants in the back then it wasn't what he could be. think saudi arabia, think canada, think russia if you got that opening. lisa: given that this is speculative, this isn't what was driving price prices lower? it's a story of china and that

lack of demand. how much of it is just broad lack of demand from china? francisco: you guys were talking about it before with germany. looking at the industrial economy globally, it's doing pretty badly. we've been waiting for global interest rates in chinese stimulus to get global markets back on track and none of it seems to be coming together. you mentioned it yourself, the communist party spent a week locked up trying to figure out what to do and they came up with a cut to mortgages. seems like you need more than that at this point. my take is they are all waiting for the u.s. election to play out. it's three months away and things could really change for china, so why use your dry powder three months ahead relative to when you might really need it, right? one of the most challenging

things for china is not only to initially look at how to recycle their savings like gold, but also china has the issue of creating -- just creating domestic demand. of course there is the issue of tariffs. potential attack on the u.s. or europeans, though as you pointed out that's a bit of a different story. that's not really helping china. historically china has been a large exporting nation and it is now getting hurt on the back of that. lisa: stepping back, is this entirely a china story or something bigger when we talk about infrastructure building in the entire developed world where copper prices have fallen down significantly? oil prices are consistently with potential supply disruptions in the middle east of things become more kinetic. there is a real question about whether we are over estimating or underestimating slowdown in

demand to keep traveling. francisco: 100 percent. rates are still high. we don't realize, with the 2550, the rates are high, really high. high because the u.s. demand story remains strong. the higher the u.s. rates remain, the worst that is -- the worse it is for the rest of the world. the rest of the world faces high risk rates with a risk of high rates driven mostly by the services sector, right? not the manufacturing sector. the rest of the world is struggling on that, too. to me it reminds me of what we knew of in the 90's, high interest rates with a strong dollar. that wasn't helpful and is the policy mix that frankly will

likely continue after november in one way or the other but unless we start to get better rates, emerging markets will struggle here. jonathan: you mentioned a commodity that is, gold. gold hit all-time highs. what is behind the movie and how many clients ask you about it? francisco: gold is not as widely owned as you would expect. there are a couple of different elements to that story. the central banks are purchasing gold and droves because they don't trust each other. at the fleecing of the central bank assets of russia, that triggered over the last 30 years inflection points, central banks moving to net buying of gold and then the freezing of central banks in russia, big jumps in central bank holdings of. a lot of people question the reality of it.

so, that's one big story. the second big story, european selling gold, looking at the etf holdings, the chinese have been buying gold. going back to the problem of china, they cannot recycle savings into anything productive because they went into housing and that when bust. tech, that market went bust. factories, we started throwing tariffs at china. i guess people are like -- well, where do i put my money? china, its central bank is putting money in gold, i guess i should, too. then they slow down gold purchases. chinese retail buying, central bank buying, it goes to show how much fracturing we have in that system today. jonathan: when you say don't trust each other, do you mean don't trust the united states? is that an important

distinction? thinking about that diversification away from the dollar, is that an important piece? francisco: we always hear that, but the reality is that the most pounding over the last few years was the euro. russia sold its energy to europe in euros, for the most part. so, the dollar has been kind of just fine. i think in general you could say that g10, western world has been facing those challenges as the world fractures. i think pretty much every country not 100% aligned with the u.s. in europe has been buying more gold. that's a sickly every country, right? -- that's basically every country, right? allies of the u.s., u.k.,

singapore is buying gold. jonathan: could do this all morning. francisco, this was great. that's your update on stories elsewhere with your bloomberg breve, dani burger. annmarie: the park fire -- dani burger: the park fire may have started with the act of arson, a man in jail reportedly pushing a car into a ravine that was on fire, it became california's sixth biggest firearm record. it bodes poorly for the coming months. two hot winters in a row cover the state in newly grown brush, summer comes in with back-to-back heat waves, turning the vegetation into fuel. samsung is expected to announce its biggest jump in net income in a decade. samsung has lagged behind in the chip division, but appears to be

back on track, winning approval for making memory chips for crucial ai services, but smaller rivals edging them out of the lead. this is also impacting advertising prices on netflix. amazon is going cheaper after introducing the ad based tier a few months ago. the amazon arrival into the crowd battle for ad dollars had changed pricing. some cited the vast trove of user data gave them the edge to serve more targeted ads. jonathan: up next, waiting for september. i think -- >> i think the fed is going to leave the door open and it sounds encouraging. it does it sound as if they would like to cut in september. jonathan: that conversation, up

next. you are watching bloomberg tv. ♪

jonathan: welcome to the program. under surveillance this morning, waiting for september. >> the fed is going to leave the door open, it sounds encouraging but they want to wait and make sure the data is reasonably consistent. it sounds as if they would like to cut in september and justify the market view. this looks like a layup in terms of meeting market expectations. jonathan: marcus fulling price in a september rate cut. jay powell expected to give a soft signal for a cut even with two more job prints on deck. the base case remains for there to be 325 basis point cuts in

