>> i can understand why the fed is being cautious after the whole transitory fiasco, but i'm getting close to the point that i think they are too late now. >> really, you're going to wait for something to go wrong before you start cutting rates? isn't that too late? >> i think rate cuts are definitely coming. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: good morning, good

morning. "bloomberg surveillance" starts right now. what a 24 hours we have coming up for you. the s&p 500 futures are elevated higher by .9%. the nasdaq, outperformance up by 1.4%. the nasdaq, before today set for the worst month of 2024. at the same time, the russell is set for the best month of 2024. the russell is up by .8%. the mood around tech improves a little bit. we will talk about microsoft in a moment. the tech exemption chip export story out of reuters lifting things around the world. lisa: it seems like there was recognition that there wants to be some kind of global cooperation and the chips sector opening the doors with everyone other than china, which is why you are seeing asml and tokyo electron surging. reporting higher than expected earnings gaining share versus intel. also, plowing in a little bit

into nvidia's market share. are we seeing the broadening out within the ai story, which is what a lot of people have been waiting for? jonathan: let's go through this with some purpose. the day ahead, little later this morning, we get an adp jobs report. 2:00 p.m. eastern, the fed decision. 30 minutes after that, a chair powell news conference. after the close, meta-earnings. the central bank decision we've already had come of the boj hiking interest rates and unveiling plans by. lisa: he said the bank of japan message was clear, they don't want the yen to go on weakening. even though you are seeing some moderation, some signs of weakness, in the underlying economy it didn't stop them from going ahead with a one-two punch that caused basically something more than a 6% rally in the end the dollar so far this month. it raises the question, has this

become the priority? was this the political will and the bank of japan saying all of you carry traders, get out? jonathan: came close to breaking 150. 150 .07. down by 1.6% by 150.33. that is morning exchange. a rally in wti and brent. brent crude up by 2.3%. two very important strikes in the last one he four hours. two very different places. >> how to avoid escalation wen yu kill a hezbollah -- when you kill a hezbollah operative? this is the question. does tehran respond in a much more advanced way given the fact that israel was able to kill a visitor under its nose?

this is what a lot of people are wondering. there is the sense from lebanon of trying to offer some calm and negotiate, etc. jonathan: this reinforces the risk of a regional conflict. in 25 minutes we will get the latest for the region, and then we will catch up with norman about some of the risks. we always talk about the potential for an accident. there is real potential for an accident a real escalation going forward from here. lisa: this ultimately is not a conflict that can be solved. it can just have the temperature turned down. when you have a conflict that cannot be solved with people dying, with the threat of sovereignty on all sides, it raises the temperature dramatically. how do you turn the temperature back down? especially at a time of uncertainty of global leadership? the impetus, where it will come from to pressure the different leaders to get together and come up with a peaceful solution?

jonathan: leadership in the united states of america as well. we talked about microsoft, we will start with the bad news and get to the good news later. the stock is down by 2.8%. it was down more than this. essentially, cloud computing revenue posted a slowdown in quarterly growth. that's the bad news. the good news, the deceleration will continue for the current quarter, but in the back half of fiscal 25 things accelerate with the contribution coming from ai picking up. we will speak to dan ives in a moment and i imagine he will talk more about the latter than the former. lisa: the issue in the story is the same thing that rhymes a little with what we saw from alphabet. right now microsoft is being penalized for their investment in future growth because people are not seeing the current growth in excess of what people expected. it is not as though they massively disappointed. it was marginally online or slightly below estimates. the cfo said yesterday that even though growth will slow in the current quarter, and this is the

key, investments in data centers and servers will let the company capitalize on demand and accelerate growth in the second half of 2025. why are people penalizing future growth? frankly, they are running out of time and looking for excuses to monetize games this year. jonathan: the stock is down by 2.8%. the broader story on the s&p 500, a lift by almost one full percentage point on the s&p. totally unchanged going into the fed decision. the 10 year, 4.1394. we will catch up with evercore with stocks bouncing back. we will speak with dan ives as microsoft earnings disappoint some investors. and lara rhame ahead of the fed decision. julian emanuel writing, our year and s&p target is intact driven by earnings and a fed about the cut interest rates. there are no signs of imminent

recession or excessive speculation that would typically mean that this bull market is over. julian, good morning. we have done about six minutes of this program and hardly talked about the fed. maybe we should start with the federal reserve. i'm sure your base case is september, like so many others. are they doing so because they are comfortable with inflation or increasingly uncomfortable with the labor market? julian: this is one of these times when we look at that history. there has really been only one time where they are able -- were able to cut rates because they could and not because they had to. when you think about the labor market, no question it is weakening, but it is weakening gradually. to us, the bigger story is the fact that the confidence about inflation's trajectory is very much front and center. jonathan: you say gradually, others say sharply. some will take the sharp drop in

hiring and the rising unemployment rate as a warning that the labor market could weaken more sharply. where will we be by september? julian: probably a tick or two higher. most would tell you that nehru is higher from where we are now. if you go back and you think about it, the weekly jobless, around 240,000 or so average, and you think about it on a population adjusted basis versus numbers 10, 20, 30 years ago, the strength of the labor market is undeniable, particularly when you zoom out. lisa: that said, you have this note that caught everyone's attention. bye-bye, soft landing. it was nice knowing you.

there is this question when you look at the internals of some of the data we got yesterday, the hiring rate coming out at the lowest level if you strip out some of the key pandemic months going back about a decade, look at the pace of people who say that jobs are easy to get versus those who say it's hard to get, you can see the differential going down to a significant degree. basically, things are loosening up in the labor market in a way that a lot of people are saying is a pace that raises alarms. why doesn't it for you? julian: i think that you have to step back and think about the evolution of the last couple of years. what we learned at the end of 2022 was companies stockpiled labor on a precautionary basis because the employment market was so tight. then they said we are going to focus on margins. in a lot of ways aurburn america has had two years of preparing

for the economic slowdown, which is why in part we are seeing this gradualism. does it mean that we are not going to have a negative gdp quarter or perhaps what you would call, if you didn't call 2022 a recession, could that be in the next year or year and a half? it could, but we would argue that even if that materializes the economy has been rationalized sufficiently that it's not going to be as painful as a typical recession. lisa: given that backdrop, let's get to your 6000 call. we have seen big tech down the last couple of weeks. you think that they will eat on the way up even at a time that it's clear that investors have run out of patience for anything other than just extraordinary beat time and time again? julian: this morning is reflective.

remember, there has been so much news. whether it is central banks, politics, the questions about whether the economy is slowing or accelerating. how do you reconcile the labor market with the last 2.8 gdp? at the end of the day, this morning is about the reminder that generative ai is one of these names that has durability and in our view is going to be central to getting to 6000. jonathan: can we talk about things beyond big tech? this is what happens when you have the biggest bull on the street. throwing up bearish ideas and save the bull back in the way. lisa: we will continue this over the last hour. jonathan: some commentary we've had recently, bearish stuff. mcdonald's, first sales slide since 2020. have -- pepsi, the

consumer is more challenged. starbucks, not great either. all of this is piling up. the consumer is not great, we are losing pricing power, we can't put prices up anymore, sales are down. what does that mean for everyone charging into small caps and buying the rest of the market? julian: you have to differentiate. part of the beauty of the market in 2024 is that correlations on the stock basis are so incredibly low that it really is a market of stocks. what i would say is, think about it. we have been gnashing our teeth for a year and we need broader participation, we need the rest of the stocks to catch up to the mag 7. hello? we've got it in the month of july and now everyone is freaked out because part of the story is the giveback in the larger cap tech stocks. in our view, the path to 6000 is likely going to be what you saw in 2016, what you saw coming out

of the first downturn of the technology age, the internet age, in 1996. all of the stocks are going to participate in our view. jonathan: mid 1990's, not late 1990's, sounds like dan ives. spending way too much time with dan ives in the green room this morning. let's get an update on stories elsewhere with your bloomberg brief. dani: a worldwide rally is underway and chip stocks this morning with reuters reporting that the biden administration plans to send chip equipment makers in japan, and the netherlands, and south korea from export restrictions that would prevent the export of products that use any american tech to about half a dozen chinese semiconductor manufacturing facilities. hamas says that israel killed his political leader in an airstrike on tehran. a chief negotiator for hamas was in tehran for the inauguration of iran's new president.

his death follows an israeli strike on beirut last night, targeting a senior hezbollah commander. the attack was in response to a rocket assault that killed 12 children and teenagers in israeli-controlled golan heights over the weekend. a poll suggests that kamala harris has wiped out donald trump's lead over seven u.s. battleground states. the vice president rides a wave of enthusiasm among young, black, hispanic voters. the morning poll found that 48% support for harrison 47% for trump. that reverses a 2% deficit for joe biden before he withdrew. however, the result is within the margin of error and the election is still a tossup. jonathan: more from dani in about 30 minutes. next, microsoft falling short. >> we added new ai accelerators from nvidia. we know how to manage our spend to build out long demand. it is more important to manage

to capture the opportunity with the right portfolio to drive value. jonathan: a bullish view is up next with dan ives. from new york city this morning, good morning. ♪ the all new godaddy airo helps you get your business online in minutes with the power of ai... ...with a perfect name, a great logo, and a beautiful website. just start with a domain, a few clicks, and you're in business. make now the future at godaddy.com/airo trains. [whoosh] ♪ trains that sense what isn't on the schedule. ♪ trains that use the power of dell ai and intel. ♪ to see hundreds of miles of tracks. ♪ [vroom] [train horn] [buzz]

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jonathan: live from new york city, welcome to the program. a long day ahead of us. equity futures on the s&p 500, bouncing back by almost one full percentage point. the bond market, going nowhere. 4.1394, close to the lows of march this year on the u.s. 10-year. microsoft falling short. >> we now have over 60,000 as -- azure ai customer and average spend per customer continues to grow. we added ai accelerators as well as our own sil -- silicon

azure manager. it is more important to capture the opportunity with portfolio driving value. jonathan: microsoft sales falling after a slowdown in quarterly growth. the microsoft main growth engines on revenue rise from hurting 1% in the previous quarter. disappointing some investors looking for a return on the company ai investment. dan ives writing, while there will be knee-jerk reaction in the stock, we believe that the takeaways for the broader tech sector is the ai monetization story is real. nothing from this quarter or conference call makes us less bullish in our ai thesis. let's start with that cloud revenue number. that's disappointing. then we hear more. the contribution from ai is picking up. we are going to see the softness continue in the current quarter but then re-accelerate. things pick up in the back half of fiscal 2025.

