♪ >> everything is in place for inflation to rise. i think it is going to rise significantly enough to make the fed uncomfortable. >> if people expect inflation, they are more willing to accept it. >> de-risk premia right now is manipulated by central bankers all over the world. >> the fed's objective right now is managing expectations, and they are doing a great job of that. >> if we look at the fed's goal of reacting, they kind of want to wait it out, but market prices don't wait things out. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone.

on radio come on television, a simulcast on a most interesting start to june. i am going to go to broadway. commodities are busting out all over. jonathan: thanks for that, tom. up more than 2% on brent. $68 handle on wti, brent approaching $71. a tight labor market in the words of st. louis fed president jim bullard. that seems to be the theme. it all speaks to the same thing. tom: the dynamics here are really real. they are really corr -- they are really correlated. i know there's an opec story to it. my only question is talking to our guest, when do we blink and when does the 10 year yield actually move and catch up with the other dynamic swissie? -- dynamics we see? jonathan: so far they have not.

in the face of the conversation about budget deficits north of $1 trillion forever in america, yields 1.6162% on the 10 year maturity. tom: for the people of america, it is tangible, isn't it? lisa: the university of michigan sentiment survey friday was one of the most underplayed surveys out there. it showed people had the expectation for five to 10 years of 3% inflation. not necessarily runaway dynamics that we saw in the 1970's, but still, justify a 1.61% 10 year yield with the expectation of 3% inflation over the next five to 10 years. tom: the dynamic here on real yields, most of our guests are focused on the real yield. you can see that on friday, friday afternoon. but seriously, we simply haven't seen the real yield coming in without inflation picking down

-- inflation pushing down. jonathan: i agree, we haven't had the lift that many expected. we had inflation expectations reprice. but even that story started to stall a bit more recently. even that has come in a little bit more as well. so what is the catalyst to change this? it could be a long time. tom: let's go to the data and sit on it for a while. i am going to do foreign exchange right now. weaker dollar, but dxy not breaking through to new weakness. renminbi with some yuan strength. over the memorial day weekend, since of action by the chinese, including that stunning three children policy. a weaker yuan. what i would notice as just one proxy is mexican peso nicely comes in, a stronger peso off oil. jonathan: euro-dollar, $1.2226.

in the bond market, there it is for you, back through 1.60%, 1.6181%. your equity market with a lift, up 0.6% on the s&p. tom: look at the russell, up 0.9% this morning, leading the way. finally getting the vix to come in. could you imagine a 15 handle? [laughter] tom: yes, tom, i can imagine -- jonathan: yes, tom, i can imagine a 1.15% handle. if this continues. . lisa: borrowing costs for investment grade companies are not the lowest they have been postcrisis. it raises the question of what kind of risk we are building up here. what kind of bumper do you have if there is a moving treasury yields where people do not care because they need income, they

want income which we are needing that retirement, and now you're looking at a key dynamic. tom: am i right that what she just said is lesser quality bonds are less than 1% difference in yields? tom: lisa -- jonathan: lisa was talking about investment grade, tom. i just want to be really clear that we weren't talking about high-yield. we were talking about ig. we had a ton of supply to match this, particularly in high-yield. lisa: the reason why is because energy companies were the main ones driving the most recent borrowing ceremony -- driving the most recent borrowing surge. we have companies leveraging themselves up to the old economy in a regime of low rates that may not stick around. yes, this is the big -- jonathan: careful with that word, leverage.

because none of these issuance this year has been refinancing. lisa: refinancing, though, from 2020. refinancing from the amount of cushion that companies try to get to survive the pandemic. the question now is are they going to grow into this debt that they incur to survive a public health crisis? so yes, they are more leveraged than they were pre-pandemic, although perhaps not at the same pace this year. tom: now i'm confused. joining us now, brent schutte, northwestern mutual investment manager. i want to go to the depths of your note, where one of the great opportunities here from milwaukee to the pacific rim is to buy up emerging markets. so much of our radio and tv audience is behind. is eem the place to catch up? brent: i think international in general is the place to catch up.