2024 starting in september through november and december. matt, good to see you. good to see you in person as well. going straight into it, you and the team have been saying soft landing, interest rate cut. what's been guiding that view for you and the team? matt: we do think that monetary policy is positioned in restrictive territory but it is a matter of degree with a lot of support coming from the federal government. last year there was a large increase in fiscal deficit. it has ultimately fed through. multiplier effects, lags the stimulus has had in the economy. we are slowly coming off the boil and looking for deceleration. it's far from recession and as a result we think the fed can take its time, which it has done, to begin the process of lowering rates and we are now on the precipice of that process. jonathan: i want to get the

right view from you and the team. tell me if i've got this right. argument for a love of short yields brings long and yields. is that which you are looking for? matt: we are looking for the yield curve to steepen. longer-term interest rates may be staying where they are, maybe coming down less than what we see at the front end. but that is more of a view on the uncertainty that exists post general election. there is a lot of uncertainty. it's not easy for me to see investors extending out the yield curve while we are facing this tremendous amount of uncertainty. not just with respect to who wins the election or control of congress, but the types of policies that will be implemented when. it's not just about fiscal stimulus, immigration and trade, it's about when will these policies be implemented.

there is a lot of uncertainty around that. i don't think that investors will feel comfortable going up the yield curve until we know. lisa: the olympic motto is faster, higher, stronger, together, but you think that what it should be is -- for central banks, slower, lower, weaker together. inspiring. all things being equal, if the government wasn't sort of uncertain with respect to the policies the u.s. would oppose, shouldn't the long-term yields be lower? matt: i think that ultimately that is where they will head but there is a lot of time between now and then it ultimately the pacing matters. if the central banks only lower things very gradually, which is something you see in the dot plot, it is telling you that the fed is going to go slowly. in that environment it's not clear that long-term interest rates have to change that much.

we think the fed is going to lower rates once a meeting and when i tell that to investors, we don't think it's very aggressive and it isn't entirely clear that i would cause it easing. remember, the fed needs to lower rates just to keep policy where it is. lisa: what about the ending point? it ends a bit earlier in terms of the rate cutting cycle, right? that's my ultimate question. are we truly resetting to a higher inflation environment where our star will be higher or are we not? matt: i think the jury is out on that. ellen is fantastic. her fed called has been wonderful. forecasting in a month is hard

enough, forecasting out a year is much more difficult. the jury is still out. we can have a reasonable debate about where interest rates need to be medium and long-term to keep economic activity running at a rate that is importantly conducing to 2% inflation. i'm not -- it's not clear to me that it is substantially higher than pre-pandemic. rates are high, but it is clear to me that when i look at the creation data from the reserve itself, policy is restrictive. i'm on the same page as chair powell and chair williams. based on your data, i completely agree. jonathan: what about the foreign exchange market, live is that? matt: starting off with an easy

market, there. [laughter] we have been biased long the dollar for some time now. we haven't been pounding the table buying the dollar against the relevant process because the fed has not been super hawkish. it's clear chair powell wants to begin the process of lowering interest rates and is trying to secure the timing. if it was hawkish, it would be easier to propose as he would be going against the grain. i would say that they are not there yet. you can't pound the table long on dollars. jonathan: matt, good to see you. thanks for dropping by. coming up in the next half-hour, the ny, a senator from

tennessee, tiffany from pimco, and steve from the sumo. from new york, this is bloomberg. ♪ (♪♪) (♪♪) (♪♪) (♪♪) sandals rhythm and blues caribbean sale is now on. visit sandals.com or call 1-800-sandals.

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>> we have been calling this year the tale of two markets,

but there has also been a tale of two economies on the consumer side. >> we are seeing signs that the economy is cooling and we think that has an impact from a fundamental perspective. >> it'll be the best up earnings season -- the best earnings season years. >> the story around earnings and exceptionalism because of these companies are still retained in my mind. >> this is "bloomberg surveillance." jonathan: the third hour of "bloomberg surveillance," beginning right now. the week starts later this morning as well. from new york, welcome to the program. equity market firm are hereby .1%, looking for a third consecutive day of gain in the s&p 500. the nasdaq saw this yesterday, up by 0.3%, the russell forecast

up 1/10 of 1% on the russell. this is why for some of you the week begins later this morning with economic data and earnings. later this afternoon we have a earnings from microsoft on the economic data side later this morning with job openings in america. the data and the corporate results are front and center. lisa: very much, given the fact that 13% of the market cap reports today. microsoft, amd, starbucks, both sides with a story that's very consistent through consumer facing companies where they are losing pricing power. consumers are pushing back. it's clear that there is a weakening appetite to hoover up everything post-pandemic. that's over. jonathan: is it execution within the industry or across-the-board consumer pushback? these companies are starting to pile up.