can you frame the second piece of it? why do you think that so much more important than what we are seeing play out this morning? dan: the words heard around the world when the della and amy talked about the acceleration for azure in the second half. ai monetization actually starts for real in january. you go back to last week, knee-jerk and the white knuckle moment with alphabet, street needed to hear about monetization for ai. bullish not only for microsoft but the tech sector. in my opinion, i think the stock goes green. i would be shocked if it sticks. anyone who heard that conference call, you come out more bullish on microsoft rather than any skepticism because of the acceleration from azure, because

of monetization, because of commercial booking stronger than expected. it is that knee-jerk, the haters come out. it is all about the ai revolution and ai monetization and validation. jonathan: why did you turn to lisa when you talked about the haters? lisa: the haters have been talking about this forever, lisa. it is not the haters skeptical of this number. they are saying that ai is bogus and everything is wrong and they are going to tank.it is that they were not surprised dramatically to the upside in the actual game to seen on the stock implying significant profit gains going forward. one investor, it was really about the cloud services number. it needed to just be a little higher. what do you make of how people have priced in the forward growth rate and whether they have gotten over their skis in

terms of the pace? dan: that is a great point. it is why the most important thing is to show the monetization. show that you are now going to have growth rates on cloud in the 30%. ultimately if you trajectory it out incremental 15 billion to 20 billion for microsoft, you aren't going to see that right away. what nadella and microsoft showed is that this is coming and we are going to guide it. that was the most important thing for the call in spite of the actual quarter being strong but not a wow, pop the champagne quarter. lisa: there is the issue of who will benefit the most in the big tech names as they build out there cloud provisions and ai capacities. we were struck by amd overnight seeming to gain share. you think that this is a game changer in how much they can compete with nvidia? dan: i think this shows it is not just about the godfather of ai and nvidia, amd is getting

into the ai party. they are getting onto the dance floor. what you saw, bullish for amd. triangulate that with microsoft with what i believe we will hear from amazon and meta and others, it shows monetization starting. the next phase of ai playing out. that is bullish for servers now, salesforce. now it is about second, third, fourth the derivative. everyone is focused on two companies in the world. microsoft and nvidia. amd said, don't forget about us. jonathan: nvidia up in the premarket on the back of some of this. the story out of reuters that is lifting tokyo electron and asml. biden administration plans to exempt chip makers from upcoming export restrictions. how important is that story? dan: very important. what is the one thing that can spoil the ai party? it is not the fed, it is not

valuation, it is about restrictions. it's basically what we see on tariffs, and ultimately the tech war playing out. that was a huge move by the beltway. just keeping that when you want to sound tough in terms of what is playing out. for asml. it shows that you cannot disrupt the supply chain with all this constraint. jonathan: we have done the cloud business and the chipmakers and we need to finish with your baby, apple. the report the last couple of days, the chance that the iphone is released in september without all of the ai goodies. you have had this thesis for a long time. they come out with this phone, there would be a monster of great cycle, it is one of the biggest pillars for your upgrade call on the apple stock. does it change with that report? dan: not at all. a great report as always, but developers got it on time.

developers will build hundreds of apps. on iphone 16, even if it is an update in october, we are talking a few weeks. i go back this weekend. it started off as 80 million units for iphone 16. guess where it is now? 90 million. that means that cupertino news, cook sees where demand will be in an ai-driven super cycle. lisa: do we have a sense of what some of the ai applications will be consumer-facing that will be game changing? i understand on the corporate sphere but getting a personalized emoji is not necessarily a game changer. dan: of course. that is why it is important year from now you will have hundreds of apps on this iphone, on the apple systems that are ai driven. that is why developers are the

heart and lungs of the story. apple is giving it to them, apple intelligence. the ai consumer story runs through cupertino. this week cook will talk about the background noise to the main event. september, what i view is a strong upwards. china, this will be the last negative quarter. the china growth story is back for apple. lisa: you were talking about how you have a lot of events to go to and you didn't want to show a very casual. what does casual look like for dan ives? dan: the biggest insult for a college football fan is if someone calls you casual. that is the most insulting you could get, you are casual. farro being a huge f1 fan, he and netflix got me into f1 and i will be going to my first f1

event in vegas. casual is the biggest insult for any sports fan. jonathan: drop by the greenroom this morning and dan was talking to julian emanuel about what was happening in the equity market and he said that he was this close to dressing in black for today's appearance when the microsoft numbers first dropped. dan: before the conference call i thought maybe i would have to dress -- all of a sudden the acceleration, the pink sports jacket. lisa: you don't have any black. no way. dan: but ferro was going to bring it. jonathan: a black tie, the whole thing. from new york, this is bloomberg. ♪

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jonathan: live from new york city this morning, good morning and welcome to the program. the s&p 500 higher by 1%. the nasdaq 100 up by one point 5%. the rustle up by three quarters of 1%. the russell of five nine point 5% through yesterday's close. the nasdaq 100 down by 4.5. we are talking about 14 percentage points of outperformance on the small caps, which is absolutely phenomenal. that is the story of the month so far. i want to talk about the story of the last 15 hours. if you are watching the numbers

come out a 4:00 p.m. eastern yesterday as the market was closing and you heard from starbucks and microsoft, just the reports and not the earnings call, and then you went to bed and walked away from the market, i'm not sure that you would guess that this is where stocks would be when you woke up in the morning. lisa: were you watching me? that is exactly what happened. i was watching starbucks and microsoft, and they did well but still disappointing. starbucks, the second straight decline fell 3% in terms of sales at coffee shops around the world. all of this reconfirming the weak consumer after data we got yesterday. i thought, tomorrow is going to be how the consumers falling out of bed. how we aren't understanding how quickly the economy is rolling over. and then stocks are on a tear and everyone -- jonathan: you can thank some chipmakers. and microsoft eased things across the board even with microsoft down. lisa: it was down 8% at one point, so really taking huge cut

out of a very big company at a time when people were expecting more. the idea that the investment would reap profits eased that. jonathan: you know we are 30 minutes into the program and we have hardly talked about the federal reserve. as the program gets older and we get deeper into it we can start that conversation. the front-end of the yield curve, bonds, the two-year at 4.36. this started with a note that deutsche bank put out around the federal reserve and we have been counting ever since. the two-year yield has rallied at every single fed meeting for six consecutive fed decisions. can we make it seven? i was looking at the numbers yesterday. the last time that the fed met, the two-year yield opened in the 4.80's, so we have moved lower since mid june. lisa: since the fed spoke last year and changed their stance

to the pivot party a lot of people talked about, it seems like the market is imagining all of the scenarios where they aren't able to cut rates. the data comes in stronger-than-expected and people say, maybe not. the fed says we are still on track. my issue is, how much are people looking for september written in stone? if they don't get that, you get a different move into the seventh day of the rally? jonathan: a key feature of this program has not been about september. it has been, why don't they move in july? we have heard it repeatedly. bill dudley, i changed my mind, the fed needs to cut. mohamed el-erian, we are two meetings from a policy mistake. it was put out yesterday, and i think frank perfectly, the risk of higher unemployment is much higher than the risk of rising inflation. we have to say on this program that the federal reserve is not in the crystal ball business. they are not meant to be amazing predictors of the future. they are in the risk management

is nice. if they ask themselves the question, what is the biggest risk? inflation shifting higher or unemployment climbing? how do we need to respond accordingly? lisa: the market is saying that inflation is not the problem. we heard from julian emanuel that we have renewed confidence inflation is coming down. think of all of the retail companies, consumer-facing companies, saying they can only raise prices 1% come the lowest since the pandemic. the issue for the federal reserve is, is this dormant or something that has been killed? a lack of understanding there. on the flipside you are seeing internal and topside deterioration in the labor market getting notice. jonathan: that is ahead of us and behind us is the boj decision. i want to check in on the dollar-you and -- on the dollar-yen, close to breaking 150.

the bank of japan raising interest rates to the highest level since december 2008. the boj announcing plans to halve the pace of moan lee buybacks. any additional hikes will be data-dependent. we have the rate decision, we have the bond story, and you have the guidance. the real japan watchers, the boj watchers, say that the more important element is the guidance. it looks like today's move won't be one-off. they are ready to go again. lisa: someone asked if you see 0.5% as the ceiling on any rate hike. they didn't say yes. they bowed away from that. only 30% of market participants expected some rate hike as a base case. that gives you a sense of how much people were expecting them to signal and maybe work with the balance sheet and not make this move. other questions are, what is taking dominance in terms of the decision-making? the economy or them saying, we don't want the yen where it is.

we are sick of this. we will do this ahead of a fed meeting that will probably signal a cut. this is a key time for us to blowout some of the leveraged trades that have been making the yen weak. jonathan: are you suggesting there was a [knocking] from the minister of finance? lisa: japanese residents are feeling the pressure of the high cost of living. that is one of the consumer sentiments in the region. jonathan: you get the picture. let's turn to this text or whatever it might be. the latest poll from bloomberg and morning console shows kamala harris wiping out donald trump's lead in most key swing states, paris overtaking arizona and nevada. the former president hold to the advantage in pennsylvania and north carolina with the former president polling higher than biden before he dropped out. this is where the momentum has been. lisa: we heard from people who

were not planning on showing up who are revived to want to show up to the election. what has actually changed? have we gotten any substantive differences with kamala harris versus joe biden? basically they were the double haters. people were so dissatisfied that they now feel they have a new slate to some degree. is this a honeymoon phase or something durable, especially with the convention? jonathan: if this is the relief rally from the democratic party after the former ceo heads to the exit. we have not seen the vice president sit down for a single question -- or answer a single question about what has happened in the last month. never mind established with the policies look like intentionally over the next 4.5 years. we have all of that still to come. lisa: we still have three months. this is what a lot of people are saying. there lingering questions about the policy and process and how

this will go forward. a lot of people are looking for the debate in september that may or may not take place. what it highlights to me was the dissatisfaction initially with the race. jonathan: without a doubt. we hope we get to see the debate in early september. create is rallying in the commodity market. thomas saying that israel killed its political leader in an airstrike in tehran. israel targeting a senior hezbollah commander in beirut. we are joined now from dubai for the latest in the region. it feels and looks like escalation. what comes next? >> it has been a very tense 24 hours out of the middle east. the significance is that it was the leader of hamas, one of the major political leaders in tehran when he was assassinated. this is majorly embarrassing for tehran. it was also on the back of him

being in iran for the president 's inauguration. this is a president who ran on a reformist agenda looking to open diplomatic channels with the west. everything has changed in the last 24 hours. since the assassination we have word from the new president saying that iran will make terrorists regret their action. we will defend our territorial integrity. we heard from the supreme leader, the ayatollah, saying that supreme punishment awaits israel. this doesn't sound like a regime that wants to reengage with discussions with the west. it seems as though the calculus has completely flipped. until this point, you may remember in april there was a tit-for-tat exchange of rockets between israel and iran. since then, they have been pursuing what people have called strategic deterrence. while they have been politically supporting hamas, they haven't been willing to put themselves

or has out for a full-blown war. sentiment has changed in the last 24 hours and there's a lot of concern in the region that this may escalate into something bigger, and certainly the diplomatic channels are working hard to keep it contained to just the actions we've seen in the last 24 hours. lisa: where is the pressure point internally in iran to keep this contained? joumanna: i think that that's a really good question. the secretary of state antony blinken would say that it all boils down to the cease-fire in gaza. it is difficult to see the situation calming down in the absence of the truce or settling down of the war ongoing in gaza. you will recall that he was the chief negotiator engaging with the mediators in egypt and qatar to push through those discussions. again, it looks as though some of those channels have been closed. you have egypt saying that the

killing of him undermines those remediation efforts. you have the prime minister of cutter saying, how can remediation succeed when one party kills one of the negotiators? hezbollah themselves have said that they would only downplay some of the tensions on the border should there be a cease-fire. it feels like that is the main pressure points going forward. jonathan: leading our regional coverage on top of the story overnight. we are joined by the former senior u.s. intelligence official. i want to work through this individually and get your thoughts. we have two strikes on two territories. i want to understand what is more significant. can you make that call this morning? >> it is more significant that he was killed in tehran taking place as your correspondent noted within hours of the inauguration of iran's president in an irgc guesthouse.