we've had broadening recovery in the u.s. off the back of, stimulus and reopening, now seeing that push into places like the eurozone, where they are having increased vaccinations. their manufacturing segment is doing well, and soon the services will be doing very well. in general, i think as we think about the next part of the recovery, it is more based in the international part of the world where they are just a bit behind the u.s. jonathan: europe right now is trading at all-time highs on the stoxx 600. what has been lacking? what hasn't participated? brent: if you look past the last year or so, europe in general has lagged because their economy has lagged. they are now doing fiscal stimulus. they are chairing debt more so. so i think you will see a european economy that is going to move at a more rapid pace because investors have learned not to invest overseas. they are still extremely resilient to be outside the

u.s., and you're going to see that narrative change a bit. every economic expansion is different, which means every market expansion is different. i think this one can push more towards those international economies. lisa: what is the main factor look at to determine which economy is further along in the cycle? is it the central bank and the tightening cycle? there are a lot of different competing factors here. brent: i think all of the above. the u.s. in the first quarter posted 6.4% growth. if you look at the output gap, for example, the output gap is bigger in the u.s.. leading economic indicators are down, not up like they are in the u.s. i think this cycle has been a little easier because it is along the line of covid cases and shutdowns. now you're going to start to see that reopen. i could add one more for you on people who want to do so. look at the oxford spending indexes and show how much government regulations are

tightening because of covid closures. that has the same impact as it did in q1 in the u.s. tom: do we need to make bets here? speaking with northwestern mutual, do we need to make bets and strategic estimates out two years and five years? or do we risk and over diversified portfolio, where we've got too many ideas in play at once. tom: certain -- brent: certainly we look at the next plays at once. i think they are out there two plus years, so you have this. of time -- this period of time where markets are probably going to slow down. i don't think that is a comment. inflation is temporary right now, so i am more consensus. i think it pulls back, but it is more of a 2022 issue.

that is actually an issue of this expansion because monetary and fiscal policy have adjusted to all of those demographics and you are having inflation preferences, so i think that is more about than the next 25 years that you mentioned. i think now use to have some time left. jonathan: when you say quick cycle, quicker than we saw in the previous cycle? what do you mean? brent: we are still probably early cycle. we could be midcycle to late cycle by the end of the year. you are going to see big job gains and full employment next year. that is incredibly quick. jonathan: brent schutte, northwestern mutual chief investment strategist, that has been w -- this has been what we've been getting our heads around. it is a difficult tension to resolve. tom: there's a lot of people who

have rationalized not participate in, and the fact is there were some zeitgeist on this over the weekend. if you are not in this market, you miss the boat, and you see it again this morning, the character of the equity bid here , it is a solid bid on this first day of june. jonathan: the s&p up by 0.5%. the nasdaq up 0.9%. lisa: how do you have conviction when you have incredible swings and the surprise index? it has been hard to pinpoint the reasons behind the friction we are seeing. the disagreement there. it is such a hard time to have any conviction or affect any of these calls because it is a unique moment in economic history. jonathan: kathy jones at charles schwab, i will catch up with kathy little bit later on, so that might be until august or september when you see the big jobs gains.

it's back, tom. tom: commodities are up. jonathan: beautiful. 4225 on the s&p. tom is here all week. this is bloomberg. [laughter] ritika: with the first word news, i'm ritika gupta. president biden wrote out plans directed at reducing the black-white wealth gap. he will unveil those today. president biden is expected to offer proposals aimed at boosting homeownership and helping minorities own small businesses. china is taking the biggest step

yet to rein in a surging yuan. it effectively reduces its supply of dollars in other currencies on shore, and puts pressure on the you to begin. two -- iran says it hopes they 2015 nuclear deal can be revised by august, before -- two big private equity firms are taking cloudera private. they will value cloudera at about $5.3 billion in the all-cash transaction. that would represent a 24 percent premium to its close.

