>> the consumers have been venturing out into the real economy and they have been gradually putting that cash to work. >> when you look ahead, we very much believe the economy will be still growing well above trend. >> we don't see losses in equity markets without an equity market starting to move considerably more than it has now. >> the u.s. is going to get back to a real yield of zero. >> the fed is incredibly opaque. if you give it a lot of goals, it doesn't have many tools to hit all those goals. >> this is "bloomberg

surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. a simulcast, number radio -- number radio, bloomberg television -- bloomberg radio, bloomberg television. conference is going to speak at a conference call to me, the shape of banking is the boom economy. pepsico is leading the way. jonathan: let's talk about the shape of investment banking because that was on fire. trading was soft year on year. but when you look at investment banking revenue at jp morgan, that was a record quarter, up 25%. look at goldman, up 36%. that is what counts for what happened in trading. revenue banking was really stellar. the fee-based revenue. we spend a long time talking about the guild curve income, all of that good stuff, and yet

it is the fee-based revenue that has really delivered this time around at these banks. tom: their diversified platform as well and the technological leadership. there will be other pepsicos to come out as well. michelle meyer in the opening. -- michelle meyer in her opening act this morning, you've got a 24 month wing american economy, at least two times normal. jonathan: the issue is do you look at the numbers come of the levels, or the deceleration from .1 to -- from 0.1 to 0.2. tom: the negative the real yield is creeping up. i'm looking at a bond market. why are yields so low in the 10 year auction was a disaster,

given the boom that we have seen from jbm and gs? lisa: it actually came in fairly strong, and there was plenty of demand. perhaps a disaster when it comes to what it says about the state of the economy as people are concerned about that. i think it comes down to the same story. there's so much cash and people are not deploying. deposits are increasing 23% at jp morgan. the idea that bloomberg intelligence points out that large firms still have two point $4 trillion of cash on their balance sheets that needs to be deployed. this explains the strength in mergers and acquisitions. the question is when it will support the rest of the economy. tom: it is going to be interesting to see. let's get the data out of the way right now before reduce a market strategy with chris harvey. we've got a needed call with mr. dime -- a media call with mr.

dimon. i got the nasdaq still up. we will await the end of the month for big tech companies. jonathan: we are positive by about 0.3% on the nasdaq right now. the s&p 500 unchanged. yields at 1.3 cap -- at 1.351 0%. all this talk about a cyclical boom, as it peaked? steve chiavarone, a good guest this show, turns to me like it is just restarting. some people are in that camp that in the back of this year, the fourth quarter, things start to pick up again. tom: it is going to be interesting to see. there's a lot of growth scare worries now. let's get to chris harvey with wells fargo, their head of equity strategy. you got a more cautious view on the equity market. with this earnings season, can

you calculate a more bullish adjustment? jonathan: as -- chris: as you point out which we have been right in some cases, wrong and others we came in looking at mid single digit returns. obviously the market has done that, and the market has been much stronger. will continue to think about adjusting come of it for us it is really about positioning, and we do want to have that cyclical exposure, and more importantly, we want to take advantage where those companies can buy back shares and any type of selloff, those companies probably, in theory and in practice, predict it to the downside. they offer very good risk-reward. that's where we want to put our focus. jonathan: this was a cyclical call that we would get this boom, and we have done.

what surprised you about growth equities so far this year and how resilient some of them have? chris: really what surprises us is rates. we would not expect when you look at generational gdp that you had real races of other people. many of these buddies are strictly a duration play, so you're going to go down and these things are going to happen before. we look back to the end of may, but what hasn't outperformed? staples and utilities, things traditionally tied to rates. we find it very funny that this is going on. you're right, you hit on a key question or narrative we are talking about. many people are talking about the deceleration, and that is what they are focused on, and we don't think the deceleration will be as fast as many expect. jonathan: what do you need right now? do you need rates to go lower or higher?