this is a humiliation for iran and the revolutionary guard itself. the supreme leader has stated that enron must respond to this. for hezbollah, losing their seniormost military official would require a response. you should look at this as a collective and add that the israelis have struck the who these -- the houthis and the united states has struck to prevent operations in the last 24 hours. for tehran they will have to respond in that matter. lisa: what response do you expect from tehran? norman: it is not impossible they will strike iran directly, but it's unlikely. israel was able to demonstrate an exquisite capacity to take out iran's most impressive air defense. the killing of haniyeh and shukr

demonstrate incredible intelligence by the israelis. i think iran will have to hurry up and slow down. they will have to come up with a plan that doesn't start a war and risk their officials, but they will have to undertake strikes against israel itself. one other point to note is that hamas is in a position where it needs to respond. it is different than 10 months ago. 10 months ago we may have seen hundreds of rockets were missiles. the next few days will indicate what military capacity hamas has left at this time in the conflict. it is going to take a little time for the iranian government to sort out. jonathan: this looks like a serious potential of escalatory steps. you touched on what happened in april. some people may describe april as a series or episode of billion-dollar skeet shooting. iran fired a lot at israel and hardly anything got through.

what we have seen established overnight is the ability of israel to strike inside of iran in a very different way that iran cannot strike israel. i wonder, norman, from that perspective if what we've done overnight is establish a series of deterrence, or a big deterrence, with the acts of israel? would that be the more favorable way of framing things? norman: it's possible. it's also possible to say with hamas with the killing of haniyeh will file moves against its leadership in gaza and come to the decision that it needs a cease-fire to survive. iran has always used asymmetric responses knowing that it cannot compete conventionally, even on intelligence with israel, the united states, and others. i think that iran will think of how it uses its proxies and its asymmetric forces. that could be missiles or rockets or assassinations.

this will take discussions within tehran's national security council and the review of their own intelligence and capabilities in place at this time. lisa: a lot of the rationale for some of the strikes and back-and-forth of missiles leading up to this moment has been that there is not a cease-fire and the conflict continues in gaza. is there any sense that we are seeing progress being made and some of those discussions to reach an end to that conflict? norman: over the last 10 months you see several themes. hamas has asked for a complete is really departure, an end to the conflict, and its survival as the main operational development in gaza. you have seen that we are close to something in near deal, but we've never seen a hard statement from hamas to say that they're willing to accept the cease-fire instead of demanding a permanent end to the conflict. if you are in israel, the idea

of a permanent end to the conflict isn't attractive to israel's hardline government, although i believe it is acceptable to israel's military. with hamas on its heels approaching the final stages with perhaps months to go of the gaza conflict, i don't think the cease-fire will happen unless hamas makes concessions in the coming days. jonathan: appreciate your input and clarity. former senior intelligence official. in the past week we had someone on the program give us the impression that we were somehow equidistant from an escalation in the regional conflict and at the same time as close to a peace accord or a cease-fire in somewhere like gaza between israel and hamas.overnight it feels like we've come closer to regional conflict than anything else. lisa: and the specter of accidents that you put out there. when you have people lobbing missiles at one another, sometimes they go into weird places and that can cause things to escalate. norm said that israel is in the

end phase in its gaza operation. it raises different stakes for all of the players because it is a much-diminished hamas and iran funding hamas and hezbollah trying to figure out exactly what their game plan is. jonathan: look out from her coverage to come out of the region from bloomberg tv and radio over the coming day or so. elsewhere, with your bloomberg brief, let's get across the dani burger. dani: indian officials say that more than 90 people have been killed in landslides that buried several villages in the southern state. hours of heavy rain triggered the disaster in bad weather continues to hamper rescue operations. the first landslide have it at 2:00 a.m. on tuesday when most people were sleeping. the indian army has been deployed to help with rescue efforts. shares of hsbc are rallying by 3.7% in the london trade with earnings topic estimates announcing a 3 billion-dollar stock buyback. the buyback is a function of hsbc's confidence for the future ceo.

he will hand over the reins to the current cfo on september 2. for his part, he said that the bank is planning to keep its overall bonus flat for the year as it works to keep costs contained. shares of starbucks are also higher, 2.7% in the premarket. it reported quarterly results in line with expectations of the coffee giant reaffirmed its four-your gun and suggesting that turnaround efforts are starting to stick. they did disappoint in china. starbucks confirmed that activist investor elliott management has taken a stake and talks have been constructed. jonathan: more from dani in about 30 minutes time. setting the stage for september. >> we think they are going to signal a september cut, but the economy appears to be doing ok here. it will be quick to drop interest rates if you see a labor market that is loosening

or rolling over more than they expect. jonathan: the fed decision is just around the corner. from new york city, you are watching bloomberg tv. ♪

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jonathan: the stocks are looking good here. the fate of the session is in the hands of chairman powell at 2:30 eastern with a news conference. a bunch of other things as well, but there is one. equity futures positive on the s&p and the bond market settled down. 4.1336. levels we haven't seen since early march on the 10-year yield going into the fed decision. setting the stage for september. >> we think that they are going to signal he september cut, but the economy appears to be doing ok. we do think that they are going to cut in september relative to what markets are pricing. they will be quick to drop

interest rates if you do see a labor market that is loosening or rolling over more than they expect. jonathan: investors counting down to the fed decision at 2:00 p.m. eastern and chair powell's news conference 30 minutes later. writing that powell is unlikely to give any hands about anything after september. one rate cut in the second half of the year, but given friendly inflation data that may increase to two rate cuts. we are joined now for more. i want to frame this question based on some of the research that we got from neil. i want to know what you think. what is the greatest risk for this federal reserve? the inflation re-accelerates or unemployment picks up? do they need to start to address that balance of risks at this meeting? lara: i don't think they need to address it at this meeting. something that i've been hammering is that labor market renormalization should not be

mistaken for labor market weakness. we are real normalizing -- we are re-normalizing to before the pandemic. it is not a negative message. it is when chair powell says that the risks are more balanced when they need to take him at face value they are fairly balanced. it is one reason why markets need to take this meeting by meeting. we forget that we had two benign inflation reports. before that inflation actually popped higher in some of the core services measures. i think that's the clear message. we shouldn't try to read too much beyond the fact that they need to be data-dependent now. they clearly have been wanting to cut for some time. september will be the date, but after that market should not get ahead of themselves. lisa: what do you have to see within the employment data to be more concerned about the labor component outweighing some of the inflation risks that you see

as perhaps greater than the market is counting for? lara: my canary in the coal mine is always initial claims. we are seeing weird noise. that is may be a separate segment on what's going on between the payroll numbers and household numbers. there is noise in the background. to me, desert island one economic indicator would be initial claims. as long as it is below 300,000, i'm not worried about the state of the labor market. the unemployment rate has moved higher. this is typically the tough part to navigate, getting the unemployment rate to move up slowly and not shoot higher in an asymmetric way. the next six months will be important for the unemployment rate. week by week it is unemployment claims. lisa: company say they don't seem like they have pricing power and consumers are accepting the price increases as they have over the last few years. why do you think inflation is such a concern?

lara: for me it is a story of services. something we are missing is the fact that we finally saw a relief on the rent piece of the inflation puzzle. i think that is what finally gave us this opening to cut rates in september. if you look ahead to the beginning of 2025, which i feel will be here before we know it, we are seeing multifamily construction plunge. we know that those have cratered, and that is an 18-month lag time. jonathan: it was great to catch up. lara rhame on the federal reserve. what is it about july? it is like the fastest yet most tiring month of all time. emily calls it the least relaxing month in years. lisa: she is like, this should be being on the beach, but there's nothing less relaxing being underweight small caps into july. joe biden was at the top of the

presidential ticket and is no longer. the rotation and the equity markets. the deterioration in certain employment metrics leading to this call increasingly for a july rate cut. you add to it whatever you want to put on your bingo card. jonathan: assassination attempts. lisa: seriously, that happened before joe biden dropped out. what else do you want to add to this bingo card? jonathan: before the month closes out we get a federal reserve decision later this afternoon. lisa mentioned payrolls on friday, sneak peek of our survey. the median estimate in our survey is still around 175. the previous number was 206. later we get adp. the estimate for jobless claims is tomorrow, 236. the previous week, 235. coming up rowland of john hancock, and bloomberg's michael sheppard on the latest elite chip sector. the second hour of bloomberg

surveillance is up next. ♪ (♪♪) (♪♪)

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>> this is a fed that is desperate to try to achieve the utopian soft landing. >> i don't think that there's a strong sense of urgency for the fed to cut given where growth is. >> they are winning without having done anything. >> i think they will signal a september cut, but the economy appears to be doing ok. >> they have to be steady, because if they rush it it will look like they are scared about

something. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: if chairman powell came out this afternoon and did what has been suggested, how spooked this market would be. lisa: it would be a massive risk off event across the board. unless they said we are just trying to get ahead of the election and noise and we think that everything is wonderful. there is no way that they will say that. jonathan: the equity market, futures look like this on the s&p 500, a lift up by 1% on the s&p 500. the nasdaq 100 is up by 1.5%. the mood around technology improves overnight. we will talk about that as the session and day progresses. the day ahead looks like this. an adp report is out in one hour and 15 minutes. after that, the federal reserve decision at 2:00 p.m. eastern. 30 minutes later a news

conference with chairman powell. earnings after the close with meta after we heard from microsoft yesterday. microsoft was a tale of, you better listen to the call. it looked like a deceleration in cloud revenue growth and then we heard the guidance. the second half of fiscal 2025 things start to reaccelerate and ai kicks in in a bigger way. lisa: how much patients to people have with investment if they have the promise of it paying off in a big way? it tempers some of the selloff but not entirely as people have very high expectations. to be clear, this isn't the view from the haters. it is just one perspective that there has been a lot baked into the incredible record rally of big tech and people are looking for excuses to cash in. this isn't people hating on ai or the microsoft trade. it is people who may be looking to buy other things ahead of perhaps some broadening out that

people believe in. jonathan: microsoft paring losses from yesterday, still down by close to 3%. dan ives suggests by the time we get to the close he would be shocked if it's negative. lisa: that was his excuse for not dressing like you. jonathan: he wore pink instead of black. i will have that suit ready for him. all black, black tie, something super depressing. this was a post-pandemic thing, the greens and the pinks. it didn't used to be like this. lisa: he had a limited edition sneaker. jonathan: dan ives is bullish. that is the headline from about an hour ago. the boj, before we get knee-deep into the federal reserve -- i think we've had it up to here with the federal reserve. the boj rate hike, the plan to half bond buyback as well, and i think that the guidance is more important than anything based on what i've heard from the boj in

12 hours. the bar to go again is pretty low. lisa: someone asked if 0.5 percent is your ceiling for japanese rates. they didn't indicate in any way that was. the surprising aspect of this was notable. only about 30% of bloomberg people surveyed thought that the bank of japan would make a move today. why? the economy isn't that supported based on where it was a month ago. you can see a deceleration in consumer spending and consumer sentiment because of the higher cost of living. why? because of how weak the yen is. how much is this kowtowing to the [knocking] ministry of finance? i really enjoy banging on this table. jonathan: i liked it, too. we should sit on the federal reserve for a couple of beats. the fed looks like it is becoming increasingly comfortable for the outlook on

inflation. do they have a reason to become increasingly uncomfortable about the labor market? we start to see the shift around the dual mandate away from inflation towards the labor market. is this another step towards placing more emphasis on insulating the labor market as the year progresses? lisa: he said that businesses aren't desperate to find workers and workers aren't desperate to leave jobs. you look at a peripheral survey to consumer confidence data, and it showed that consumers are expecting to spend much less on disposable items or trips to disney world or taylor swift concerts. people will pare back discretionary spending. jonathan: or coffees at starbucks, etc., etc. the list goes on and on. the latest from the federal reserve, boj, and more. the s&p positive by .9%. bond yields have been shifting lower, down again on a 10 year

basis point. these are levels that we haven't seen since early march. 4.1297. we will catch up with john hancock following disappointing results from microsoft and leslie of ubs as traders await a fed decision. stocks rebounding head of the fetid mag 7 earnings. emily writing, this is a sentiment driven market. rotation based on potential political outcomes as they are in expect on another planet. emily, it's good to see you. you called it the least relaxing month in years. emily: i thought july was going to the beach and taking vacation. if you have been short small-cap equities, it's been the least relaxing july on record. we look at this rotation into small-cap sand for us it's almost like a checklist.