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>> there's a strong recovery of oil demand in china, europe, and

elsewhere. if the oil producers, opec+, stick to their current policies, we may see a widening gap between supply and demand. jonathan: it's the theme of demand at the moment. that was fatty be real -- that was thought to be role -- that was fatih birol, executive director of the iea. there's the move on crude. $68 on wti, and $71 handle on brent. $71.04, up 0.2%. tom: let's get right to it. this conversation is too important. janine -- jeanine wai is out of

barclays. i have to focus on the responsiveness in dynamics of oil price to, say, exxon mobil's free cash flow. his ex on a real oil company now , or -- is exxon a real oil company now, or is it a bank that just happens to own oil? jeanine: that is a very interesting question. we do think they are a real company. at $70 a barrel, there are a lot of options. but i think the main drivers of major stock performance recently has been twofold, dividend sanctity and timing of cash return to shareholders. so at $70, we think is a matter of when and not if that exxon starts returning incremental cash to shareholders. we think that could 20 happen in because22 -- that could happen in 2022. tom: their 10 year return is a

tragedy. it is how ceos get fired. what is the new religion at exxon mobil? sam: there has been -- jeanine: there has been a paradigm shift in energy broadly. there's a focus on go forward cash returns and a significantly high gradient exxon for projects going forward, which doesn't change the track record, so there is a paradigm in energy focused on increased have full -- on free cash flow, focus on discipline. the management team is very focused on reducing at the lower end -- reducing capex at the lower end of the return this year. so we think that the go forward exxon is a much different company than the prior 10 years you just mentioned. lisa: how high do prices have to

go before u.s. shale producers come up for marginal u.s. oil drillers actually get back into the market and produce more? jeanine: i think that is everybody's fear, that higher oil prices will come more into u.s. supply, but what we have noticed not just on the u.s. majors side come but also with the large -- not just on the u.s. majors, but also with the large players overseas, it is now or never for these companies to prove that they can return cash to shareholders. so we think the supply response will be very muted going forward. generally speaking, our companies now are much more vocal and aware of the macro conditions around them, indicating that right now, the world doesn't need that oil.

but you are looking for curtailment to come back and oil demand to come back to 2019 levels before they even consider growth. the one caveat is we are keeping our eye on private production. it has become a much bigger part of the u.s. supply picture. lisa: how much of what you are seeing with respect to discipline has to do with what you're talking about, which is that it might take sometimes to get back to the levels of 2019, and how much has to do with the push on shareholders for climate change action from some of the fossil fuel producers? jeanine: i think the capital discipline is alive and well. we keep seeing more and more data points for that. i think the push for climate change really is making companies more aware that they've got to look at the overall macro picture. it is not just every company out for itself. when investors are demanding,

the energy change is only going to go in one direction. let's not forget that investors are really demanding returns and cash returns on capital going forward, which historically come of this group has not done a very good job at jonathan: -- not done very good job at. we don't necessarily disagree with the nominees engine one has posed. broadly speaking, the market wants to have change, so i think we were looking for transparency and more of an mg experience. where we kind of differ from other opinions is that we don't necessarily think that a major change of exxon would necessarily benefit shareholders. this kind of goes back to your first question. we think the current management team has done a really good job changing the complexion of the

company going forward. so between one containment of dividend last year to reducing capex to historically low levels from what you would expect them to do, and three, executive on quarters. we think she was doing -- we think these are doing a pretty good job right now, so we do think that the company would benefit from lowering capex to at or below the low end of their medium-term budget. jonathan: can you put some numbers on that? is this up string capex -- upstream capex? jeanine: this is upstream. for example, if they go to about 19.5 billion dollars, we think they can get all of their plans done in the medium-term and produce a decent amount of free cash flow. free cash flow is really the key

for the sector because that tells you cash returns to shareholders. that is how companies prove they are real companies. for exxon, if they do that, lowering in this point of a medium-term guide, we see free cash flow averaging about $3.6 billion per year on average through 2025, and that would allow them to pay down debt and increase the dividend. jonathan: jeanine, good to catch up. brent crude this morning, $71.17. we approach $69 on wti, up by 3.6%. tom: as we were speaking, chris verrone publishes that strategic, and he says -- publishes strategic's, and he says we are close to $80 a barrel. jonathan: the rally continues

this morning. crude higher. equities push-up by 0.5 5%, and yields up by three basis points. small caps outperforming. reflation trade kicking and a little bit. from new york come on radio, on tv, this is bloomberg. ♪

