♪ >> could be on because of a different economic environment where we do need to be more careful about inflation. >> some of the strength in the consumer that we are seeing andy credit card spending data, that is going to start to shift to the business sector. >> we cannot afford higher rates, and it is very unlikely that we will reach the heights of the last cycle. >> this is going to be a very long expansion. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: chairman powell a couple of hours away. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. equity futures down 14 on the s&p to 4354. yields in two basis points to

about 1.33%. that line from steve major of hsbc, we cannot afford higher rates. tom: i cannot confirm enough the difference of opinions on price change right now and how it folds into the interest rate markets. we make fun of lisa and the pendulum of ominousness, what you know what? everyone has an opinion. jonathan: with very little confidence or conviction. tom: exactly. jonathan: that's where we are. it feels like this tipping point, and we are still trying to work it all out. i don't think we will get a clear answer until the end of the year. people keep bringing up september and q4, for good reason. tom: what i know, yesterday you and i and lisa got whiplash off of steve major of hsbc, a full pro, saying yields stable, yields lower, and a bunch of

ceos and pseudo-economists saying yields higher. i will be talking to james bullard at 8:00 a.m. with michael mckee. jonathan: looking forward to that. tom: i'm sorry, i'm fired up. jonathan: we've had hot ppi. we have a federal reserve chairman talking the same game. lisa: i just want to cite mohamed el-erian, talking about exactly this, the hot cpi and ppi data that came in. he was speaking in a bloomberg opinion column that came out about an hour ago. he said this goes against the often repeated conviction that inflation is transitory, especially now that the base effect have mostly played themselves out. this is a growing idea. how do you explain the 10 year? that can only be explained with a fed reaction function that does eventually have to kick in. jonathan: do you think that is a shift in the reaction function or just a shift in the data? they've got their forecasts wrong. that is the belief of some people. they set up the reaction

function. that probably won't change. but how they respond if the data is coming in hotter than maybe they anticipated, and i think they even acknowledge that there's upside risk to their forecast on inflation. lisa: but do they care about the forecast, or do they care about the belief that they have made a mistake in tightening too quickly, and they don't want to make this a mistake? the fact that fed chair jay powell yesterday came out and did not seem to have any interest in curtailing bond purchases yet, despite some of the hot data, despite some of the elevated prices, tells you a lot. jonathan: what you've heard from the congressmen, the republican congressmen, a couple there said deserve a second term. this looks done and dusted unless the president wants to go his own way. tom: it is july. this is the silly season. i've got to weigh in here, on

that i think there's a balance sheet proposition here. there's a whole idea in economics of income statement dynamics and balance sheet dynamics. on a stock and flow basis, it is real simple. on yield, there is a wall of money that needs to buy something. they are bidding up price which is forcing yield down. jonathan: i want to talk more about your pseudo-economists that you catch up with. who are you talking about? tom: i am not going to go there, jon. it just drives me to the beverage of my choice. i want to talk to people that have rammed through graduate and undergraduate level and phd level microeconomic dynamics. i don't care if they agree. i want to talk to jan hatzius, julia coronado, and on and on. jonathan: i just love that i know you are talk about. 4353 on the s&p, down 15, -0.25%.

of about 0.1% on the nasdaq 100. yields lower by a couple of basis points, 1.3290%, going into chair powell a little bit later. tom: i've got to cut in here. this is important. peter from chapel hill emails in and says put a cork in it. lisa: thank you for that. 7:30 am, we are expecting morgan stanley earnings. very interested to see how they come in with dealmaking, what guidance they give, and how they are dealing with acquisitions. going to the market share gains they have been getting from the likes of some swiss bank, maybe credit suisse, and a number of developments we have seen across the board with big u.s. banks. u.s. initial jobless claims coming out. the expectation is for it to be the lowest level going back to the start of the pandemic, still 350 thousand individuals filing for unemployment benefits. that is the expectation. the key i am looking at our signs of slack, signs of

weakness that jay powell has been talking about in his testimony. do we see that in the data, or does it show that ongoing elegant strength, as tom talks about every time we see this chart? fed chair jay powell returns to capitol hill, speaking to the senate banking committee. i am curious to see what he has about the flattening yield curve. as he see that there are individuals out there concerned about a policy error, moving too slowly as these inflation data points come in hotter than expected again and again? jonathan: sebastien page joins us now from t. rowe price, head of global multi-asset. i think a lot of people are just confused now on where to be in this equity market. to sit in the index passively or to be active beneath the surface. two leaning to small caps, lean out of this rally in the nasdaq 100. what do you suggest they do? sebastien: first of all, i feel bad because to tom's point, i am not an economist, but i am an