-- small caps, interest it's almost like a checklist. tracking to be up 10% year-over-year this quarter where small caps are coming in at -18%. the entire rotation has been based on multiple expansion and nothing else. the entire 10% gain. we look at rates, yes the 10 year moves lower, but not that much lower. small caps used to love rates coming in lower. we have two months in a row of low inflation ratings and we are still in a late cycle environment. the process of elimination will tell you that it's based on the increasing odds of a trump presidency and the potential implications of the policy changes based on that. jonathan: the position squeeze seems to have taken on a life of its own. is this something that you want to step in front of given how powerful it's been? emily: momentum can always carry trades like this higher, but we look at what happened in 2016. small-cap equities ripped after the election.

we looked at the performance of small versus large and the one-month period after trump was elected and they outperformed by 13% in a month and then sideways for two years. there is a lot already and the price and we would consider fading the rotation and emphasizing higher-quality socks. lisa: is there something in earnings that gives you a pause? that tells you that they are on a different planet because of the sentiment shifts in the market? emily: it is small-cap earnings tracking for negative returns this year. there is so much excitement around this potential fed cut and potential rotation. the challenge for small-cap equities is a great. we have to remember that the fed is cutting because inflation is coming down and because importantly growth is decelerating. these companies have a lot of leverage. they have high interest burdens, they are lower quality, they will still contend with the higher cost of capital. we don't think that that is your best foot forward as an investor

heading into this potential economic contraction or extended late cycle environment. lisa: it sounds like you disagree with lara who thinks that the risks are balanced. you still see that as an equal risk with some of the deterioration in the labor market? it sounds like you're seeing a more pernicious trend underpinning some of the job reports that we've been getting? emily: everything is fine now, but we try to think of the time to repair the roof is when the sun is shining. the cracks in the labor market are continuing to form. the report was better than expected yesterday, but still hiring a slowing. we are looking at initial claims in the range of 200 260. i heard lara say if they got toward 300,000 she would be concerned. so would we. continue disinflation comes with slowing economic growth. you see it and things like pmi's. we got preliminary pmi's for

seven out of the eight large countries that we watch, and they were negative for most of them. we talked about japan earlier, that is below 50. the u.s. is slowing. economic growth is absolutely decelerating. things are fine now, but why not take advantage of opportunities where markets are mispriced for a slowing economic growth environment? jonathan: mike was brutal in the release yesterday afternoon. i will share a snippet. bye-bye, soft landing. it was nice knowing you. to suggest that the s&p 500 isn't priced for such an eventuality is an understatement affected proportions. it gets worse as you work through the note if you are a bull for sure. we may find that bad news is bad news with analysts double-digit expectations for 12 months looking increasingly out of sync. i think that is in sync with some of what you're saying. the bad news-bad news environment we are about to enter. you are saying going into friday, which may be the most

important news of the week, payroll friday morning. if we get a bad print, can you define what's bad and how the market would respond to it? emily: it's complicated to find out what is bad. we have gotten great headline readings. under the surface, there is something more sinister. look at the revisions. 111 negative revisions the last few months. you look at things like the household survey that showed massive deterioration in the labor market. you have to look under the hood. i don't want to say that i'm overly bearish. one reason that we are not is because we are extending this late cycle environment through a ton of spending. the cbo revised their expectations for the deficit this year at $2 trillion, six point 7% gdp. we are paying for a lot of the economic growth we are getting, and that could continue for some time, but it comes back to looking at what assets are priced for this environment. i always want to go to bonds.

we would be looking at any backup and bond yields as an opportunity to capture a missed price asset. the 10 year treasury started at 3.88 and we are higher than that. that is where we would be looking to capture that income as we head into a more challenging environment. jonathan: this is great. a series of themes that i think that we've heard repeatedly from the south side from a lot of people, strategists alike. writing that the fed is fully priced and consensus on the economy might be too rosy. what we have been pricing increasingly is the soft landing, broadening of the equity market, participation increases, etc., etc. we are going into september, it looks like we will reduce interest rates. what is less understood is what is happening in the labor market. there's a huge division on wall street around the issue. lisa: you have contradictions and a bigger population and the influx of immigration that has really complicated some of the

numbers. understanding what some of the numbers should look like to be positive or negative. what we are looking at now is the balance of risks. as you pointed out. what is the market pricing and? it seems like a soft landing. are the more risks to the downside than the upside that people are hooking into now? is that what we are getting? that i think is the question that a lot of people are asking. jonathan: i still have mohamed el-erian on my shoulder saying, listen to the companies, don't look at the data. a lot of companies in corporate america are telling you that things are slowing down and you are losing pricing power. equity futures in the other direction, positive by 1% on the s&p 500. the mood on tech improves overnight. let's get an update on stories elsewhere with dani burger. dani: uber is teaming up with chinese ev maker byd to put 1000 ev's on huber's platform offering drivers lower vehicle pricing and financing.

notable in the deal is that it excludes the u.s. it will start in europe and latin america and expanded to the middle east, canada, new zealand, and australia. intel shares are higher in the premarket. 2.3%. the chipmaker is cutting thousands of jobs and fueling an ambitious turnaround plan. the reduction may be announced as early as this week. intel is set to report earnings on thursday and has been spending heavily on r&d to accelerate its tech and regain market share. venezuela's government has hardened its stance against protests over president nicolas maduro self-declared election win. it called for the rest of opposition leaders. maduro used a speech to accuse them of leading a fascist conspiracy involving the u.s., drug cartels, and elon musk. separately maduro told officials that he would release the full voting records in days after the opposition said that it had hard evidence of fraud. that is your bloomberg brief.

jonathan: no. harris closing the gap. v.p. harris: donald, i hope that you will reconsider to meet me on the debate stage. if you've got something to say, say it to my face. jonathan: that conversation is next. live from new york city, good morning. ♪

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jonathan: getting the band back together for a fed decision later. tk will be in the studio kicking off at 1:30 eastern. i think we are all looking forward to that. the price action for you, the 10-year yield is down for a fifth consecutive session. i haven't seen this since early june. down another single basis point, 4.1 316 on the u.s. 10-year. we haven't seen these level since early march. equities with a little bit of a lift. up almost 1% on the s&p 500 with good stuff to talk about intech. under surveillance this morning, harris closing the gap. v.p. harris: the momentum in this race is shifting, and there are signs that donald trump is feeling it. well, donald.

i do hope you will reconsider to meet me on the debate stage. if you've got something to say, say it to my face. jonathan: harris with some real momentum. the latest looks like this. a new bloomberg and morning consult poll shows, harris closing in on donald trump's lead across all seven swing states with the biggest in michigan and arizona. kamala harris's entrance into the race has brought democratic tickets to highs not seen all year and leveled out the 2020 four election. our forecast till it hesitates donald trump will win with 60% odds to harris' 40%. i want to get into something that lisa and i have been talking about for the past two weeks. or at least the last week. this has felt like what we would call them equity markets a position squeeze. the old ceo has left and short

positions on the democratic stock have come off. i want to understand if it's more than that. are we seeing real momentum that could last as we go through q3 and q4? henrietta: i think there is a lot of reason to anticipate this is momentum that has not peaked yet. first, there was an actual election in arizona last night that we've been tracking for two months. it's a primary election that the republican candidate on the senate ticket against a more progressive democrat then kyrsten sinema, who is retiring this year. kari lake is very close to donald trump, he tours with him regularly, goes to the white house, etc.. she only got 53% of the vote. amongst republicans, 47% of republican voters voted against her last night. that is a trajectory shift in a critical swing state that your polls also landed on and pointed

to hard, confirmable elections as to just polling data, which is the best that we can do right now, suggesting independent voters and moderate voters are trending away from donald trump. that is something that you showed up and swing states across your polling last night. others did as well, including in pennsylvania. another critical swing state. effectively, everywhere that trump was ahead he is declining and harris is on the surge upward. jonathan: the opening you described in arizona, do you think that those developments influence the vp pick in the coming week? henrietta: it is my belief that mark kelly will be the vice presidential candidate. i don't have any special insight. to me, you won't get a tremendous move from the vp pick in either direction. nati vance may -- j.d. vance may be an example of how we could be wrong. his negatives have increased substantially. that might be a drag on the ticket particularly with female

voters. for mark kelly come you don't need to read too far into it as my colleague likes to say. you're talking about a naval fighter, an astronaut, gun violence survivor with his wife gabby giffords. pretty much a no-brainer.even voters in arizona say it won't move the needle for them. polling is 60 percent of people in arizona same picking mark kelly won't move the needle. it's more of a broad national approach, specifically on immigration come that leads me to think that kelly is the candidate that kamala harris will choose. lisa: give me reasons for why this has become a changed race. why do you see the outcome being the same? henrietta: because i don't have enough data. it's very fresh. the bloomberg morning consult data is the best, the latest, the only data that we have across all swing states since kamala harris joined the ticket. it will take more than that to convince me. as my clients know, i have a very aggressive incumbency bias. i believe the incumbent is donald trump.

i need to see the democratic candidate, particularly in the electoral college, pull ahead two to four points in all of those states consistently for me to change any of the races. i'm looking closely at nevada, georgia, pennsylvania. i think arizona is moving in the direction that kamala harris wants to see. donald trump's best lock is on pennsylvania and north carolina right now. lisa: i love that donald trump is the incumbent and kamala harris is not being considered joe biden's surrogate. jonathan: when joe biden stepped down the first question we asked is how much a distance she could put between herself and joe biden. lisa: that's the question. how much distance is there? isn't it fair to say that she is the incumbent policy president? or does she really represent an independent voice from joe biden? henrietta: she is definitely a different candidate. i would love if this race was

about policy, but we haven't gotten there yet. whenever we get to tax policy, i will be thrilled. at this point, it's really the change in democratic activation. specifically with double-digit gains for the democratic ticket, plus 25 with black voters and 24 with latino voters. huge gains with female voters. double-digit gains with new voters. she is not the end, because it has brought a new basket of voters to the field. there was a slight uptick in democratic voter registration in north carolina last week, for example. it isn't that there is a policy shift, is that this is a fresh face. her approval ratings have changed faster than any candidate i've ever seen. jonathan: you know what the most ridiculous thing about this is? the objective all along was to have an early debate to drum up the enthusiasm and get people engaged early. this just isn't how we thought things would turn out.