some of them out there are saying that they are doing ok, but i can tell you that far more companies are consumer facing and struggling. lisa: especially because the ones executing well are still only able to raise quarter over quarter with tide, pampers, loves, procter & gamble is full of staples and are not able to continue to move the monumental price increases they have seen. we will have a debate about whether this is normalizing or not. the debate is among small caps and mid-caps in the tech sector. especially given the fact that they are not able to monetize the investments. i think that tomorrow there will be a fascinating discussion about earnings that there will also be a discussion around consumers. lisa: i'm just -- jonathan: i'm just going to keep asking the same question, welcome calling or unwelcome deterioration?

there is still a massive divide over all of that, it's why you hear things like weakening but not week or bank of america saying cooling but not cool let others take the other side of all of that. lisa: or that we are on the precipice of something more nefarious. that is what you hear from bill dudley, mohamed el-erian, let's keep it welcome and get ahead of the less welcome cooling coming down the pike. jonathan: don't forget neil. equities right now in the s&p 500 look like this with futures positive by 0.2%. the bond market is just about unchanged. eurozone data is really mixed. there is sort of germany and everybody else. the aggregate number is ok with the gdp doing alright, but broken down france, italy, spain, good. germany, italy, not so good. lisa: this is why they bake in

the rate cuts and it's a structural problem that people try to get their head around. what did you say, it was like the seine? jonathan: ing said that. [laughter] lisa: that wasn't yours? what was the analogy? jonathan: sometimes you can swim in it, but most of the time you have to worry about it. lisa: ok. really, that's the reason why i have been questioning some of the rally we have seen in certain stocks. i don't know. jonathan: i don't know. jonathan:going after the europeans today, we need to back off from that. largely been driven by me, i know. investors are preparing for more max seven earnings with bill haggerty on potential trump two point oh policy initiatives. pimco on why the fed should begin cutting at a quarterly pace in september. we begin with the big issue. the selloff has a bit of a breather with investors anticipating earnings from four mega caps with 10 trillion u.s.

dollars. jenae, still overweight large caps and bullish on tech because of tailwind from free cash flow saying that the recent market rotation is a healthy broadening . good morning to you. >> good morning. jonathan: sticking with big tech, do you believe in the broadening? can we start there it is there a reason for it to continue? >> yes. first of all, we want to see a rally that includes many more sectors. we like tech, we are overweight industrials and health care and we talk a lot about small-cap. but let's not forget where small-cap came from. this is a very little unwind of some of the losses we have seen over the last year. let's think about why that is and when it started. it started with the softer cpi print with a lot of enthusiasm around the rates coming down and the rate cut cycle starting. the reason for that is you have

got the debt majority wall that starts in small year. let's be real. if they can refinance the debt 25 basis points lower, it doesn't matter. the point is the expectation that we are going to see further rate cuts heading into 2000 25, giving them much more of a breather jonathan: jonathan:. that was coupled with a decent jobless claims read as well. the fact that the labor market hasn't continued to break down material he thesis even more, cutting interest rates for the right reasons because the economy is doing all right. do you have that faith as well? just around the labor market? confidence that we can stabilize unemployment and get back to target inflation without the pain emerging in the labor market? >> it will be interesting to see what the data print is on friday. last week being just about 4%, level set, 4% is still very low,

even though it has jumped up. so, we think that you are also seeing the benefit of more people coming into the labor market. participation rates are going up . all else equal, you can see the unemployment rate moving up without seeing a broader negative effect on the economy and consumer. lisa: to put these ideas together you have margin pressure from companies that cannot pass price increases, you don't think it will cause a deeper weakening that is necessarily negative, you just think it will be enough to trim, correct? >> two things to bear in mind. remember where we came from. companies might not be able to put in place a 1% increase in price this quarter, for the most part they have done 20% increases over the last four years. consumers are just saying -- enough, we want more value. that's actually healthy.

secondly, the other reason we are not overly concerned about the consumer is when you look at aggregate consumer wealth, since the end of 2019 it has increased by $40 trillion. at the same time, debt service costs for the consumer have remained below 10%. the consumer in aggregate, yes, it's courtesy of a lot of fixed-rate mortgages, but it means the consumer has a lower debt service costs than the u.s. government right now. that isn't to say that pain is felt by lower income cohorts, but in aggregate it will hold up well, we think. lisa: do investors feel good when you get a sense of what your clients are investing? getting more aggressive? or are they figuring out how to be aggressive? is the tenor of the conversation taking advantage of pullbacks or

is it feeling nervous and you are clear that things are slowing down? >> there are two areas with a lot of conversations. consumers are feeling good about the returns they have seen over the last few years. having said that, some investors still have money sitting in cash . the conversation we are having with them right out of that rates are going to start moving lower soon even though the money market yield moving has been attractive. it's going to move lower. if you want to be more defensively positioned, it's a great time to start thinking about getting into bonds. bond markets don't wait until the fed rate cut to react. the yields start moving lower in advance. and if you move a month ahead of the first rate cut, 12 months out, you have generated a return that is 2% higher, typically,

then if you wait to move. lisa: which bonds? matt horn buck said it was hard to recommend going into longer-term bonds given the pause in the uncertainty around november. which denomination are you highlighting? >> most of our clients are taxable and in the muni space we like the 10 year plus area with the five to 10 year looking interesting to. treasuries, we think that tend to 12 your area looks interesting. jonathan: matt hornbeck said you could start to feel with those outcomes and the fiscal deficit. how politically dependent are the calls for you into 2025? >> a couple of points. we think that the term premium has been built in now.