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♪ >> from new york city to audiences worldwide, this is bloomberg surveillance. one hour away from the opening bell. small caps outperforming. s&p 500 up five to -- levels we have not seen since 2018 in the commodity market. 68 handle. brent crude trading at $70. tom: it is not abroad bloomberg commodity index rise, but there's enough going on with copper, they are not to record highs, but they are elevated. you wonder, this 50 spurs -- 56% move in commodities, will it

keep going? jonathan: copper -- tom: london copper. jonathan: up by 4%. tom, china is not participating in this in the way it did maybe 10 years ago. it is interesting that this morning, china has basically come out engineering, tapping the brakes on currency appreciation, which you would expect to make a dent in the commodity market. this morning, it has not appeared tom: it is a bit of a -- this morning, it has not. tom: there is. you got to think, just i will point out the turkish lira up to 8.52%. a continued difficult to say. he writes brilliant notes for banque pictet, we are thrilled thomas koster to join us -- thomas costerg to join us.

my mathematics, all in this year, still buoyant 3.2%. we average 4.8%, 4.9 percent for two years running. that is pretty good. that is basically double the run rate, right? >> right. that is what you would expect after a strong fiscal spending, federal rounds of checks. fiscal support has been huge. to some degree, the economy can do better. the economy is strong, but if consumers were really going out and spending all of this money, we could go up 10%. we are up 6.5% this year and it could be better, it could be worse as well. tom: there could be leakages or surprises in the calculus. what is leakage within the calculus you are focused on?

what could be the surprised way more moderate consumption? jonathan: -- matt: we look at the savings. we are speaking here at around $2.2 trillion. $1 trillion that consumers have not spent, $1 trillion excess income they got last year because the government was so generous. $2.2 trillion. the question is, are they going to spend it now? are they going to wait? are they going to save it? so far, the indicators we have suggest there is a degree of caution out there. people are saving, they are unsure about recovery. therefore, this so-called -- effect, if you do not go to the hairdresser once, you usually do not go twice the following week. what will not be spent will not be spent. bottom-line line, the savings

pile is there but it will probably be spent gradually, which is good news because it means the u.s. economy will avoid overheating. jonathan: is that just a guess? how do you know? how do you come up with the forecast for savings? thomas: we have data. we have consumer surveys, so far they are not great. in europe, surveys are back to precrisis levels. in the u.s., they are not. across-the-board surveys, and even some details -- i am cautious. housing extensions in the u.s. are going down, which is a worry because people should be feeling more confident. they should buy houses and cars. we have data from consumers surveys which suggests some caution. we have also data about april spending. they received checks in march, we know what it did in april. in april, people were cautious. if we extrapolate that, we have

the outcome i described, strong growth in the second quarter but after we are likely to see growth normalizing back down to 4%. francine: what is the implication if we basically had helicopter money in the u.s. and parts of europe, and that is not lead to sustained inflation? thomas: one conclusion for the next recession is that we may have fiscal policy which may put a timestamp on spending. you may be forced, when you receive a check, to spend it within three months or six months. the problem with that fiscal spending was that there was no -- people didn't tell you you had to put it back in the economy and i think that is maybe a fragility or weakness that could be addressed. in terms of in freight -- inflation outlook, you do not see excessive wage growth. you do not see credit growth.

credit growth in the u.s. remains subdued. third, inflation expectations remain very much alone. there is an exception in the michigan survey, but that is an exception. if you look at inflation expectations, they remain anchored. i do not see an inflation phenomenon kicking in. i see inflation on supply chain, but there is no generalized increase in inflation. francine: to put together this idea of the conservative way people have been using their savings, which is what you are signaling, with this friction in the labor market, people not going back to labor, could this mean people are using their christian to stay home for longer and they will only go back when that cushion is used? thomas: so far, we had bad

employment last time. we need to show firmrt conclusions -- firmer conclusions. this will be key to seeing whether there is a genuine impact from the jenny wass -- generosity of the federal government. i think it does hamper the return to work. however, there are other issues. one is that firms have gotten more efficient. the skills have changed as well. the economy has changed so you do not need the same workers you used before the crisis. think about the green economy, you need a new range of skills for the green economy. those workers, those skills are not there. tom: your inflation view, maybe -- i make note that until david

rosenberg in toronto, rosenberg looks for disinflation and he estimates a go east tone. if you're going to buy growth, go to the pacific rim. does pictet agree? thomas: in terms of recovery, definitely asia has been definitely rebounded much more quickly, and also months ago it was rebounding. asia is the place to go for growth. however right now, the good spot is europe. europe is recovering, the vaccinations are accelerating. this summer could be a good growth for europe. in the longer run, we are more optimistic about the u.s. than europe, including for demographic reasons, but also the technological leadership we see in the u.s.