that was the objective for the democratic ticket but we thought the top would be joe biden. the debate went in a different direction and the outcome has been the same but with a different name on the ticket. amazing, isn't it? lisa: and we are not talking about policy. we are still talking about weird and getting fired up. jonathan: quickly, when will we talk about policy? we have seen a massive change in this election race. kamala harris has gone on some scripted rallies drumming up loads of enthusiasm, but when do we start to hear about actual policy? henrietta: never. i imagine it won't get around to that. the best case that we can say is after labor day when people come back from vacation we will start to tune in, but the immigration and fentanyl are areas where trump has a good chance of slamming kamala harris and taking away some of her early, and hopefully for him, not locked in gains. i don't see a race between kamala harris and donald trump talking about capital gains tax

rates or corporate tax rate. i just don't see that happening. i think it's more about the top of the message and the gender divide is probably the biggest indicator. the largest divide in the electorate right now is between men and women. jonathan: thank you. the answer is depressing for you, i know. the answer was never. lisa: that's horrible. i reject -- no, come on. it is frustrating to me. it is cosmetic stuff. it is dog whistles. let's have real, substantive conversations about how to make the country work better. jonathan: hopefully that will change in three months. from new york, this is bloomberg. ♪

jonathan: equities look like this. and rally on the nasdaq up by 1.5%. lisa, for guidance from microsoft, things re-accelerating the second half of. 25 amd knocking it out of the park, or the reuters story which i believe we've mentioned that there is potentially going three some exemptions for some of the exporters coming out of the netherlands, south korea and others going to china. lisa: i'm not sure exactly what policy is going to be put into effect so i don't want to

basically say that that is the full driver. i would say that amd was most notable. jonathan: agree. lisa: considering the fact that that was clearly the catch up kid for a long time. seems like it is catching up with orders that greatly exceeded expectations. that, to me almost represents something more significant. jonathan: the guidance lifting all boats from both amd and microsoft. nvidia got an upgrade as well. nvidia up in the premarket nicely. let's turn to the bond market. five consecutive sessions of lower yield, down another basis point, about 6/10. let's call it half it basis point. but this is the trend over the last week or so. down to levels we haven't seen since early march going into the fed decision later this afternoon. lisa: you nailed it. you said earlier that frankly

this is a goldilocks type of rate cuts still being baked into the market, that you are seeing all denominations, but still seeing generally a less inverted curve over the past few weeks. this raises the question of if the fed cuts, is it going to be for the right reason? i'm curious to see how they set up the rate cut that they are expected to make if they don't cut later today, which almost nobody expects them to. jonathan: if they are unsure about september they've still got jackson hole to the firm this up and wait for more data. i think it is a worthy conversation. mohamed el-erian is talking about the risk of not moving in september and i think we have to ask the question, why are we even having the conversation? what is the risk if they set it up today? the point that he has made, and others, too, is a valid one. he thinks the fed has become too data point dependent to

something, and there is a real risk here that yesterday -- yes, they might set you up to do something in september, but they could be one hot cpi print away from backing off again and missing the window. lisa: remember what happened with the ecb. they pre-committed to a rate cut and people thought why are you doing that? the data did not cooperate and they still went through with that rate cut. will the fed execute something similar or will they say we will be dependent on those noisy prints? very difficult because the data has not been reliable. we have seen so many backwards revisions showing a weaker economy that first released. almost every single time you gotten a revision it has been downward. i think a lot of people are concerned about that. certainly i imagined neil with the synthetic to that view. the issue, have exactly to they justify not going in july and pre-committing to something just a couple months away? jonathan: fed decision later

this afternoon. that spring up dollar-yen. lots to talk at here, a rate decision, on buying guidance and forward guidance around interest rates. rate decision, they hike. going through 2046. forward guidance for interest rates. that is set to hike again. there are strong signals there is more to,. dollar-yen lower, about 150 this morning. lisa: operation make the yen stronger seems to be what this is. it is not necessarily in response to screaming inflation or some excess of the economy. jonathan: i think it's interesting what replaces the japanese bond buying if that bond buying starts to come home. we've talked about the jgb market, and we use the word market loosely for years. the doj owns more than half of the standing japanese bonds. if they back away in the next 18 months or so, who is going to

replace that bond buying? how much more do we have to put on domestic buyers in the u.s.? lisa: this is the main argument for why people pay attention to bond options in the united states. it is not just government bonds, it is also credit, investment grade bonds that japanese buyers who have a huge basis for. if they step back and are ending up soaking up some of the debt they have coming out of their own country, do you have to see increasing yield de facto just to attract that much of a bigger buyer base? jonathan: that is the latest on japan. lisa is going to go through boeing. i'm going to go through some top stories for you while we work through the headlines. tensions rising in the middle east. israel killed its political leader in an air strike on iran's capital. iran's leader saying israel took the path of severe punishment in

response. over the last few weeks, that is bouncing off the back of some of these strikes in the last 24 hours. we talked briefly about microsoft. dropping in the premarket after the company delivered disappointing results. missing expectations, testing the patience of some investors. mag seven earnings continuing with meta. for microsoft, yes, they missed on cloud revenue. it was a bit softer compared to last quarter and yes it will continue this quarter. but the guidance is as follows. the second half of fiscal 25, things start to accelerate again and the contribution from ai is picking up as well. i think for the day knives crowd, the bowls around this story -- dan ives crowd, they are still bullish around this story. a final story before we get evolving, the biden administration is planning to exempt chip equipment makers from upcoming export

restrictions in china, adding the plans are fluid and might still change. we got shares of asml jumping on the news and took your electron up by 7.4% -- tokyo electron. we've got a name to replace dave calhoun. lisa: kelli ward berg. -- kelly ortberg. currently he is an engineer who rose through the ranks to become ceo at rockwell collins, an aviation supplier that is now part of already x corp. -- rtx corp. shares are gaining, after a series of incidents that have left boeing very much flat on its back. it came out with second-quarter revenue below estimates, $60.9 billion vs. the estimate of $17.5 billion -- $16.9 billion vs the estimate of $17.5

billion. there is a backlog that includes commercial airplanes. the demand is still there, it is just a matter of how to get it back up and running without some of the kinks and the challenges over the past few years. jonathan: important difference here, kelly and not larry. for a while it was larry, and now it is not. lisa: larry said he had 101% surety that he was not going to be ceo at boeing and that he was very happy where he was. we do have a name, we are going to be exploring who that person is. the fact that they had that uncertainty, every analyst who came on said it raised a question, how far along are they? jonathan: boeing stock up by 2.3% in the free market, pushing 3% higher as ice. -- as i speak. treasuries rising, the market once again appear to be getting ahead of itself.

the market is pricing in three cuts in 24 and over four in 25. leslie joins us now for more. breathe some life into that, build it out a little bit more. why do you think this market is getting ahead of itself? what do you see that others should be looking at more closely? leslie: in typical fashion, the fixed income market is forward-looking and the fed is accurate looking. in terms -- backward looking. in terms of the bleak, the fed will focus on more of a dual mandate, the cut is coming and we believe it will in september. but because we started to see some weakening in the data, and we believe the data will be weaker, not weak, the fixed income market has a tendency to get a little bit ahead of itself. it is assuming the fed is going to cut three times in 2024 and there was a point in time that we were pricing and the

potential of a 50 basis point cap. we don't see in the data any reason there should be any type of emergency cut, particularly after what we saw with gdp after retail sales or their needs to be a 50 basis point cut right now. maybe a year from now, maybe if they hold off a little too long. but again, the market has a tendency to get ahead of itself and sure enough, it reassesses, it re-prices and yields move higher. jonathan: you don't like tenants at 4.10. what kind of numbers are you looking for? leslie: we are definitely the buy the dip mentality. the 10 year has been in a range of four and 4.5 for a very long time. we bought on this. now when we think about where the 10-year is, more than likely, assuming that powell isn't overly hawkish in q&a, you

have a tendency to rally into the meeting. you could see yields go down a bit further, but i definitely wouldn't add interest rate risk at this level. lisa: is this inflationary pressure that is currently in the system, or do you think that the non-recessionary rate cuts that you are expecting for this year will allowing laois and to kind of simmer at a higher level for longer to get attention and realize, you know, this kind of puts the floor under how low the fed can cut rates to? leslie: i think we have to keep things in perspective. we are talking about a rate for about a year. a 50 basis point cut isn't something that is going to create a sudden combination or move the real rate which has been restrictive that much lower. if it is preemptive, we are seeing this boosting of the labor market and we do believe that laois will continue to trend lower, given the nuances we've seen. we do expect those to come down. but i don't think that a 50 basis point insurance cut is

something that is going to be readily stimulating to the economy. lisa: how much do you think this goldilocks environment with non-recessionary rate cuts keeps supporting credit given how far the rally has gone? given the fact that the commentary from companies has really highlighted consumers are pushing back, they are not accepting prices and they are restricting some of their spending? leslie: i agree with you. when it comes to consumer spending they are definitely being more selective and i have to say, when you look at lower quality credit, things like high-yield, the lack of volatility in that sector is a bit concerning in my opinion. it has moved 40 basis points in the past five months. that is the lowest be seen since 2006 and not only that, we have a lot of investors continuously going into that lower the sector. even things like b to double b is incredibly tight. the risk to that is that the economy actually slows more than expected because people are

pricing in this goldilocks scenario. when you think historically how we have these shallow cuts, the few times in history where the fed has been cutting without a recession, normally spreads are going forward, widening about 40 basis points. nothing is a big headwind to total return. but there is no question, the relative value within fixed income on a spread perspective is scarce but it is yield an interest rate risk that the dominates total return. that is we like higher quality, we just don't think you are being compensated enough lower quality. jonathan: appreciate perspective, thank you. credit spreads are still tight. average just a little bit wider over the last few days, but high-yield spreads still in and around three or 10 basis points. lisa: especially at the higher end of high-yield. i think this is actually important and it sounds like the

higher quality high-yield bonds, if you will, have been doing phenomenally well because those companies are stronger than they used to be. lower quality ones are seeing a much harder time borrowing money. there is definitely a discernment in terms of the companies who can make it, and those who can't. jonathan:jonathan: some corporate news including an update on the latest with going. he is dani burger. dani: vice president harris is focusing her campaign on the issue that donald trump has been looking to use against her, border security. at a rally in atlanta, she said the former president helped take a bipartisan bill in congress earlier this year. she is planning to tour seven battleground states next week with her new running mate. she hasn't picked one yet but a source tells bloomberg news she is going through interviews this week. her shortlist is said to include pennsylvania governor josh shapiro, tim walz and arizona senator mark kelly. nbc universal says ad revenue for the paris olympics has surpassed the record one and a

quarter billion sold for the took a 2020 games. a person familiar says strong ratings have translated into greater demand for the unsalted for a that nbc brought into the games. primetime viewership so far averaging 33.8 million viewers, up 77% from tokyo. and let's get you those boeing breaking lines you mentioned. boeing shares rising after it announced industry veteran kelly ortberg as its new president and ceo. dave calhoun announced he is stepping down at the end of the year. ortberg acted as an advisor to the rtx ceo before retiring in 2021. boeing also reported earnings saying that revenue in the second quarter fell short of estimates. and that is your brief. jonathan: stock higher by a little more than 3% in early trading. chipmakers getting a boost. >> what is the one thing that

could spoil the ai party? it is not the fed, it is not valuation. it is about restrictions. in's about what we see on tariffs and ultimately, this tech war that is playing out. jonathan: the latest reports up next from new york. you are watching bloomberg tv. ♪

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beaches rhythm and blues caribbean sale is now on. visit beaches.com or call 1-800-beaches. ♪ jonathan: stocks look higher on the s&p 500, up by close to 1%. the rally continues through this morning. this is a fifth session of the 10 year treasury rallying on yields dropping. under surveillance this morning, chipmakers getting a boost. >> what is the one thing that could spoil the ai party?