the key question is around inflation. depending on the party in power, under trump they are focused on raising tariffs. talking about tariffs more selectively, but the big concern is that every time we have seen a significant run-up in inflation, like we did getting to above 9% a couple of years ago, it was followed invariably by a second leg. what's the trigger? to cross the board tariffs could trigger it. having said that, what is key is that investors do not invest with politics. we will spend a lot of time over the next several months talking about policy platforms and what the parties are able to implement depending on the nature of congress. what we know is that when you go

back through history, equity markets can and have done well under different administrations types, so it isn't a good reason to hold off. jonathan: thank you for dropping by, coming to us from bny mellon. let's get across to dani burger. dani: paypal shares gaining by nearly 9%. listed in -- they lifted their earnings-per-share forecast as part of the single digits. they are focused on streamlining operations as a part of their goal to transform the firm. andrew left pled not guilty to u.s. charges that he committed fraud, setting the stage for a high-profile legal battle over his strategies. prosecutors allege that he manipulated the market to benefit his trading and made false statements to investigators and if convicted he could face decades behind bars. the trial is set for late

september. 00 shares of crowdstrike are down in the premarket. cnbc is reporting that delta hired david bowes to seek potential damages from the cybersecurity firm after the botched software update that caused global i.t. outages. delta fared the worst during the outages with days of delays and cancellations. that is your brief, john. jonathan: thank you. up next, morning calls and bill haggerty, trump looking to firm up second term policy initiatives. the conversation, next. ♪

jonathan: getting you set up for the cash open. equity futures on the s&p a positive. let's get you some morning calls to kick things off with louk

capital, lowering their price target on disney, keeping a buy rating on the shares, saying that the street is underestimating film profits for the second half of the year. the stock, down by .25%. a positive rating on shares, analysts say that they are constructive on royal caribbean. third and final call from j.p. morgan, downgrading novavax to underweight from neutral with a street low price target of eight dollars with analysts expecting little meaningful news flow from the proprietary pipeline. those are some of our morning calls. let's turn to the election. fewer than 100 days to go to the polls and if reelected, donald trump is supposedly going to fill his capitol hill cabinet with congressman including bill haggerty, who has been floated as a paperwork treasury

secretary. the senator joins us right now. great to catch up with you, try to do it last week, this is the second attempt and i think it will work. senator haggerty: good to be with you. jonathan: we caught up with the former president just a number of weeks ago and he told us that he believes we have a currency problem in the united states. i love your perspective. do you agree with the former president and what kind of policy tools does the government have to address it? sen. haggerty: a number of problems with the economy but the biggest one is inflation. it striving our interest rates and that has a direct impact on currency. the trump policies will have immediate impact on bringing inflation down, it will end the administration more on fossil fuels, bring down energy costs, go back to the deregulatory construct, take on regulatory and compliance barriers. it will all lower costs in america, lower the impact of inflation, directly beneficiary

and help to make the case to bring rates down and bring the currency into a different position. jonathan: there are other proposals i am sure you are familiar with. i'm not going to sit here and say if immigration tightening is the right thing to do, but consequences, deutsche bank pointed out that tariffs associated with stronger implications for the dollar are more likely to be the stronger market outcome. senator, my question to you would be -- why would higher tariffs and a tougher start on him -- tougher start on immigration not ultimately lead to stagflation? sen. haggerty: i'm aware of stagflation concerns but the united states has the lowest barriers to tariffs than any in the world in the congress is our major trading partners do not have that, they have higher tariffs and a real lack of reciprocity. it's not fair and needs to be addressed.

many of these issues date back to world war ii. there has come a time and a place to address them. we want more reciprocal in fair trading terms in the time has come to get that accomplished. lisa: people are struggling with the goals of national security and fairness on the one hand and on the other hand the idea of a weaker currency for trade purposes. which takes preeminence? sen. haggerty: it is something that always has to be balanced. i think that president trump did an excellent job of that in his first administration, the playbook is laid out. we were strong and tough on china and we brought economic growth twice the rate of any other major economy in america. we can do both, we can walk and chew gum at the same time. that's the challenge. most importantly, trump will be coming into and these domestic policies. back to energy independence, we

need to get there. not only for lowering inflation, it will be an important geostrategic tool as we are able to export our energy to places like europe and asia. lisa: this idea of the war on fossil fuels and the idea of not really achieving the goal of energy independence. we are pumping more oil, producing more oil in the united states than ever before. 13 million barrels per day. it's unseen in terms of production from other nations. how can you call it a war on fossil fuels when it is record production? sen. haggerty: because joe biden came in and took federal land off the map, one quarter of our capacity right there. what you are not saying is that the trajectory was much more rapid and higher. we took ourselves off the growth trajectory and we flattened it. think about the demand for electricity in america, what we need for artificial intelligence