chris: we need rates not to go lower. we need to realize that many corporations have done a good job defending margins. we need to hear that pricing power is still out there, and we need to hear that demand is if not inelastic, but the individual is the price taker and the price buyer. tom: you talk about how there is so much cash on the hands of companies that go straight into that, and you expect q2 share buybacks to exceed the 140 $50 billion pre-average that we saw pre-covid. what is currently priced into the headline number? chris: that is a tough question to answer. you said something earlier that i thought was very interesting. we do have a ton of cash on the balance sheet, and maybe one of the reasons rates are so low is you haven't had the opportunity you get aggressive on your share

buybacks come on your capex due to the market going higher and because it is podcasting, so that makes things different. more importantly, that credit markets are wide open and many companies can still issue and add to their supply. lisa: you are saying that supply chain disruptions have cap certain companies from deploying their cash. are we seeing those disruptions ease enough to see more capex and actually an accelerating amount deployed in the couple of months? chris: not yet. i think we have to do a lot more. i will take myself as an example. last year i bought a car. inventories were very tight. this year, inventories are still tight. it is going to take a while. inventories are exceptionally tight.

corporations are saying we can build the instrumentation just yet because demand is getting so strong. we see a booster of the late market week -- the labor market week to loosen up. tom: what do you do with big tech. chris: you want to have a couple big tech names in the portfolio. for the most part, if you have big tech, that is high-growth, high multiple. that is of place we really don't like. as rates go higher they underperform. so we would get rid of anything with high-growth. jonathan: what was the car, chris? lisa: he question. [laughter] doesn't want to talk about it. lisa: rightly so.

jonathan: it is a respectable get around for the family, that's how you set got to say. chris: i out a family structure. there you go. jonathan: chris harvey, thank you. bottom of the hour, cpi america just around the corner. tom: it is. cpi is going to be huge deal unfold and do this earnings season as well. this percolation out there looking for significantly lower ration rates, not only in the bigger cities come about across the nation. jonathan: that distinction is something a lot of people grapple with everyday. lisa: they are saying this is skewed probably lower than the real inflation people are experiencing in their day-to-day lives based on what they actually buy. i think we could find the

positive sign about, growth -- about academic growth. it depends which prices are higher. jonathan: it always is for economy makers. it looks like things will get better. 4377 on the s&p 500, unchanged. yields are into one through 510% on ann's. in 20 minutes, you will get u.s. cpi data and america. from the look -- from new york, this is bloomberg. ritika: with the first word

news, i'm ritika gupta. janet yellen hopes to get some help to push congress to agree to a global tax agreement. american businesses are likely to provide crucial support that may be needed to help overcome republicans the ship. white house officials -- wally officials have proposed -- wildly deals -- huawei -- huawei could set standards for the digital economy, including use of the rules and trade facilitation. prime minister boris johnson's decision to use coronavirus restrictions in england has led to growing fear and calls for action. the vaccine is expected to be a linchpin of the immunization

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>> these are not double-digit dividend growers. jonathan: gerard cassidy their of rbc capital markets on the bank earnings this morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. here are the bank stocks this morning. your bank stocks look like this on goldman, on jp morgan, down 0.9 percent. goldman up 0.6%. investment banking looking really good. outside of that, trading not so much. that is the story for the banks. here's the story for the politics. we understand as reported in "the ft" this morning, the u.s. is to warn companies of growing china influence in hong kong. this has been building for a while now, and we understand the dividend was reported from the financial times a little bit earlier. tom: you just wonder, what does

the business pattern look like in hong kong were up north to shanghai, or many hours down to singapore? it is a mrs. -- it is a mystery, right? jonathan: i haven't seen anyone willing to take some kind of moral stand on the back of the allegations of human rights abuses who are moving to move away from hong kong or the mainland. tom: it is going to be interesting to see. this is off of our interview with the sick terry of treasury, janet yellen -- the secretary of treasury, janet yellen -- janet yellen, about the treaty. i want to go back to the canadian fisheries treaty of 1888. this through grover cleveland -- not grover cleveland alexander.