it's not the fed, it's not valuation. it's about restrictions. if that basically what we see in tariffs and ultimately this tech war that is playing out. just keeping that where you want to sound tough in terms of what is playing out. >> that balancing act continues. sources telling bloomberg the united states is preparing to exclude semiconductor equipment makers in the netherlands and japan from restriction starting china. shares of asml and tokyo electron are higher, the potential carveout leaving room for them to keep selling to china. mike shepard joins us for more. let's talk about that balancing act. what are hearing on bloomberg and what are we expecting from the administration? mike: balancing act is a great way to put it. the administration and members of congress are under such pressure from their constituents around the country to get tough on china, to make sure that the

world's second-largest economy doesn't make too many leaps when it comes to advanced technology and that includes semiconductors. part of the concern naturally is economic competition but there is another underlying concern about national security. so we've seen the administration unfurl over the past few years this series of increasingly tough export restrictions. and it has been preparing to invoke this kind of wonky-sounding rule called the foreign direct rule. it sounds innocuous but it is one of the harshest trade measures out there. what it means is that restrictions could apply even if a product was made overseas, made by a foreign company. restrictions could still apply if a certain amount of technology is u.s. origin or comes from the u.s. it gives you a sense of the heightening scale. so what we are seeing now is a carveout in the works for japanese and dutch companies and meditate big deal especially for

tokyo electron and asml. here are two of the biggest makers in the world of advanced machinery used to make chips. jonathan: forgive me for being blunt. are we here this morning to get the japanese and the dutch turned to the americans and said no, you're not doing that? mike: blunt is maybe a good way to describe how you've characterized it but i don't think it is off. the japanese and the dutch have been expressing a lot of concerns to their american counterparts. in fact, the impact potentially of this kind of a measure not only in their companies, but on their country's relations with china. if they had adopted this, this would not only hurt the ability of asml and tokyo electron to sell their goods, their machinery into the world's largest market, the consumer market, that is, china is building so many chip plants and trying to produce for its own electronics industry, it is the

world's second-largest economy. but also if the netherlands and japan had gone along, it would put them in bad stead with beijing and really may be subject them to some sort of retaliation from china as well. lisa: could we actually look at this potential loosening in the restriction as allowing the likes of asml to just sell to beijing freely? mike: they are not off the hook and i'm glad you asked that, because you could interpret this move as well, we will just forget about it. i would expect and certainly our reporting indicates that the biden administration will continue with some form of export-related controls that would apply to these companies, but to the degree to which the japanese government and the dutch government have agreed is acceptable. in consultation with those companies. we are not exactly sure what shape or scope those measures will be, but it won't be this drastic form known as the

foreign direct product rule. lisa: i've got to say, i saw the biden administration loosens restrictions and i think to myself how long is this process and will it still be the biden administration when it gets through? mike: and hanging over all of this conversation right now is the u.s. election. what will the course of policy, when it comes to technology, and export control specifically, should there be a change of administration from democratic to republican, former president donald trump manages to succeed in his comeback bid? how will they pursue all of these kinds of measures and these efforts to keep the most sophisticated technology including chips out of china's hands? and will they re-invoke these kinds of measures and aim them squarely at asml and tokyo electron and some other companies of that nature, and what will the impact and the

effect of the, and are they also talking already to republican counterparts in washington to maybe stave that off? and there also may be a change if harris is elected president. will her administration take a foot off the gas if she ends up in office? those are questions that we are still reporting out and it will be interesting to see where we end up in january. jonathan: dutch and japanese heads are spinning as you speak. off the back of our original reporting, the prospect of this rule going through, we had these questions as well. doesn't this all changed depending on who wins in november? this is a story which underlines the difference between the european approach to china and the u.s. approach to china. in a real sense that the dutch turned around and said nope, we don't want this. the united states is going one way and the europeans don't want to come along for the ride. china is well aware and looking to exploit the differences. you pointed this out earlier

this week. where was giorgia meloni this week? the italian pm was over in china meeting with xi. they have a very different approach to china in europe then we do in the u.s. lisa: we have a very different reliance on china as both a supplier as well as a fire of their products. the u.s. is more -- buyer of the products. the u.s. is more independent economically. you want to take a hard-line if you are a u.s. politician in debates, and yet in reality, how do you do this? go to a company that is domiciled in europe and say you can't sell your products to beijing at the risk of our national security? and you need to get on board because it is your national security, too. i'm wondering what levers some of these international tech companies are pulling. we are going to charge you more money, we are not going to sell to you, we are going to demand you offer us some ramifications for this? this is not going to be easy, whoever becomes president. jonathan: u.s. tech ceos have to

become diplomats and i think that applies globally as well. some have been more effective than others. i think of tim cook. mark zuckerberg is just getting in on the game. when he sat down with emily chang and he called the former president badass, you just got the feeling he is starting to understand the game a little bit. lisa: basically you can't have somebody hate you. you can have the sitting president think you are the enemy because if you are the enemy he has the power to potentially make your life very difficult and you got that sense from him. i'm just wondering how committed the potential presidential candidates are to creating this wall between u.s. and china tech. jonathan: this conversation a small part of the rally we are seeing in the likes of the chipmakers worldwide this morning. coming up, we will catch up with lisa young thomas, james lee and james bullard. looking ahead to a fed decision from new york city, this is bloomberg. ♪

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♪ >> i can't understand why the fed has been so cautious after the whole transitory fiasco but i think i'm getting close to the

point where i think they are too late. >> we keep on saying to percent is our target, we will get there when we get there. >> isn't it too late? >> it is time to move to a less restrictive policy stance. >> at this point there's not believe a strong case for waiting. announcer: this is bloomberg surveillance of jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: a chorus of calls to cut interest rates right now today at the federal reserve and that is exactly what you won't get a little bit later according to most on wall street area from new york city, welcome to the program. the third hour of surveillance starts right now. a rally, a pickup, a bounce on the s&p 500, the nasdaq, the russell. higher by 1.6%. we talk a lot about the tech earning through this morning but i want to start with the day ahead. in about 15 minutes we get the adp jobs report before claims tomorrow and payrolls after that, and later this afternoon a

fed decision 30 minutes later, a news conference with chairman powell and if that wasn't enough, more earnings for you. after the close, meta around the corner. lisa: we should sit on the fed. we've put that on the back burner because frankly, people are sick of talking about the baby steps that they are about to take. how do you parse through a slowdown that isn't necessarily leading to something of a recessionary environment to mark i will put this in for perspective, we now fully have a rate cut preston for september. we now have two priced in by the year end, and then it goes to pretty much rate because it almost every meeting or every month. this is a market that is expecting both a very accommodating fed over the next year or two at the same time that growth is expected to hold up. square that circle. jonathan: andrew from citi said the labor market is on the edge of uncomfortable and is the federal reserve's evolving

characterization that i think is front and center going into this news conference. a jobs report on friday and we joked with michael mckee that if we could have the sequence which surround it would probably be better. if we could have payrolls today and a fed decision on friday that be a lot more helpful. are we seeing real cracks in the labor market? are we seeing reasons to have real concern or do we agree with the bank of america that things are cooling but they are not cool? lisa: this just added to the uncertainty around the report that we got yesterday and consumer confidence. on the face of it, they came in better than expected. i thought this sort of goes against the weakening trend. pretty much everyone said that it highlights the weakness in the labor market. people are concerned about not being able to get jobs. you can see the measures of job openings relative to the population, relative to unemployed coming down to pre-pandemic levels. and the pace of it is what got a lot of attention.

this is not just one point of a linear trajectory. jonathan: the two things that jump out, our companies hiring at the same rate? the other 1, 2 people have the confidence to quit their jobs and find a new one? some people might say it is just the process of normalization coming out of the pandemic. others might point out things are going to be a whole lot worse than that. you point to the pace at which this is happening. if the economy starts slowing down the speed of the slowdown becomes essential, a fast or slow down would have negative location for earnings and increase the probability of a selloff in stock markets and credit market. it is pace and why. and that is the other thing we have to explore. if there were losing interest rates in september is it because of the disinflation or are we starting to see bigger cracks emerging in the labor market? where are we in about two months? that dictates whether these are rate cuts that are good or rate cuts against a backdrop that is

bad for risk assets. lisa: exactly what you laid out is the reason why emily rolled and is frustrated beyond all belief and seems to have had a frustrating july having been underweight all caps stocks because all of this doesn't scream go into cyclical names that are going to be most leveraged to an economy that is slowing down. this screams that the balance of risk really is that you are going to see companies have to lay people off and deal with consumer spending coming down more significantly. does not scream more leveraged companies to be. at the same time, markets price to that soft landing is what we need to explore. ultimately, has the market overpriced the soft lending narrative for underpriced the resilience of an economy that keeps chugging along? jonathan: it is not just present company. it is super easy to get somewhat bearish. it is not just about lisa. you listen to the corporate communication, the guidance you're getting. if they are telling you that essentially sales are slowing, that they are losing pricing power, a corporation needs to

protect its margins. so what is the next lever to pull? it is cost, labor. that is what we are looking for in the months to come and we hope it doesn't happen but based on what they are telling us, you could certainly see things moving in that direction. lisa: yesterday, and this is necessarily related, intel laying off thousands of people. you are seeing consumer discretionary spending really pulling back and companies saying we are looking for cost-cutting measures. at a certain point, how many idiosyncratic stories does it take to make a light bulb? how many times do we have to hear this before it changes the narrative? jonathan: futures pretty decent, everything is ok. this sounds so bearish this morning starting this hour, forgive us. equity futures are positive, up by 1% on the s&p 500. we rallied for a 50 executive date. yields lower again my almost a basis point. coming up this hour, we will catch up with sophia as stocks

look to state a relief rally. james lee on why meta is well-positioned for ai growth and jim bullard at the fomc is set to hold rates steady this afternoon. we begin with our top story, stocks rebounding ahead of a fed decision later on. markets expecting officials to hold rates steady but set up a dovish pivot. there is still room for stocks to rally as rate cuts begin. more cuts will be priced in before years end. cuts are not a bullish economic signal. small caps will lose steam as data calls. i want to pick up on that last piece of the quote. i think it is so important. the limits of getting bullish on rate cuts alone, how prominent, how strong are those limits? >> the market is still in a place where we are viewing rate cuts as a bullish signal at least for equity assets, and that has sort of been the reaction, although we have stalled out in some of the usual suspects over the last few months.

but looking at what is happening, you are obviously seeing this enthusiasm in that rotation out of large-cap tech which was feeling stretched an overcrowded into small-cap which is, i think investors sending the signal that we are not worried, we don't want to take money out of equities, but we are looking for places that are more attractively valued and if rates are coming down, perhaps small caps are more attractively valued. i would agree with that but i think lisa made the point earlier that if we are plowing money into small-cap stocks, the idea would be that we are in some sort of broad economic expansion, but we know that economic growth is slowing, the labor market is cooling, inflation is coming down which has all the markings of late cycle behavior. that is not usually when small-cap stocks start to rally and stay rallying. i would be careful here putting too many eggs in that basket. lisa: at the same time you do expect stocks to rally so it raises this question, are we essentially looking right now at

the idea of tech reclaiming its dominance over the past couple of years to continue powering a market that otherwise, underneath the hood continues with some of the weakest parts continuing to weaken? a reversal back to a we saw earlier this year? >> i want to be careful with the word rally. i don't necessarily see a huge and strong rally here. i think in the near term as we have optimism about the fed not hiking rates anymore and optimism about laois and continuing to come down without the labor market all in the part, i do think there is still -- falling apart, i do think there is room for that to continue. some of the sectors that normally would catch a bid, things like financials and real estate, i think there is still some room. i do think there is not optimism in small-cap stocks for that to continue but as we are seeing play out in real time, as these earnings come in and investors

have gotten much more critical about how they are spending their money, what is happening with ai, where is the profit coming from and when is it coming, you will see stocks experiencing some pain and i think that has more legs to continue as well. lisa: we've been talking all morning about how incredibly busy and difficult it is to focus on which is the major driver on a day like today where we have been talking about the fed but that seems to have taken a backseat. also talking about tech earnings, possible policy. talking about collection and the bank of japan. what do you think a sort of the main event you are clinging to on a day like today? >> i can tell you the fed never takes a backseat for me. i concentrate on that quite often and today is one of those days that i don't think we are going to necessarily get any surprise announcement on them. i don't think they are going to move rates despite some of the chatter last week but i do think we are going to see a shift in commentary to a more dovish

stance or at least something that puts more concrete the on the table the idea of a cut in september. and i think the really important thing to watch between today and september, which is september 18, we've got about 45 days in that timeframe, two more cpi reports, jobs data on friday, more jobs data in september. i think the labor market is the key here. and if things cool more than expected both in cpi but more importantly, in the labor market, we start to hear things heat up about a 50 basis point in september, and that will be the most important thing to watch because i think the market might have trouble digesting that. is 50 basis point a signal that we are in trouble or is 50 basis point a signal that things are going better than expected? jonathan: where do you think we will be in september, will that be a rate cut framed by increased confidence around inflation or increased discomfort with what is happening in the labor market? >> i think it has to be both.