and the electrification of the grid. we have to get back into this business full blast. this administration has done everything they can to slow it down. a rapid growth path making a stronger domestically and stronger partners with our allies. jonathan: right now we produced 13.3 million barrels of crude every day. lisa pointed out, it's a record, more than anyone on the planet. how much crude should america be producing? annmarie: more than anyone else in the world, as we are. we need to become the strongest energy partner there is. think about pipeline capacity and the difficulty of getting permits. the difficulty of getting refineries started. all of these logjams, the difficulties make it less possible in more difficult for us to be the best possible ally. we need to realize it's a true source of competitive advantage, let's exploit it. let's talk about who is in who

isn't an ally. different conversations around trade policy in china. we have exhausted that. i wanted to talk about mexico. we saw from elon musk, tesla, he's holding back investment decisions in that country because he thinks there might be a change making it difficult to produce automobiles in mexico. we have heard similar thoughts from auto manufacturers elsewhere worldwide. what's happening in mexico and what kind of changes would you like to see? sen. haggerty: one of the greatest concerns over renegotiation is that chinese ev makers are looking to end run tariffs and use that market as a means to get into that market and use a subsidized product to destroy that market. we will have to take a solid look. with respect to mexico itself we have seen concerning behavior. the prior administration

nationalized american company assets. we have to address that. i expect to speak with the new administration there soon to make sure we have a better and stronger relationship. lisa: the last time we tried to talk, you were there with former president trump at the bitcoin conference. we have been asking this question on the show, why bitcoin, why now, why crypto assets, what's the motivation to really embrace a network of crypto assets to become the preeminent network on the planet? from a republican stance, is this something concrete and why? sen. haggerty: i think it has evolved over time. i started looking into crypto in 2018. i started out with a point of skepticism as many of my colleagues do. when i begin to understand the underlying productivity gains

and technology, i thought to myself that we need to make certain it happens in america. we don't want to see it like the soma -- semiconductor industry. we need to see the innovation happening here. i've been in many conversations with president trump and he is embracing the fact that there is tremendous potential for america. we want it to evolve and the last thing we want to do is push it offshore. however, the current administration has done everything they can to attack the industry, push it offshore and use the sec, cftc, every tool at their disposal to attack the industry and refused to provide it with a regulatory framework. president trump made up statement at the bitcoin conference that he would change out administrative leadership. it brought people to their feet in applause. he's going to put an end to operation show point and he will try to create that environment here in america where the

industry can thrive and we will see the next wave in america. jonathan: this is how i framed the question of your future, your favorite city to live in, nashville, tokyo, or washington? sen. haggerty: it has to be nashville. if you had been at the crypto conference and seen the energy, it's wonderful what's happening broadly there across my state, it's why so many are moving there. jonathan: senator, thank you, sir, with the latest on crypto and the economy, trying to work out if you would entertain a move full-time. lisa: you thought he would say something other than nashville? he's a nashville guy. graceful. jonathan: graceful as i could possibly be. good morning. "bloomberg surveillance -- this is bloomberg. ♪

jonathan: it is my favorite line in u.s. politics. there is a war on fossil fuels. republicans say this, democrats say there is a war on fossil fuels because they want everyone to think there is a war on fossil fuels. the conversation of what you did come hang on a minute, there are millions of barrels of crude being produced in this country. lisa: one side says there could be more. jonathan: what is this convenient argument they have? there is a war. there is one. both sides are happy. lisa: basically a messaging

tool. jonathan: which is another reason you love politics. lisa: let's leave that there. jonathan: we are looking at three days of gains potentially. lifting up by 0.1%, a little more than that on the s&p 500. up by 0.2% on the nasdaq. a fourth day of declining yields on a 10 year yield. that maturity just about unchanged at 4.1763%. the two-year doing nothing. europe came out ok. germany not so much forget everything else did the heavy lifting, everything else being france, spain, and italy. the dollar-yen, the big one overnight. interest rate hike. no qt. how much will we get? lisa: basically, this is the reason why the bank of japan may be inconsequential from a leading perspective then the federal reserve in the near

term. if they do not hike rates, that could lead to a pretty significant reversal and some of the strength we have seen in the yen over the past couple of weeks. if they do, is it going to be enough? can they offset any kind of lack of a rate move? all of these questions could potentially shift. jonathan: the olympics quote. what was the olympics quote? stronger together. what was it? lisa: faster, higher, stronger together. it could have been used as a model for central-bank policies on inflation in 2022, 2023. slower, lower, weaker together could easily be the mantra for today. jonathan: can we challenge that last word, together? how will the cycle be between the ecb, the federal reserve? lisa: it is a great question, and this has been a debate for a lot of people.