investor. right now which of the key questions is are stocks in a bubble. i don't think stocks are in a bubble, but they are expensive. they are as expensive as they were at the beginning of the year because earnings have come up. even though the s&p is up 18%, you are looking at quarter over quarter of -- a year-over-year of 61%, with strong quarter over quarter numbers. so the recovery is happening. at this point, we bought $12 billion worth of stocks around the selloff or get we didn't time it perfectly. -- the selloff. we didn't time it perfectly. i want to be clear, we are still invested in stocks. we are taking 1% away from our strategic weight. why are we doing this at this point? because stocks have been expensive for a while. it is ok to be overweight stocks when sentiment is negative and you still have room for positive

surprises. but i what i am worried about right now is sentiment. we look at the vix, we look at individual investor surveys, we look at speculators, how money managers are positioned. we combine it. that sentiment indicator is at the top of its range since we started running it in 2016. a wise person once told me, a mentor, the secret to happiness in life is to lower your expectations. right now, expectations are really high. it is a high bar. we are looking at forecasted earnings of 15%, 20% for 2021 above 2019, pre-pandemic levels. so we are dealing with very high expectations and high stock prices. tom: i want to point out that the lowly investor has the esteemed finance degree from one of the great colleges of canada, a cfa, published in the journal of portfolio management, and has

18 books out as well. seb page, don't play it down. to jon's important point, are you an individual stock selection? sebastien: i think there are opportunities for active management right now, but every time we talk about the debate between active and passive, we tend to look at the average manager, but really, not every active manager is average. if you have the resources, the long time horizon, and if you do the work, the fundamental bottom-up work, you can add value over indices over long periods of time. right now, the dispersion in the market is good. you have a lot of macro trends. so you have opportunities for stock pickers and bond portfolio managers, especially dealing with investments in emerging markets these days. we are looking at adding money to emerging markets value stocks . for example, tons of

opportunities parsing that out, given this unusual environment in the recovery. lisa: just real quick, what stocks are you selling right now? sebastien: as we get out of stocks, we are tilting towards value. so a lot of guests on your show, and i am a fan of your show, were long the recovery trade right now, i think the reopening is happening, so we are selling more growth stocks on the margin , but we are staying invested in growth. just tilting towards value. we also have an overweight words small-cap and towards credit. so we are long the economy. we are long this positive acro picture. but where relative valuations make it attractive to be long the economy. we are doing that as we are selling stocks on the margin. then we are buying on the fixed and i'm side some dried ashford's van khamsai some dry powder -- on the fixed income side some dry powder. we are adding to cash, adding to short-term tips, absolute return

type fixed income strategies. we think that is how to be positioned right now, and we would love to talk about the 10 year, just to say that there are many factors. we think the 10-year is low, but if you are a japanese investor, right now the u.s. 10 year's high. if you hedge it back to your home currency, it is actually the highest it has been since 2016. so there's a lot of foreign demand. that's one of the factors driving the 10 year lower. jonathan: that is a really good final point. get to catch up with you, sir. sebastien page of t. rowe price, head of global multi-asset. the circuit -- the secret, lower your expectations. is that not your takeaway, tom? no? tom keene, lisa abramowicz, jonathan ferro. i thought you were fired up. it lasted, like two minutes. coming up, george son of bnp pick asked george -- george sun

of bnp paribas. this is bloomberg. ♪ ritika: federal reserve chair jerome powell says it is too early to scale back aggressive support for the economy. he told the house financial services committee the debate over bond buying will continue at the central bank's upcoming meeting. meanwhile, chair powell says inflation has risen faster than expected. he is back on capitol hill today. senate democrats have found a way to help pay for that 3.5 trillion dollar tax and spending legislation. bloomberg has learned they want to impose tariffs on carbon intensive imports. the plan also includes expanding tax credits for renewable energy and electric vehicles. in china, i can growth studied in the second quarter. gdp expanded at 7.9 from -- 7.9% , a number skewed by the pandemic. industrial output estimates last month. in south africa, the number of soldiers deployed to put down

riots will go from 5000 to 25,000. protests erupted july 10 after former president jacob zuma was jailed in connection with a corruption case. at least 72 people have been killed. the uprising is the deadliest since apartheid ended in 1994. netflix is making its first big move beyond tv shows and movies. it is expected to move into video games. the service will add games to its streaming platform in the next year. 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'm ritika gupta. this is bloomberg. ♪