they have a dual mandate and we've been so excessively focus on inflation that now that is starting to take a little bit more of a backseat as it has come down so sharply. it is certainly not at target, but the fed has commented that they are within to start cutting rates before it is at target. they are not moving the target but they are willing to start cutting before inflation gets to target. i think that stops being the only decision factor. i think the labor market becomes a much larger decision factor and where we are right now in the labor market is almost perfectly balanced. we've got the amount of jobs open so the number of unemployed people at the same ratio as it was before the pandemic, we've got more balance in employment cost, we've got unemployment rate that is rising but not uncomfortable. the trick is resort of wanted to stay exactly right here, and the chances of that happening are low. i think that label cool further and the rate cut in september

will be in response to inflation having come down already, and the fact that the labor market is cooling. >> on the prospect of a 50 basis point cut in september, base case seems to be 25, but we can see where that conversation is going. the boss is starting to push back and we've seen that in a lot of company earnings over the last few weeks. >> we heard the same thing from james caan a couple of days ago. he doesn't see the economy rolling over ended in sound like liz did either, but the idea that maybe this fed if it doesn't cut today opens the door to potentially a bigger adjustment in september at the economic data shows it. we are going to cover 25 basis points, the question is just could be go half a percentage point? jonathan: i know july feels like a lifetime, but september is ages away. lisa: basically science fiction. jonathan: big day ahead, get

used to seeing us. you will cf this afternoon with a federal reserve decision just around the corner. the decision at 2:00, and 30 minutes after that, chairman pound news conference. a fantastic lineup of guests for you. a sneak peek about a little bit later. firmer by one person on the s&p this morning with an update on stories elsewhere. let's get across to dani burger. >> shares of marriott down 4.2% in the premarket trade. second-quarter earnings came in just above estimates did cut its for your earnings guidance. marriott said it has lowered expectations primarily because of weakness in china alongside softer expectations in north america. marriott is boosting its room count in a bid to drive revenue, adding around 15,000 rooms in the past quarter. and a new bloomberg morning consul paul suggests harris has wiped out from sleep across several battleground states. the vice president riding the wave of enthusiasm among young

black and hispanic voters. that does reverse 82 point deficit for joe biden before he withdrew from the race. however the result is within the margin of error, meaning the election is still a tossup. nouriel roubini is looking to launch an etf. the filing suggests the fund would be called atlas america and would invest in u.s. debt, real estate equities and gold actively managed by him and to others. the aim is to generate stable returns with limited correlation to a broader equity market which would theoretically -- and that is your brief. cameras shouldn't be on me. cameras should be there. take all my money. we've got to catch up on that story next week. up next, some morning calls.

james lee previewing meta earnings. that conversation just around the corner. you are watching bloomberg tv.

♪ jonathan: just got the adp report moments ago. let's cross over to mike mckee. mike: we've got kind of a weak labor indicator, the kind that you were talking about a short time ago as adp reports just 122,000 jobs created in june, at least according to their methodology. in july, rather. they say most of the jobs were in the construction area along with some in retail but very disappointing service industry numbers, only 88,000. 85,000 in service industry jobs.

payroll, 4.8% for those in the st. john's, the lowest level in years. to the extent that adp is seen as any kind of indicator it is going to push down on estimates for what we are going to get on i-8, and it gives the fed something to think about. jonathan: i know we are going to touch base with you in about 12 minutes. 122 on adp. looking ahead to friday, a sneak peek, a preview of estimates. 175 for friday payrolls, the previous number 206. let's start with equity futures on the s&p 500, on the nasdaq, on the russell. up by something like 1%. the nasdaq 100 now higher by almost 2%, up by 1.8%. at the equity market. first off, downgrading mcdonald's to hold. the analyst noting disappointing earnings and a secondhand guidance. down by half of 1%.

your second call maintaining outperform rating at 5% on microsoft. the analyst highlighting the durability of microsoft's business model and growth catalysts like ai on the horizon. that stock is still down by 2.2 percent and finally, morgan stanley renaming nvidia as its top pick in the semiconductor space. attractive valuation and entry point next month. that stock is higher in early training by more than 7% going into the opening bell. looking ahead to meta earnings this afternoon, james lee sticking with an outperform rating of 5.75 price target same the tech giant is well-positioned for ai growth thanks to its user driven approach. james, thanks for touching base with us here. what do you like about a set up later? >> they saw agency checks, the quarter is actually tracking

modestly have expectation and can insist is actually reasonable compared to historical trends. in addition, we see drivers including political advertising, the olympics, improved monetization, and the amazon integration interface workshops. so we think the bigger debate is actually, which could actually increase. the company is currently guiding for 33%. we think it could go sis 50% to ai investment. however, we believe the company has enough financial flexibility to manage that margin by lowering growth. keep in mind the company guided about 14% increase and most of that is headcount, about a flexible you in terms of managing that process. jonathan: just to build on the story, if they wrap that up,

after giving due think investors are going to be based on the experience of alphabet over the last week or so? >> the question. it's a function of how much they can lower in terms of managing the margin. of course, when you increase, you are also increasing depreciation, which put your margins at risk. and since the company has a lot of flexibility, most of that group is really coming from headcount. so they have a lot of flexibility. so air scenario shows that even if it goes up by 50%, all they have to do is bring the op ex down by one point to neutralize that margin risk. from that perspective we feel very comfortable. lisa: it wasn't that long ago that meta was penalized heavily for spending on all sorts of projects that a lot of people

thought weren't necessarily profitable and the way that they lead those shares to rally so much was to pare back. but we saw with google that they were penalized for basically going back to the bread and butter, for being in advertising and search company. will meta face the same kind of penalty for really being in advertising company and not necessarily looking to that next driver of growth? >> i think part of the reason that investors did not really like googles quarter, the secondary issue is weakness because coming into the quarter, i think tracking was pretty strong. the company did not provide a lot of reasons on the weakness for youtube other than asian based advertisers. and from facebook's perspective, we feel pretty comfortable with the advertising tracking. and when we think about ai investments, we see three

distinct opportunities. that should have meaningful upside to the company. one would be whatsapp. it is making about two dollars revenue per user. if you look internationally, it is $20. if whatsapp can get the international level or revenue, they could increase their revenue base by 30%. it is all ai driven. number two, they could unlock additional spending by automating some of the creative processes of advertising. when we talk to agencies in general, video production is about 30% of the total advertising costs. they can automate the entire process, saving a lot of money for advertisers which can unlock additional spending on that form. so these are the two major areas where ai could unlock a significant amount of revenue. lisa: i don't think i'm prepared for this next era when we see someone on tv or on an

advertisement and we are not sure they are actually real. you mentioned china, and that is a significant part of revenue in terms of buying advertising. how much do you expect that to come to the or any a time of increasing tensions? >> what the company has said for meta specifically is they are expecting a tougher, from chinese-based advertisers. what they have said is about 6% of the revenue from last year was from chinese-based advertisers. and from that perspective, they do believe it is going to be a bit tough, they do expect that there is going to be a shifting of advertising or chinese-based advertisers away from the u.s., and that is already into the guide institute. jonathan: appreciate the update. the stock is positive by half of 1%. question around china, always

amuses me when it comes to facebook. the business is not in china but they rely a lot on chinese business. lisa: the chinese companies and entities by a lot of advertising so they are a huge driver of revenue and ackley they can still sell goods in the u.s. and from everything we've been hearing, and want to do more of that. as a huge source of revenue, how do they deal with that ambassadorship? jonathan: is a challenge. we will get the treasury funding details. mike mckee is going to bring that to you in just a moment. later this afternoon we will catch up with this man right here, looking forward to this. jim bullard just around the corner. this is bloomberg. ♪

♪ jonathan: hello, dollar-yen. a break for the first time since march, down to about 149 .93 after the central bank hiked interest rate and little bit earlier. gave you some guidance on the bond buying out of japan. into 2026. this came from wells fargo. they see the drawdown is likely mostly done for now barring we jobs report, particularly one that shows the unemployment rate back to 4.2%. we expect dollar-yen will find its footing around or just below 1.50.

that's the latest on the fx market. the bond market, i want to go through where yields are currently and get some headlines for you. yields are down by two basis points. the front-end of the curve, we are down two basis points. about 15 minutes ago we had a weaker than expected adp report with some details on the treasury market and a little bit more detail around the labor market as well. mike: good morning. very quickly, the employment cost index, the fed's favored measure prices for labor comes in a little bit weaker than anticipated at 910's of 1% gain for the second quarter. that is less than the 1% anticipated and 1.2% in the first quarter. wages and salaries of 4.2% over the past 12 months, and for civilian private industry workers, 4.1%.

let's take a look at those refunding numbers and a little bit of the controversy around the use of treasury bills. 125 billion dollars is going to be offered to refund about $111 billion in maturing notes and racing only $14 billion in new cash. treasury says it will modestly increase sizes next week, then cut back in september when corporate taxes are paid. they will start to increase them again in october. treasury does not anticipate increasing coupon auction sizes over the next few quarters, which is what they've been saying for the past couple of quarters as well. 10-year note, $42 million. that is over the next couple of weeks. this looks to be the first options for those notes, those brand-new notes next week. then the treasury borrowing advisory committee is out and

kind of addresses this whole controversy over whether janet yellen and treasuries manipulating bond prices, bond yield in order to keep interest rates down for electoral reasons. one of the people raising those charges, they say they have supported bill issuance about 20% for the past five quarters, and if you are considering the 15-20% mounting of treasury bills as a percent of the total auction numbers, the 15% minimum is more important than the 20% upper bound although over time, 20% is reasonable and the treasury borrowing advisory committee which is the fixed income people from all over wall street says treasury does need flexibility. they don't mention the controversy itself but it does look like they are supporting that the treasury finance people are doing. lisa:lisa: it seems like a

treasury department is trying to make as a nonstory and they are doing a very good job trying to make the treasury options on the back burner to not necessarily disrupt whatever else is on the agenda, which is a reason why employment cost and actually call my attention. the fact that it came in significantly below the expectation, below where it was the prior reading raises squesty of which we've see all labor market metrics showing deterioration. can you talk about that kind of trend and whether you expect that to kind of color the conversation more directly later today? >> i will call it a conversation and you can bet presidents and governors will be reporting it. what they've seen as a slowing labor market in line with follow inflation and that move them closer, we hope, to confidence in rate cuts. but the problem here is employment cost index, the adp is not necessarily as reliable

as the nonfarm payrolls number so it is probably not enough for them to hang a rate cut on right now but it will tell them they are going in the right direction and it would be hard to say you don't have a lot of increased confidence in the idea of inflation coming down and the elites cut rates ahead. i think we would probably get a strong hint that is coming. jonathan: we've got jim bullard in just a second. any questions for him? mike: the biggest question for the fed is already behind the curve now? you were talking in a little bit ago about the idea that the fed maybe letting unemployment get away from itself. that is going to be a question that the fed is going to have to be asking. this unemployment going to fall apart quickly? the numbers today don't say fall apart but they do say we are seeing a significant slowdown. jonathan: ricky down the fed decision from washington, d.c.,