people say it can move at different times but it generally has to be in the right direction. we talk about slowing growth and a negative growth read when it comes to gdp in germany, and we just got information on harmonized cpi rising more than expected in germany. 2.6% versus 2.5%. so there is a balance of risks in europe. looks different from the balance of risks in the united states when they are not pumping 13.3 million barrels of oil every day and they are dependent on other sources for fuel. this is some of the backdrop to why it is very confusing. jonathan: this is where the republicans have a strong point and a strong ally on things like lng. these are some of the criticisms we see leveled at the current biden administration. how much stronger do i have to be with the europeans? will they be with the europeans over this kind of energy production and energy supply? lisa: i am glad you went there. the idea that lng was limited in

exports to europe at a time when they needed liquefied gas to offset some of the lack of supply they have been getting from russia, that raises questions about the alliance and the strategic position, understanding the goal was to reduce inflation domestically at least heading into the election. that is something that is worthy of a real discussion a lot of people are having. jonathan: some broader conversations in and around the market. we need to talk about this, under surveillance. four mega caps worth $10 trillion u.s. reporting this week. microsoft, meta, apple, and amazon. we are waiting to see how patient investors will be a little later this afternoon in the face of it. lisa: yeah, this basically comes down to a timing thing. are we talking about that is useless or that is not being -- capex that is useless or not being utilized right away? there was a statistic from the

bank of america that for every additional nine dollars spent in capex, you only see an additional dollar. patience is not a word i would use with a lot of traders that i think would be looking for earnings to outperform. jonathan: we will see how much patience there is this afternoon and into tomorrow morning. i want to mention samsung briefly, closing the membership gap with its competitor, winning nvidia's approval for high memory chips that for -- for ai memory chips. beyond big tech, investors also awaiting the fed decision. the fomc's two day meeting kicking off today. expected to give a sox signal for a september rate cut. to discuss, tiffany joins us alongside steve. to the both of you, thank you for joining us. i want to get your thoughts on what we can expect tomorrow afternoon. what kind of changes are you

expecting in the statement and what will be emphasized in the news conference? >> i think he will say they are more confident that inflation is starting to move back towards their goal after progress had stalled in the first half of this year. of course, the fact that shelter inflation has shown more progress in the last few inflation trends is going to help in that, but i do not think they are going to be in a huge rush. we think they are going to signal a september cut, but the economy appears to be doing ok here. i think in terms of market pricing, the fed is very focused on ice think cutting at a maybe once a quarter pace, taking it slow unless the economy appears to be rolling over more heavily. and it doesn't. he could come across as being a bit more balanced, although we think they are going to come in september relative to what markets are pricing. jonathan: we do not get updates to their forecasts at this time. we get them in september i

believe. i am looking at the forecast for unemployment. they have that at 4%, below where we are right applicant you mentioned them going into september and cutting once every quarter. what would your assumption be in the labor market given the interest rates? tiffany: yeah, so we think unemployment is probably around where it is now, maybe a little higher. we think markets are normalizing but the important fact is you have not seen a lot of actual layoffs if you look at the level of employment. employment has not really declined. those are usually the hallmarks of recession. we think we are seeing a labor market here which is easing certainly. we have had a lot of supply coming in the labor market as a result of immigration, and that appears to be the story to us. that still allows them to cut and do it at a pace that is not hurried like we see in a recession. lisa: steve, i know u.s. and

pathetic to the thought that they don't have to rush. you were talking but the potential for being ok for 2024 given the fact that there is plenty of momentum under the hood. do you still feel that way, that frankly all of this talk about even cutting rates tomorrow is premature and you think they should hold off and be more patient than many people think? >> to answer your question real specifically, they are winning. they are winning without having done anything, which is the most interesting aspect of this. the promise of rate cuts has led to financial market conditions, which are much more accommodative than the federal funds rate implies. so therefore there is a question as to whether or not they actually have to adjust the federal funds rate. the reality is they run the risk if they do adjust federal funds rate of people over anticipating what they will do. i think they would be very happy over the long-term term with a gradual reduction in rates, but you have a federal reserve that is dominated by political

economists who are very, very much sympathetic with a much more aggressive monetary policy reduction and therefore the market reads that and is likely to say, ok, once they cut it is not going to be every other meeting, it will not be once a quarter. it is going to be every meeting. that is why when you look at the forward structure of rates, for example, one going out over a year or so is telling you the markets are assuming we will get to a 2% fed funds rate were a lot economists would be sitting there saying maybe we get to 3% or 3.5%. the reality is the market has priced and much more which is why financial markets are still accommodative which is why they are winning without doing anything. lisa: you said political economists are in favor of a much more aggressive rate cutting path. can you piece that out? they want to support one administration or another. is what you are saying a little different? steve: yeah, you have people

here who want to play with the levers of monetary policy. they want the idea. the administration likes to play with the levers of fiscal policy. this is a throwback to the 1950's, 1960's where we had a group of economists that came in and thought they could use monetary and fiscal policy to craft an economy more suited to their liking. and we are trying to do exactly the same thing here again. the results of what happened in the 1960's and 1970's was we ended up with a stagflation environment which we are not anticipating here. we have excess demand there and supply here, but you could end up with higher inflation than the market is discounting. the biggest risk for the market is not at the front end of the current but the long end of the curve because yields at the long end of the curve are not taking into consideration the risk the policymakers are doing is creating a higher inflation rate than is currently priced into