♪ >> the challenge with this cycle is that everything is happening very quickly.

we had a very sharp recession quick. we had a very quick recovery, and we have quickly moved into an expansion phase, and we are already seeing the yield curve flattening. i don't think we are moving into a slowdown in the next couple of quarters. will we will lead to a slowdown in 2022? absolutely. jonathan: good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. counting you down to earnings from morgan stanley and initial jobless claims in america, one hour and 12 minutes away. your bond market, yields are lower to 1.33% on tens. your equity market, 4352, down 15 and -0.3%. the nasdaq 100 rolling over a little bit now, too. elastic 100 with positive by couple of tenths of 1%, now it is unchanged. tom: watching the markets carefully, and the real yield as well. right now we are going to dive into china for too short a time. george sun joins, bnp paribas

head of global markets for greater china. with the bnp paribas heritage in china, acute understanding of their gross domestic, their economic might. very simply, what is the appropriate or minimal level, politically acceptable level of gdp for the politicians around president xi? george: that is a good question. good morning. i think the stated number they were trying to get was around 6% for the year. keep in mind, it was 18.3% growth in the first quarter due to the pandemic comparison last year, so this quarter coming in at 7.9% still puts them on track for the 6% for the year. what they are really looking at is they are trying to even out depend,. a look at the two-year average last year and this year. if you look at that, last quarter the two-year rolling average was about 5% growth.

this quarter was 5.5%, so it is getting up there. overall, this was a positive report. the main reason it was positive is retail sales beat the estimates. retail sales expanded 12% or get the estimate was 10.8%. up until now in the recovery, it has been very slow and the consumer demand side. incomes took a hit during the pandemic and the consumers were reticent to get back in the market, but this june pickup and retail sales shows it is not just going to be exports or industrials leading the recovery. jonathan: there's been this massive focus on the so-called credit impulse of china. can you walk our audience through what it is and what it tells you at the moment? george: i think what china was trying to avoid, they were thinking all the way back to the 2008, 2009 great recession, trying to avoid asset bubbles this time. they didn't really want to expand the credit markets too much and have asset bubbles all over the place, such as in real estate or infrastructure or a

lot of projects built for no good reason. they didn't want that this time. they wanted to keep a tight lid on things. last year, when the u.s. was doing a lot of fiscal and monetary stimulus, china purposely didn't do a lot of that. they only lowered the interest rate twice, very early in the covid period early last year, and they didn't move it again for the rest of the year or beginning of this year. so if anything, they have tightened credit a little bit. they have put restrictions on the property sector. they reduce leverage in the property sector. they have tightened the amount of new loans that can be made in the market as well. so i think these kind of strict controls really kept the economy from getting out of control. this is why their inflation rate is quite low compared to the u.s. but now what they are feeling is that the recovery, the v-shaped recovery is kind of over. now we are into the natural expansion. now they may be want a little but of stimulus into the second half of the year because it will

be very interesting, as of friday they lowered the reserve ratio to loosen the money supply. people are saying that maybe the gdp number isn't going to look too good, maybe this is why they are doing monetary stimulus. it turns out that wasn't the case at all. they are just being a little bit preemptive. lisa: this is exactly where i was going to go, this rrr rate cut. a lot of people saying it is unusual for the pboc to make when i'm done type of moves in this capacity, and there will likely be some sort of follow-on easing. do you see that is the case? in other words, basically giving wind to bonds in the region and we getting they want -- and weakening the one pop -- the yuan? george: i think they will play it by ear. another thing that happened today, they actually maintained their benchmark one year medium-term lending rate.

they didn't change it. they left that 2.95%. so you can't really say they are entering aggressive monetary easing either. so i think they are going to play it by ear and see how this recovery continues. tom: we are seeing news in washington of a biden adminstration much like the trump administration on china. how will beijing react to that? george: i think beijing appreciates the fact that it looks like the biden administration is going into a lot more detail than maybe the previous administration. so they may be against some names that have military connections, but they will take other names off the list. they were trying their best to honor the phase one trade deal because imports from the u.s.

increased by 56%, but their exports also increased by 42%, so in the end, it looks like they've only accomplished 35% of their quota for the whole year, so they are going to have to pick up the pace in the second half of the year to keep that trade pact at the right level. jonathan: i ask this with a ton of respect for you because i understand how some of these delicate topics are, but didi got into some regulatory issues in china. i always think it is great to get the perspective of someone within china on the mainland to understand what is going on from the chinese perspective. what is going on? george: well, i think this issue started last year with ant financial, the failed ipo back in november. i think with the chinese organizations are starting to figure out is how they regulate big, high tech companies that become dominant in various sectors.