30 minutes after that in that news conference with chairman powell. we will take us questions and answers in its entirety right here on bloomberg television. just want to reset and give you a flavor of the price action going into the opening bell. equity futures pushing higher by more than 1%. 2% higher on the nasdaq 100. the bond market rally continues for a fifth consecutive session on the 10 year, the longest winning streak since early june. levels we haven't seen since early march. dollar-yen breaking below 150 for the first time since march very briefly. -1.8%. we have the guidance from the boj, we have a rate hike from the doj. you should expect more. andy barr for more is quite low. lisa: doesn't seem like it has necessarily hinged to a dramatic economic acceleration because that is not what we'd seen.

this is the reason people are talking out the idea of again support at the main driver. they had negative rates for a long time. we are talking about 0.2 5% being the highest since 2008. this is a completely different regime that is realizing that the weaker yen is actually hurting confidence and hurting some of the cost of living issues and been seeing. jonathan:jonathan: the bulk of it is off the bank of japan story. just a little bit softer than expected. i said michael mckee would be in the room a little bit later. let's talk to a man who has been in the room making the decision many times over the years. jim bullard, the dean of the school of business at purdue university and the former st. louis fed president. wonderful to catch up with you, sir. a timely conversation. you have lives this repeatedly

and experience the calls coming from outside the building. weaver plenty of those calls. from the likes of alan blinder, bill dudley, mohamed el-erian saying this federal reserve needs to get a move on. i want to pick up on the last one. he has made a similar point that you have made. this federal reserve seems to be have -- and become more data point dependent and not data-dependent. can you explain the distinction between the two? >> i think if you say waiting until the next meeting because you want to see some data between now and the next meeting, that makes markets wonder ok, well what is it that could derail a rate cut between now and the next meeting? if you do react to that, that is data point dependent. i think that is what mohamed el-erian has been talking about.

one thing that i did often say on the committee was that if you know you are going to do something with 100% probability at the next meeting, why aren't you doing it at this meeting? i think that often gets the committee into a little bit of hot water. sometimes the data don't cooperate between this meeting and the next. it can be managed, but it is kind of a committee dynamic that has been on and off over the last decade or more. lisa: this is the reason why many people say the fed probably is not going to cut rates today by 25 basis points, even if there is a consensus that they are going to in september because they had telegraphed it and it would disrupt markets, saying what do they now think that they didn't think the last meeting? liz young, we were also talking to james camp, they are suggesting the fed could set up a 50 basis point rate cut in september. are you synthetic to that? >> i think that's too much.

what i do think could happen is able to going in september but the discussion will turn to what about november, what about december? what will the pace be? chair powell said this first rate cut is consequential because it is a process. what is that process, and if the dated continue to confirm disinflationary trends, i think you can bring november on the table and then you can have a sequence of rate cuts into the first part of next year and then the committee could assess at that point. lisa: do you feel like the fact themselves into a corner in some ways by viewing so data dependent, by repeating that the to every question? >> this is a pretty successful policy here. i will put growing between two and 2.5%, that is very close to

the potential growth rate for the u.s. economy. unemployment coming up ever so slightly as they predicted. inflation coming down as they predicted. there a lot to like about this and the last piece of the soft landing would be to get the short end and get rid of the inversion of the yield curve. to do that in an organized way without signaling that you are worried about the economy right now, is really the trick here. >> to me it looks like an economy that is in a soft landing. of course there's always risks out there, the possibility that some bigshot could occur or one of the geopolitical events with

sort of rolled back onto the global macroeconomy, but just sitting here with this data, this looks awfully good. if they can get the last piece of the puzzle in place i think they would be in great shape. jonathan: i said earlier that the fed is in the risk-management business, and you know that better than most. when you think about the bounds of risk right now, if there is for higher unemployment is greater than the risk for inflation, do they need to formalize that somehow in a statement that comes out a little later this afternoon? >> i would say they probably think it is more balanced than it was. it is much closer to the pre-pandemic labor market but that labor market was considered pretty strong, and now you got inflation not being nearly the concern it would have been a year ago or 15 or 16 months ago

when it was up closer to 5% on the preferred measures of the committee. things are relatively balanced, now they can begin to lower the policy rate. there is a risk that when employment is at the right level and everything is going good, the policy rate should be at its neutral level as well. that is the part of the soft landing that isn't there. the comments by alan blinder and mohamed el-erian, bill dudley are reflecting that, i think, that they couldn't find a moment earlier this year to get started on this downward to send, and they are hoping that september will be that. lisa: the problem with going back to neutral is that there is a huge debate raging in our kids and i'm sure at that as well on what neutral looks like and whether we truly are in a higher inflation reaching or whether we

are going back to something familiar to pre-pandemic. it seems like about six months ago everyone was saying we are in a new inflation regime and increasingly it seems like there is some doubt entering in that maybe we are reverting back to what we knew five or six years ago. where are you in this? >> on that i would say that the committee should guard against inflation dipping below the inflation target. if that happens, it will get this discussion about going back to the regime that was placed between 2009 and 2019, exceptionally low inflation, exceptionally low nominal interest rates, even negative nominal interest rate in many parts of the world. i don't think you want to do that. you want to approach the inflation target from above, at about 2.5% inflation right now. you'd like that to gently come

down to 2%. even when they lower the policy rate it will still be a restrictive policy, still putting downward pressure on wishon. but you don't want to put too much pressure because you want to glide into the 2% target. lisa: based on what you just said, earlier use of the balance of risks is pretty equally balanced, measured at a time where inflation is coming down but still looks like it is fairly strong. based on the fact that you think there is a greater risk of inflation undershooting than overshooting, that that is the bigger risk that the fed needs to counter, what would be the argument for them not to say -- >> so far it is a risk that hasn't even been talked about but now was time to start thinking about that. when you are coming off of 5% core pce inflation, it is

traumatizing for central bankers. right now they've just been focused on let's make sure inflation is not going back out, and that was the story certainly in the first quarter of the year, but now that you've got better inflation reports, now you have to think about how we play the endgame here, declare victory, get into the soft landing and then see what is around the corner. lisa: so why wouldn't they just put emphasis on the employment market and say there are clear signs it is normalizing and we aren't sure where it is heading? right now we are going to focus more on that than inflation. >> i think they have been gently saying that. but really, the labor market has been normalizing from a very hot market. you had two job openings for every unemployed worker just astoundingly high. now you still have 1.2 openings per unemployed worker or so. that is the pre-pandemic number.

that was also a good labor market. so it's not that the labor market here writing -- deteriorating in a way that causes alarm, but you have to ask if austan goolsbee has asked , if you thought five and 38 was the right policy rate last summer when inflation was much higher, why do you think it is the same, also the right policy with a little bit higher unemployment and much lower inflation? you do have to react to the data in the big picture and i think the committee is looking for the right way to do that, the right moment to do that. it looks like september is going to be that moment. jonathan: former st. louis fed president jim fuller out of purdue now. thank you very much. the last statement we got from

the federal reserve, the fed paragraph is essentially where they think the economy is right now, the strength of labor market, what inflation has been doing. and it is on the labor market where they do this. the unemployment rate has remained low. the second paragraph you get the assessment of the balance of risks around some of the outlook for the economy, for the labor market, for inflation. the risk has moved toward better balance of the past year, the outlook is uncertain, and i just wonder how high the they need to be to break down labor market. we see, but more of that. a little bit of shift in that direction even more. lisa: and that is how much this market will be attuned biggest if they change that and they focus on being highly attuned to any further deterioration of the labor market, that could be enough to fuel a massive rally and bonds as people anticipate deeper cuts later on this year.

they jonathan: can be one data point away from being spooked and not doing anything in september. if you wanted to move in september, why not go in this meeting? this is just the way the fed works, i guess. lisa: how do you justify if you believe in forward guidance and you haven't deliver that ahead of time? that is kind of the sticking point here. jonathan: with an update on news elsewhere, let's get to your bloomberg brief. >> delta says it expects a 500 million dollars impact after having to cancel thousand the flights following ehret software update. delta revealed a figure a statement of bloomberg after the ceo told cnbc infancy damages from the disruption. 500 million dollars figure is in line with wall street expectations. delta is currently under investigation from u.s. transportation authorities over its handling of the glitch. boeing shares rising in the

premarket of more than 1%. he will replace dave calhoun who announced he is stepping down at the end of the year. he ran rockwell collins until 2018 when it merged with rtx. he then acted as an advisor to the ceo before retiring in 2021. boeing also reported earnings this morning saying revenue in the second quarter fell short of estimates. and it is day five of the olympics kicking off today. 18 events taking place including artistic and asks, diving and swimming. athletes have already taken to the river sent for the triathlon. official did declare the water quality was safe. france picked up gold in the women's race and great britain overtaking new england and the final turn for the men's race. the u.s.'s leading overall with 27. china has eight gold medals and 16 overall.

jonathan: yesterday afternoon, emotional watching gymnastics, wasn't it? lisa: i know that you are biased because u.s. came first, then italy. i've got to say, it was emotional. that team. jonathan: there was an athlete for the brazilian gymnastics team, dirt poor, one of eight children and her brothers water two hours to get to the gym. you hear all these stories, the dedication, the sacrifice of these families made to have this moment every four years. pretty phenomenal. lisa: and very few of them are coming from very privileged background there were able to train with endless resources. , people drop like that. jonathan: congratulations to team usa on what we are calling the redemption tour. phenomenal. up next we will set you up for the rest of the week and a busy day ahead. this is bloomberg. this is bloomberg.

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♪ jonathan: the opening bell 37 minutes away with a big lift in this equity market. up by 1.3%. up by 2% on the nasdaq. your dad had looked like this. fed decision time followed by chairman powell news conference 30 minutes later. thursday another round of jobless claims and then it is the bank of england's turn. friday, the payrolls report. met ahead of apple and amazon, illumined later. this week tomorrow, joining us around the table is bloomberg's ed ludlow. dropping from the west coast to the east coast. what should be look for from metal later on this afternoon? >> don't miss estimates, that is probably a good start. they are going to be laser focused on capital expenditures. mark zuckerberg has talked a lot about it. i don't know how you guys feel about meta-, and a lot of investors think it is a very

different beast even if you've gone fundamentals with traits of some 21. this a social media platform and that might be a saving grace irrespective of how much you're spending on ai. lisa: that's exactly where i was going to go. do you think the bar is lowered to show some incredible headwind in ai in order to keep gaining investor confidence? >> maybe. last quarter, i went straight to nvidia after i was treading on my terminal. that is where all that goes. and investors demanded that meta-do that and then punish them because they weren't happy with the narrative of how ai translates to their existing stuff. maybe we'll hear a bit more about that. they are interesting company making large language models. it cost a lot of money. they are open source advocates which puts them in a leadership position in the field.

jonathan: are you happy with microsoft? that's part of the initial price action, are we happy with the guidance we have for microsoft? >> capex, they jump and they didn't see the money coming out the other side. it was pretty clear twice the ceo said it is going to take 15 years for us to start making money on these capital expenditures, monetization. that seemed like a big clue. jonathan: it is a long, long runway. talk about a lineup a little bit later on. a bloomberg surveillance fed special, bob michele of jp morgan, former fed vice chair. former new york fed president bill dudley. that is just a snapshot. there's a lot more than that. the barclays ceo and the former kansas city fed president. we will see you in little bit later this afternoon. this was bloomberg surveillance.

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katie: futures flying with 30 minutes to go until the start of track -- cash trading. sonali: bloomberg open interest starts right now. katie: countdown to the fed. officials expect to hold rates steady while signaling a potential cut in september. tech stocks rebounding despite disappointing earnings from microsoft. meta and qualcomm report after the bell. kelly ordered