the long end of the curve. jonathan: you suggest there are more that trade in the fives next year than the threes. steve: i think that is exactly the right scenario to think about. that is the risk reward train, yes. jonathan: what are you and the team doing? what are you thinking about the challenges longer in the curve in 2025? tiffany: we certainly think that over the longer-term markets can price in more term premium as a result of the outlook for the u.s. federal government deficits and debt. clearly, we are on an unsustainable trajectory. that trajectory is the result of social security liabilities in the future and these nondiscretionary programs the u.s. knows will have to be course corrected at some point. obviously, the big loser coming out of the pandemic was the government balance sheet with

additional debt. at some point, we agree the markets will need to price in some more term premium. but the end of the day you can get a steeper interest curve. but at the end of the day, we think government policymakers maybe not in this administration or the next, eventually they will do the right thing and we will get some course correction. we think the markets are currently giving the u.s. that longer-term fiscal credibility. so ultimately, it is nuanced discussion. we think the curve steepen, but we are not expecting some messy -- we are expecting some messy things out of this. lisa: harkening back to the 1950's, 1960's, fine-tuning everything so they will be more prone to try to support a market being put essentially, the way they are being treated in markets right now as sort of either way it'll be ok because they can come to the rescue. do you find sympathy with that view?

tiffany: well, i think that now that inflation has moderated quite a bit, now that people are more confident that you are still going to get some additional moderation, it could be slow, probably will be bumpy, might not get core pce inflation all the way back to two but could live with it in a two point something zone. fed officials as they should will start to focus more on the labor market side of the mandate. the view over the last several years i would say and even in the long-term strategy review that was completed several years ago, the view is if you let the labor market run a little hot, it is ok for the economy. it is actually good. you have people coming back to the labor market. you have underserved communities that really start to benefit from that. i think that is certainly the kind of policy views that people have, and as a result of that, they will be quick to start to

drop interest rates i think if you do see a labor market is loosening or rolling over more than they expect. lisa: steve, i want to finish up with you because there is this question about what the consumer is doing based on some of the corporate guidance we have been getting. it has been highlighting the pricing, the lack of pricing power in a lot of different companies. putting this question as jonathan has been asking repeatedly and rightly so, are we weakening or week or cooling or cool? are you changing your view on whether this is truly a less heated economy than you thought a month ago? steve: no, i think the economy will still see an inflation rate at the end of the year that is much higher than the federal reserve's target. i think the hope that the currency continues to provide the ability for goods, global goods deflation to dominate or have an impact on -- a favorable impact on the story is a risk.

foreign central bank policy decisions can have an important impact on the currency. it is not just the u.s., and the currency has been one of the critical components here. if the dollar were to take a turn to the downside and you were to take for example your dxy measure and were headed back to 100 from the 104, 105 area it has been trading income you could have a significant impact on goods inflation. if you have a significant rebound in goods inflation, you will have a significant bounce in inflation and therefore it is not just a monetary decisions here but also the monetary decisions overseas. you should not rely on that component to be the component that drives your inflection story, especially when you want to -- inflation story, especially when you want to keep the labor market hot. this concept of a hot labor market brings the question of, what is a hot labor market? the unemployment seemed to be 4.5 percent. now we have lowered the target by the end of the year to 4%.

that is a very significant downward adjustment to the un-employment rate. yes, the federal reserve lowered the threshold to make it look as if the labor market is accommodative or becoming more available or the less lack is developing in the labor market more quickly than is actually taking place and this is a critical component. you look at the claims numbers, the continuing claims numbers, you look at the number of job layoffs, people are not getting fired, and it is harder and harder to find skilled workers. wage pressures are not coming off the boil. it is really an environment where global goods deflation has been pulling down the headline inflation just like global goods inflation moved a lot of it up to the upside during the covid environment. it has now reversed that. but by the same token, the service component is not coming down, in the service component is the dominant component within the u.s. inflation rate because we are much more of a service economy then we are a goods economy. jonathan: steve, tiffany, big

week ahead. thank you for giving us time. two of the very best in the world of economics. looking ahead to some jobs data a little bit later. jobs opening coming up in about one hour and 15 minutes for the month of june and then a ton of july economic data. we will get the adp report tomorrow. the day after that, jobless claims and then payrolls on friday. let's get your bloomberg brief with dani burger. dani: procter & gamble shares lower premarket. quarterly sales missed estimates come arising just 2% versus expectations of 3.4%. png struggled to push through price increases in his household items, raising prices by 1% in the quarter. that is the lowest increase in nearly three years. it rhymes with kimberly-clark's earnings. warren buffett's berkshire hathaway cut its stake in bank of america again. the company disclosed its third sale of bank of america shells this month.