treaties are not siebel things, art -- not simple things, are they? >> that when i have forgotten, but no, i think you have made a very good point. to get a treaty, you must get 2/3 of the senate to agree. janet yellen in venice over the weekend conceded that it could be a year before we get her minimum global corporate tax. i think it could be even longer than that yet i do not think the votes were there in the senate to approve it. tom: are the votes in europe? doesn't europe have to agree on all of this before the u.s. steps in? greg: of course, ireland is the one that steps in all the time. i think there's real concern that it can't win approval and wash -- approval in washington. lisa: is there a concern that

both sides don't have consensus, and this is just noise to try to pressure companies into acting differently? greg: i think so, i may be pressured countries like ireland into compliance with other countries. it is a goal that i understand and she doesn't have to want have this race to the bottom, with all of this ahead of us. it is a treaty, not makes it a real problem. jonathan: we know a subject where there is some support on both sides, and that is china. the headline that just crossed the bloomberg was reported in "the financial times" earlier this morning. the u.s. to warn companies of growing china influence in hong kong. the united states will do a pre- notification morning brief later this week. i want to understand what a warning actually means. does this get backed up by some policy initiative? greg: it could involve sanctions

down the road. i think initially, it all about data. there's a great fear that companies dealing in hong kong or on the mainland have a real risk of data being stolen. china is very good at hacking, along with human rights. lisa: how can you distinguish the noise from the signal when it comes to china policy. we get a lot of saber rattling. how do we know this is truly an excavation that will have legs -- an escalation that will have legs and perhaps even spur a response from chinese authorities? greg: when i talk to people in washington in both parties, this virtual unanimity that china doesn't play fair, whether it is hacking, its activities in the south china sea, it's treatment of dissidents, and its lack of transparency on the virus. most people in the city do want to take tough action. lisa: what is the cohesive chief message from the biden administration.

what are the benchmarks for success when it comes to the relationship. greg: i would say this. down the road, biden and xi will talk to each other. we might even take a look at the second round of trade talks. we are a long way away from any kind of normalcy. i think it is very chilly. this relationship is going to persist for another year or so. tom: your thoughts on what florida politics means to president biden as he addresses the unrest of protests in cuba? greg: it is huge. it is obviously a huge issue for marco rubio, who clearly wants to run for president again. after we have abdicated in afghanistan, for us to shrug our shoulders at what is going on in

havana and other cuban cities i think would really hurt items politically -- hurt biden politically. he's already made it clear the haitians aren't going to get any support from the u.s. as that country sinks into anarchy. i think it looks like he is abdicating. that would not send a real positive signal. jonathan: greg, good to catch up. greg valliere, hef chief policy strategist -- hef chief policy -- agf chief policy strategist. tom: in hong kong, it is not shanghai. is it becoming rapidly like shanghai? what we got here is a massively changed environment. i don't i the idea of singapore because it is so far away, and the weather is radically different in hong kong. are we going to move everybody

down there? jonathan: i don't think it will come down to the weather? i think it will come down to where these companies fall or not. i don't think anybody wants to inflame the mainland. i don't know. we will see. but when you ask these companies about china, when you asked them about the national security law, when you ask them about alleged human rights abuses and changing , what do you get out of it? tom: we will probably hear that in the conference call today. jonathan: cpi data a little bit later, and five minutes. is the next proper call at 9:30? lisa: yes. jonathan: i can rely on you for the answer, lisa. thank you. mta coming at about five seconds . tom: you note that. -- you nailed that. jonathan: thank you, tom.

from new york city this morning, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. just a little grumpy this morning, aren't you? all-time highs in the equity market, inflation dat is next. . this is bloomberg. ♪

jonathan: live from new york city for our audience worldwide on tv and radio, waiting for economic data in america. alongside tom keene and lisa abramowicz, jonathan ferro. this is bloomberg. here is michael mckee. michael: good morning. we have some inflation. a lot more than anticipated. on a month over month basis the cpi rises .9%. the forecast was for .5%. the poor rate up .9% -- the core rate up .9%. we had 5.4% for the cpi and the core at 4.5%. significant increases this last month.

let's take a look at some of the ones we have. in terms of the change, food is up .8%. energy up 1.5%. that includes a 2.6% rise in gasoline prices, which is going to be a problem. gasoline continues to rise. used car prices still contributing to this, up 10.5%. apparel prices up .7%. those have been rising. services up .4%. we are seeing significant moves. we are also seeing a big move in shelter, up .5%. that was only .3% the prior month. broader based inflation than before but we need to go through all the numbers. the headline number, 5.4%, a lot of people will be worried about that. jonathan: that is the data.