jonathan: thank you. tom: really good. jonathan: just to give you the numbers, put some muscle on those bones, grew through this year decelerating. 6.5% to the median estimate for growth in america. 4.0% for 2022. a deceleration from 6.5% to 4% next year, than 2.4%. 2.4% is your median estimate. tom: i emails toronto. with the same undershooting of the survey. 19 economists with good statistics. the first quarter number came in below. there is a lot of moving parts here. what i do not see on the bloomberg stream is the world coming to an end. jonathan: obviously not with futures up 22%. tom: i was looking at doge, but

ok. jonathan: the key variable has to be the savings rate. how much money will be spent? when you dig into it, there are guesses. francine: who has the savings? is that wealthier individuals who have less propensity to spend, versus lower income individuals that are more likely to spend? the implications here have to be emphasized. the idea that if we do not get's estate -- helicopter money, printing trillions of dollars in cash, what are the long-term implications? for me, this is a massive question we will be talking about for years to come. jonathan: how much you let this play out to see a -- and labor market. the fed wants to wait. kathy jones will be during me -- will be joining me in 20 minutes, we will talk about a big jobs number.

kathy thinks august-september. that is when you will start to see big numbers and you are not going to see them this friday. tom: i don't have an opinion, but it is important the way she takes timeline out. so few people are looking at q3. jonathan: pushing it back to the summer. lisa: if things have not gotten back to normal fully, yet there are more job openings, how do you square that with all those people out of work? tom was talking about possibly the skills have changed. jonathan: we are about to see. over the next couple of months what that looks like with republican states removing unemployment insurance. from new york, good morning. 42.25 in the commodity market. 68 handle on wti. 71 on brent. tom: broadway is returning. jonathan: have you bought tickets? tom: of course not.

jonathan: nice. tom: all over the meadow and the hill. under bus and out of bushes. [laughter] jonathan:jonathan: this has been a wonderful partnership. you do crazy stuff and i ignore it. futures up 0.5%. lisa: i love it. jonathan: this is bloomberg. ♪ >> oil futures climbed to their highest in more than four years. opec and allies are forecasting the global market will tighten up. the cartel says the glut buildup during the pandemic has almost gone. higher energy prices are one of the reasons inflation in the euro area climbed. consumer prices rose 2% in may,

more than economists predicted. there is a report that japan will allow some spectators had next month's olympics, according to -- organizers will let domestic fans attend. spectators will be required to provide a negative test or vaccination certificate. fans from overseas will not be allowed. krispy kreme is set to become a public company for the second time. the american doughnut chain publicly filed for an ipo on nasdaq. it says sales rose 23% in the first quarter. ja be bought krispy kreme -- jab bought krispy kreme in 2016. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am or take a group to.

♪

one of the chief concerns i have is that once you start to see

people doubt the fed's credibility, influence it -- inflation expectations arise in a way that is not good. tom: very important there with the vix coming in. futures up to 50. current fix comes in 16.69, that is important. we will see how that unfolds through the trading day. lisa abramowicz, tom keene. what we know for certain is every once in a while, every columnist writes jewel. barry, i love your column on the great reset. as a go to robert frank, in one of the greatest essays of all time, led four by michael moore bisson, the winner takes all technology economy. that's great. how do why do winner take all investing?