i think this is a trend around the world. see the u.s. and the eu taking some antitrust actions. i think the government is looking at it from three angles. one, cryptocurrency. the chinese government has been very clear. they have banned the usage and mining of crepe to currencies, and the -- and they want to roll out their own e-renminbi currency. second, these like tencent and alibaba, they are going to treat them as financial holding companies. therefore, you are seeing the valuations drop. for those two companies, since the last six to eight months, their stock prices have dropped by 1/3. lastly on didi, they control a lot of big data, and this is very sensitive. although there is a big data, anybody that controls over one

million consumers' big data now is going to be controlled by the cyber controls of the chinese government. for example, these 244 chinese companies -- jonathan: george, got to run. good to catch up, as always. from new york, this is bloomberg. ♪

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♪ jonathan: live from new york city, for our audience worldwide on tv and radio, good morning to you. alongside tom keene and lisa abramowicz, i'm jonathan ferro. here's the price action as we await numbers from morgan stanley. equity futures down 0.5%. here are the numbers from morgan stanley. second-quarter net interest income, $1.47 billion. the estimate, $1.77 billion. wealth management revenue, $4.7 billion. institutional banking revenue, $3.8 billion. throwing a ton of numbers at you, i know. just one final round of numbers. equity sales and trading revenue, $2.83 billion.

the estimate, $2.5 billion. another downside surprise it comes to fixed income sales and trading. how money times have we seen that this week? revenue, $1.68 billion. the estimate, $1.9 billion. the stock, and he dollars $.77, down about 1.83% in the premarket -- the stock, $90.77, down about 1.83 present in the premarket -- 1.83% in the premarket. tom: you've got to be careful here about single-point data points. i am much more interested in ratios and the return on common equity of 18.6% or 19%, excluding all that gorman has going on. those are really not bad ratios. jonathan: i think one number that will get peoples's attention, equity sales and trading revenue, $2.83 billion.

that comes in hotter than excited. the estimate, $2.5 billion. the stock, $90.77, down about 1.83%. sonali basak is leading our coverage of earnings throughout the financial sectors this week. what jumps out to you? sonali: the equities trading number is very important for morgan stanley. analysts expected that to come in less than goldman sachs and jp morgan this quarter. in fact, they came in more than both of their peers. that miss on fixed income trading, remember, morgan stanley brought it close to $3 billion worth of fixed-income trading revenue just about a quarter ago. that was unheard of for morgan stanley just years ago. now, $1.6 billion. it is a solid print, more than what james gorman had been guiding for, but again, less than analysts expected. so what to make of this trading slowdown generally across the street?

that return on equity did beat analyst expectations, but the comparative story is what analysts and investors will also be looking at. that compares to goldman sachs' return on equity of almost when he 4%. so this game -- almost 24%. so this game of efficiency continues to play out on wall street. tom: mr. gorman says this note was put together by people sitting in an office. that was a joke, folks. e*trade, eaton vance and the rest, are they a part of the earnings story? sonali: they are a germane part, a huge part of the company. we will watch morgan stanley go throughout this integration throughout the year. we want to see how that impacts the investment bank. have they been keeping up the focus of the investment bank while integrating these two businesses? this market is ultra hot, and which morgan stanley for years has competed neck and neck

with goldman sachs. it's price-to-book ratio is more rich than goldman sachs is trading at right now. the trade-off is truly staggering, as morgan stanley's texture of the bank changes. lisa: that's exactly where i went to go because i looked at goldman sachs shares in premarket trading as a comparison, also lower by about 0.8%. just the knee-jerk reaction is more for morgan stanley, even though for the most part, these are beats across the board, except for that fic trading. sonali: for now, they are cheaper. that efficiency story is not for nothing. we are in an era where inflation on wages is happening across all of wall street. competition is happening. twice this week alone, i have spoken to bankers choosing between working at either of these two banks, so that investment bank is no small story, and how they pay this bankers is no small story. something morgan stanley has to its advantage is the tailwinds