the interesting part of the story was going to be how the market responds. the height yields are the front end towards the belly of the curve. not lasting long. yields are up on the five-year, a couple of basis points the two year, your 30 year yield is coming off the lows but basically unchanged on the day. of letter curve led by a lift in the front end of the curve. -- a flatter curve. this is about how the fed will react to the data. there is a bleep the fed will not let this go because of people did hold that belief, what you would expect to see is a big lift at the long end on 30, on 10, i do not see that. i see the lift through the front. what does that tell you? michael: it tells me the markets bought into the transitory regime because they think the fed will react where they think we will not see inflation last.

we are getting the numbers that many people did expect but it will not go on forever. jay powell speaking tomorrow before the house financial services committee. i am sure he will say we are not going to let this go if inflation were showing signs of breaking out, we would react to that. a couple of the other numbers people have been watching in terms of whether this is transitory. airline fares up 7%. they were up 10.2% the prior month. we are seeing the kinds of inflation we have continued to see, but we are also seeing it on -- we are also seeing it in other places. i said shelter was up on the overall basis but owners equivalent rent is up .3%. that is the one we look at to see what home prices are having what effect. home prices up .3%, still not a breakout. a lot of people had been predicting that. we will continue to watch that

can take you through all the numbers, as will wall street. the initial print comes in at the highest since august 2008. tom: you are 30 miles southwest of jackson hole, out in idaho right now. by the time chairman powell gets to jackson hole, is he going to have three, four, five months of data to see a trend or will he be able to say at jackson hole he needs to see a trend? michael: he is going to say he needs to see a trend. the fit never specified -- the fed never specified what transitory means but he has said he wants to see several months of data. this is an interesting one that maybe the next guest will be able to comment on. this is one of the first months we do not have the base effect built in, the gigantic drop the prior month. this could have been larger.

it is not clear yet from this data, and i've not had a chance to look at it, whether or not this is all real or whether this is just part of the rebound. obviously with used cars and airfares and things it is rebound. there are large numbers and some these other categories. jonathan: did you get to jackson hole early? it looks like you did. michael: early enough to get up early for you. jonathan: good to catch up. upside surprise on cpi in america. what happens to the market? yields at the front end, a lift. your 30 year is down about half a basis point. a flatter curve. the equity market takes a dip lower, down .2%. we were positive quite nicely on the nasdaq 100. we are now -.2%. there does go different ways of looking at this. the long end they might be buying into the transitory

story. one that might be dominating is this idea that higher inflation will bring the fed in, reinforce the argument of the hawks at the federal reserve and that would explain what is happening in this market right now on two and now through the valley. we are talking five or six minutes after the initial print. i do not want to run away with the idea. for a lot of number the market -- looking at the market reaction, that is the narrative people will run with. tom: i will take it to the conference call to the banks, to what we saw with pepsico and what we will see the next 60 days. it is about rising inflation versus rising profits, rising revenues, rising animal spirit. his rising inflation back? our next guest is an expert. to your point, the markets churn, i'm watching the real yield, -1.00% as we speak.

jonathan: with policymakers it is always important to establish what the reaction function is. the core of the federal reserve has been clear in the last couple of months nothing has changed. we have established a new framework. what has changed for me is the balance of risk around their outlook has shifted. the majority of the people on that committee see an upside risk to their inflation expectations. with the market participant, this is what you are thinking about, have the fed got there forecast wrong, and if we understand the reaction function maybe we have to make a move. i think it is early days to draw conclusions. we are -- it is not a huge move, but there is a story people are talking about. tom: it is a shift. john ryding joins us with brean capital. he has looked at the ambiguity of rising inflation. john ryding on rising inflation,

is this gloom or is it about a spirited american economy? john: is about printing too much money. the fed is not talking about the monetary origins of inflation. we just got a number that was an increase that was double a large expected increase. as mike mckee just pointed out, no base effects with the 5.4% increase in the cpi on a year-over-year basis. yet the market is not really reacting. it is not because the market is optimistic, it is because the fed is still pegging the market with zero rate policy and with $120 billion of asset purchases. does that change? i think that does change. why? the fed inflation forecast.