>> one way is to look at who the big winners have been and what the trend is like. up until 20 20, that was pretty obviously, own everything passively and go with vanguard and blackrock. i don't think anyone can tell just yet was 2020 a lockdown boredom aberration, or have we flipped the script and suddenly we see the return of active investing and stockpicking? i can't help but feel like last year was a one-off, it is not a sustainable thing. the big tail is going to be, look at robinhood volumes. is that going to continue on its hot path, or plateau? tom: within that is a battle, we've had this conversation recently that goes back to academics, which is sector or

individual stock diversification? to use a phrase from peter lynch, when it is winner take all, do you do sector focused or stock focus? barry: all of the academic data seems to suggest that a tiny handful of winners drives most of the market performance. depending on the study you look at, it can be as low as 1%, or as high as 4%. we know that the vast majority of stocks are essentially flat. small winners, small losers, a couple of zeros and they all offset. there is only a handful of ways to make sure you own everything that is going to be in that 4% or 1%. you can give your money to the best stock pickers in the world, folks like bill miller, the

problem is we do not know they are the best in the world until after they have put up decade-long track records. or, you can try and pick stocks yourself and i think the average investor has had mixed results on that. or, you can just own everything and that seems to be the trend, at least in etf's and mutual funds. endowments and foundations, large funds, large investing pools seem to still be in the stockpicking modality. lisa: it is one thing to not pick stocks, but another to not pick a cycle. do not pick the great reset you have been talking about. how life has changed post-pandemic and what that means. we have seen themes thrown out of what may happen. what is sticking in terms of new trends you can bank on? barry: i went over six broad topics in the column yesterday.

my cheat is, a lot of things that people are up in arms about are really trends that predated the pandemic and we were accelerated. hey, welcome to 2024. essentially we are three to four years ahead. what's trends are we seeing? technology is dominant. it is not even a sector, it is oxygen. if you are not tech enabled, you are not taking full advantage of technology, you're going to be left behind. it is not just tech companies themselves, it is the companies deploying technology. number two, my office has been virtual since we launched in 2013. we have clients and employees all over the country. the idea that suddenly zoom is a new thing, or screen share is a new thing, is outdated.

what last year did was reveal a proof of concept for large corporations who have not gotten the message. while people like jamie dimon want everybody back in the office, i think you are going to see a lot more flexibility, at least amongst white-collar workers and technology workers. more sophisticated companies that understand that to attract the best and brightest employees , especially the younger generation, they have to offer flexibility. tom: thank you so much for bringing me up to the young generation. [laughter] tom: winner take all theory in investing. lisa: i was thinking about this idea of how cities have changed and whether the office is really going to come back. frankly, you are not necessarily seeing fear priced into the

market. people are still thinking of building office towers. i am wondering who is right? are we going to see your return to offices and a massive way or this -- is this a new paradigm shift? i find this fascinating. tom: i make jokes, but it is important, we have heard the word paradigm seven times this morning which is seven times too many. [laughter] i go back to what barry said, before the pandemic in some ways we will get back to that and another other ways we won't. the uncertainty here is enough to keep you, me and john in business. lisa: i find it interesting to think about the donut theory, the internal city center that used to be filled with offices is getting hollowed out. this is getting accelerated. in the markets, oil is the main story. the idea that opec-plus is seeing a tightening labor market.

tom: you mentioned the doughnut, the key news today is krispy kreme. lisa: have you had krispy kreme? tom: i have. they have an emporium at penn station. lisa: an emporium? tom: an emporium. jonathan nailed -- ritika nailed to the news flow on television. lisa: you are still stuck on the pictures. tom: i didn't even read the notes. lisa: the other idea that -- didn't even dent. tom: on radio, i am sorry. it is vicious. for those on radio, you can envision crime the cafe. [laughter] lisa: i heard that. great french.

tom: toronto maple leafs. lisa: i do not see whether krispy kreme. tom: magnitsky. -- magnifique.

>> from new york city to audiences worldwide, good morning. taking off tune with equity futures positive on the s&p 500.

countdown to the opening bell starts right now. ♪ announcer: everything you need to get set for the start of u.s. trading. this is "bloomberg: the open." ♪ jonathan: from new york, we begin with a big issue, counting down to payroll friday. >> the jobs report. >> it feels like a bit of a coin toss. >> i would lean positive. >> [indiscernible] >> stronger than last month. >> what, 650,000? >> regardless of payroll. >> there is an issue with labor supply. >> very high levels of job opening. >> as