berkshire still holds almost 962 million shares. the filing -- buffett is taking profits with the stock up 22% this year. it is day four of events at the paris 2024 summer olympics. several finals today. yesterday, novak djokovic ended roughly on a doll -- ended rafael nadal's run. yesterday the first bronze since 2008 for the u.s. japan has six gold medals, 12 of them overall. that is your brief. jonathan: thank you. it was sad watching nadal. i don't know how much of you saw it, but it was said. i hope he gets to sit down with carlos alcaraz. lisa: i honestly was not watching that. i was watching gymnastics.

i was watching women's. jonathan: i was watching the ribbons. i don't know what that is. lisa: really quite amazing. i watched synchronized diving. jonathan: you were busy yesterday afternoon. i was getting ready for the show. i was getting ready for the show. up next -- i was doing the same thing as you can tell, maybe. up next, we are running through the day ahead, the week ahead, and some thoughts on baseball with david rubenstein. look out for that next. from new york, this is bloomberg. ♪

jonathan: the opening bell about 40 minutes away with equity futures elevated by zero and one percent. we are higher on the s&p 500. the day ahead, the trading diary looks like this. at 10:00 a.m. eastern time, we will get jobs and consumer confidence data.

and then the boj and federal reserve followed by a jay powell conference. thursday, another round of jobless claims and a central-bank decision from the bank of england this time. on friday, the u.s. payrolls report. earnings picking up his afternoon with microsoft after the closing bell ahead of meta, apple, and amazon. all of that coming up over the next couple days. also later, david rubenstein sitting down with the founder and cio of an asset management company. you can watch that on bloomberg tv at nine apart p.m. eastern tonight. i am pleased to say the host david rubenstein joins us now. not your typical office, not in the washington, d.c., bureau. you are at camden yards. we have to adjust elephant in the room and talk about baseball. how much are you living life right now? david: well, we are in first place in the american league east. we have a really good chance of going further in the playoffs

this year than we did last year so i am very happy. obviously, not always happy. we lost last night but there is a game again tonight and tomorrow so hope springs eternal. lisa: you will be of course focusing on the trade deadline as well. before you move on to other things, i am wondering, has this satiated the sports edge or are you still in the market looking for other things? david: i think this is taking up enough of my time now. i think i am probably not going to buy anything else right now but this is a very enjoyable thing to do and i am happy with the team and the way it is progressing, yes. lisa: i don't know where you find the time to do all the things you do. you did an interview that was really fascinating. i recommend everybody watch. you talked about his background coming here from the former soviet union, from ukraine, during the 1990's when he could and the different operating there versus operating here. what did he tell you about the importance of the political

structure to what he could do? david: well, he escaped with his family at the age of seven from kyiv came to chicago, -- kyiv, came to chicago, did not speak english, nor did his parents. he runs one of the largest multi-strategy hedge funds and multi-strat hedge funds like they call it. like millennium or citadel, they have different teams. he has 170 different teams of people pursuing different investment strategies and each one is uncorrelated with the overall market. it is a very efficient may 2 - way to manage -- it is a very efficient way to manage the market. the company is based in chicago but large offices in other places in the world. he is a very impressive person and has given a lot of money for ukraine relief because of the war and his connections, family connections for a long time into

ukraine. he is a person who is relatively modest in his demeanor. very smart, clearly. i had a really interesting conversation with him. many people i interview i knew before. i really did not know him and was impressed with his ability to articulate what he does and with the success of his firm. it is quite amazing he has built this from scratch without having a degree from a famous university or without having been a native of the united states. lisa: what was the most surprising thing that he told you during the interview? david: well, he told me that he could not speak english at all when he came here, nor could his parents, and he really did not have any connections to get anywhere. and where he got and how he got off the ground was answering an ad in a newspaper looking for help. an entry-level job at a firm in chicago, and he basically used that entry-level job to learn the training business -- trading

business. the person who owned the company he joined became one of his investors, so it is really a success story. typically it is a great american success story, an immigrant coming from nowhere to build a very large financial service firm. quite impressed with him. very articulate and modest in his demeanor. he does not clash his money. very low-key and quite impressive. jonathan: phenomenal story and looking forward to watching this later. good luck against the blue jays later this afternoon as well. david rubenstein of the carlyle group. you can watch his interview on bloomberg tv at 9:00 p.m. eastern tonight. what a story. lisa: yeah, especially since he came from nothing. it is quite a story that david rubenstein is at camden yards just living life. just like, yeah, this is pretty good. jonathan: i have a club in the north of italy i might want. lisa: you are trying to market ac milan, really?

jonathan: tomorrow, several guests including james bullard. fed day just around the corner. ♪ (♪♪) (♪♪) sandals rhythm and blues caribbean sale is now on. visit sandals.com or call 1-800-sandals.

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matt: futures gaining 30 minutes until the start of the cash trade. katie: bloomberg open interest starts right now. ♪ data dependence, the consumer confidence data as the fed meeting gets underway. >> microsoft kicks off this week's mag seven earnings, the scrutiny is high after alphabet and tesla disapped