3.4% on headline is predicated on an average increase of 0.15% per month. we just got an increase of .9% on the cpi, maybe -- we are blowing away a forecast that was already revised up 1% at the last fomc meeting. when does the fed recognize that? lisa: aren't we looking at transitory types of increases? hotel, car rentals, apparel, airfare, things not in use a year ago. the comparison is such that by necessity we are looking at record increases in pricing, and on top of that supply chain constraint. what about this seems more than transitory? john: let's think of two things. first of all we are told the story is transitory, and yet the

increases are going faster for longer, so we have to pretend what the definition of transitory is. let me grant you that. some of the things are not transitory. a pickup in the shelter cost outside of hotels. now up .3%. putting that aside, what matters is how does the public interpret it? if the public starts to interpret these transitory increases as something more and they start raising their inflation expectations, as the surveys have shown they are doing and will continue to do, that could change the inflation dynamics. that could turn something transitory at 5.4% year-over-year to something less transitory, let's say 3% per year or 3.5% per year, which is beyond the fed comfort zone.

it takes two participants in the fomc to think maybe we should lift rates in 2022 rather than 2023. that signals in september that 2022 is lift off year for interest rates. lisa: let's say the fed gets more aggressive than the market is expecting and says they will start tapering their bond purchases earlier. the long and yields rise or fall . the last time they signaled the slightest hawkish tilt long-term yields fell because people thought any tightening would lead to slower long-term economic growth. john: that is a great question. if we knew the answer to that, we would all be better off. we have to conjecture. the current is relatively flat. the spread between two year yields and 10 year yield is steeper than it was but still relatively flat at this stage of the cycle.

what the fed is signaling it will respond to higher inflation represents a tightening or a catch up to where the fed has fallen behind. we have to be very careful. john talked about the reaction function. the question is does the fed react to the inflation data? if the fit reacts, they are catching up. they have not become more hawkish, they are just responding to an environment they did not respect. this in my opinion is a fairly dovish bed, and by continuing to go on about the transitory story and not open up the possibility that it might be something more lasting they will have to respond to sooner, the fed is behaving quite dovish, not hawkish. jonathan: have to leave it there. fascinating morning. john ryding. the price action, lived at the front end by a couple of basis points.

your five year yield coming into two or three basis point and then lower on 30's by a basis point. 10-year real yield coming in a couple of basis points. fascinating to look at the data and try to interpret how this market is responding to the data. .2 is the important point. tom: the fed dialogue will be critically important. -1.01%. jonathan: your equity market in a little bit. down .2%. new york city, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro on inflation in america. what it means for the c-suite. will do that with hugh johnson of pepsico, the cfo. from new york, this is bloomberg. ♪

>> i think there is a good chance that oil prices will be

robust and high over the coming years. i think there is a good possibility they will be volatile. we are not planning on them being high. we are building a company that is resilient to a low price. i can assure you that if they are high, we have a portfolio that will absently benefit from that. tom: bernard looney, bp ceo at the bloomberg sustainable business some. other good conversation there on the path forward. right now the path forward and that it is straightforward. futures -10, dow futures taken of 64. the vix up to 16.45. lisa, what you see in the bond market? lisa: you nailed it with the negative real yield. the idea you are seeing inflation expectations rise on the heels of this while you see the 10 year yield fall. tom: dollar strength. your gives way. -- euro gives way.

right now on an important observation of the economy, and it does have to do with the big banks and banking, it does have to do with pepsico. it really has to do with rest of america. barry ritholtz writing brilliantly on the emotion of our american labor economy. barry, i did the same thing you did. work on your feet when we were kids. i'm not working on my feet now, i'm sitting down and very comfortable. there is a time when we did not. there is a resounding scream that we are done working on our feet. that is the shift we see in lower wage economy. barry: that's right. every time i speak to a restaurant owner and they complain about not being able to find help, the first question is always what are you paying the second question is during the year of lockdown, did you stay in touch with staff. are you plugged into what they are doing and whether they are

still in the industry? when we look at the quit rate at record highs, and the number of new business formations, it is clear a lot of people who were otherwise occupied during the pandemic have formed new companies, have shifted careers, and they are no longer in those low-wage dead end jobs that are so hard to fill today. tom: what to those industries do? barry: i don't know. i was reading a piece about offering 401k's to waiters and bartenders. i am stymied by that. i do not know how to find workers to tend bar or wash dishes. i remember it as a very challenging job that was, even if you are very good and worked hard, so much of your compensation was dependent on forces outside of your control, whether it is a restaurant review or even the weather.

bad weather keeps people at home. people during the past year it made a decision to level up, to increase their skill set, and to find new careers rather than just sitting around. it is not that people are lazy and collecting unemployment, it is the opposite. people took that money as an opportunity to make a better economic circumstance. lisa: if you pay people enough they will do anything. not anything. at a certain point if you raise the wages you get a much bigger labor pull. small businesses looking to hire at the greatest proportion since 2010. don't you expect wages to increase more than some people are pricing in? barry: yes and no. for certain high-end restaurants where the economics make sense. let's talk about restaurants. they seem to be the focus. there are great restaurants that are great businesses.

the restaurant industry is a very difficult business with a lot of room to go wrong and not a lot of margin. while we can raise wages for minimum-wage burger flippers from $7.50 to $15, a larger middle-of-the-road restaurant that is not charging $50 for a stake, they will have a hard time breaking even if the staff costs go up. people forget, food is the least expensive cost input into a restaurant. it is rent and wages. those are the cost input. it is a challenging circumstance for anything other than the very high end and the very low end. lisa: this remains one of the most important conversations to be having even after the consumer price index coming in

very hot, with rises across the board in restaurants come in hotels, and airplanes come in cars, which accounted for one third of the increase in the index. at what point is it positive for the economy and at what point is it negative if a lot of people are stuck in not getting that many higher wages because of the constraints you are talking about in the business models at the lower end? barry: it depends where you are looking in the economy. we have to be very careful to distinguish between -- transitory has become a cliche. things that are temporary spot shortages affiliated with the problem of reopening. there is a bloomberg story today that year-to-date lumber is flat. that is transitory to find. lumber has blown up. on the other hand, the price small businesses are paid for work trucks has gone up because you cannot find them. used trucks have exploded in

price. some of this will be transitory. once you give people a raise, you cannot take that back. grass prices will fall, lumber prices will fall. tom: one question. are you changing your investment approach because of the new higher inflation? barry: not at all. that is why we look at this transitory inflation as a temporary bump, and then things will reset back to normal. tom: have to leave it there. barry ritholtz, thank you so much. his masters in business podcast has been out for 14 years. lisa, your observation, the worry of inflation. lisa: interesting to see how people are predicting higher inflation but they are continuing to buy into the transitory story and bind to the idea that the fed will continue

with their easy money for the long term. that is the conclusion from negative real yields that are the lowest in months. it is the idea we will not get yields even as inflation comes in at the hottest since 1991. tom: got a or something? lisa: -- go to cash or something? lisa: we are in an unprecedented moment but right now it is murky to understand how this will continue. jp morgan said that you see a pickup in car spending which does translate into loan growth. tom: gerard cassidy looked at j.p. morgan earnings and said that was a key idea to see what consumer was doing with card lending as well. "balance of power" today, annmarie hordern and tom keene in for david westin on the linkage of economics into our policy. on fed policy, julia coronado

scheduled for a macro policy perspective. the vix from a 16.00, the bloom of 16.70. stay with us on radio and on television. this is bloomberg. ♪

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jonathan: equity markets lower going into this one. 30 minutes until the opening.

the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. ♪ jonathan: from new york we begin with the big issue. more fuel for the inflation debate. >> the cpi report. >> inflation data. >> if the inflation data continues to run too hot. >> if we get big inflation numbers. >> if inflation level start to get even higher. >> powell will have to shift. >> that will bring the fed further into the market. >> inflation is expected to top 2%. >> a lot of voices that we are growing anxious. >> you have to look at the