we are seeing in wealth management. the idea that it is not just the e*trade retail frenzy, it is also the financial advisors across the u.s. dealing with wealthy clients. the lending is higher when it comes to wealthier clients. morgan stanley is trying to build that bank when it comes to their wealthier clients. let's see how much they are able to do that, as we know their peers are also trying to compete heavily when it comes to high net worth loans. tom: thank you so much. we will have much more with the banks it a bit. i think we need to pause and take a moment for james gorman and his best practices. sonali reviewed there, it passes by in business media as just another moment, but these are titanic statements about what morgan stanley has accomplished over the last 10 years, even before mr. gorman's tenure. jonathan: the stock has had a great run year to date as well. i hate to reduce mr. gorman's tenure to what has happened your

to date, but we are up about 35%. i think that is worth noting. there's a difference here between what morgan stanley has been doing more recently and what goldman sachs hasn't done more recently, and what people expect goldman sachs to do, which is to make an acquisition. tom: just one anecdote, there's a set of stairways near a ceo hiding whole at davos. i stood on that stairway with john mack after the trading debacle of morgan stanley. they had to go to the japanese to save the ship. maybe that is an exaggeration, but we will go with it for morning tv. what gorman has done is completely underestimated. he went the conservative route with persistency, with his mathematic acuity, and as sonali mentioned, are they cleaning goldman-s clock? no, that is not accurate. but this is true excellent. jonathan: and the next act is an expensive one. a lot of investment in a lot of

acquisitions that they need to work out. do you think they will? tom: let's be clear, e*trade and eaton vance are two totally different cultures, and that is going to be an acquisition project of culture as well as finance. someone who knows that is amy wu silverman with rbc capital markets, joining us for too short a visit this morning. you look at derivative dynamics right now. what do the moments say about this odd equity market? amy: it is certainly an odd equity market. to be quite honest, it is giving me a little deja vu because it feels a little bit like august of last year, especially with the leadership going back to that make a cap tech trend. i will tell you that in the options market, we are starting to see a lot of options volume trading again in these faang type names. if you look at the playbook to last year, that positive memento him just begets momentum --

positive momentum just begets more momentum. jonathan: do think that is affecting become more broadly of what happens in the bond market? amy: definitely, that is part of it. the other fact that i think is important is when you look from may to june, a lot missed out when the nasdaq names started to outperform again because they got a lot of the mega tech growth -- they got out of the mega tech growth in favor of more cyclical performance. that means there's going to be a lot of catch-up now as these names continue to outperform. we will see those skewed heavily in the options market. lisa: one reason it is always fabulous to speak with you is because you understand the positioning and where things are more heavily weighted. we were speaking to sebastien page of t. rowe price, and he was saying they are lightening up in these names. do you see that is people like

after the -- as people reassess after the incredible rally? amy: they have lightened up, and unfortunately, given the re-rotation in june, people are now asking the question, do i need to go back into these things that had been core holdings for so long? what is the quickest and dirtiest way to do that? it is through options. so you are starting to see very heavy call volume trading, no longer in these meme stocks or reddit rally names, but back into the core growth names. tom: where did that -- jonathan: where does that leave the banks more broadly? amy: from an options perspective, if you look at the option implied moves on all of the financials, they have actually underwhelmed, meaning they had these big implied moves coming into their earnings, and then they tend to be smaller realized options moves, and the selloffs we have been pitching, selling calls on these names we

do get this rotation back into the summer. jonathan: amy, always good to hear from you. amy wu silverman of rbc capital markets, as we work our way through the bank earnings. morgan stanley is down by about 1.31% after a really tidy, nice rally through the year so far. jp morgan lower 0.8%. goldman down about 0.8% as well. equities trading revenue coming in a low but hotter at $2.8 billion. once again, it has been a struggle to get a read on fixed income trading. that is for sure. the analyst community has certainly struggled. just a very small downside surprise, but there's a trend for sure for much of this week. tom: i learned that from sanford bernstein ages ago. you get quarters that rms come over you can't figure out what is going on. i think there's too much acuity, too much over analysis on securities firms. these are beasts that go with

the market and go with the economy, and sometimes things aren't clear, and that is ok. jonathan: the beast needs to get paid. wages, labor costs. these are the conversations you have spent the last six years having. tom: it is a conversation between salary and bonus, and the reality of living costs, and for those worldwide, i am sensing a titanic shift in the major cities towards we've got to pay people so they can live. jonathan: talent retention a huge issue. james bullard whic -- james bullard, the st. louis fed president, that is coming up. with your equity market 4351 on the s&p, down 0.4%. in the bond market, yields lower to 1.2 557 -- 21.3257%. this is bloomberg -- to 1.3257%. this is bloomberg.

♪ ritika: the biden administration is extending a trump era halt to economic dialogue with china. treasury secretary janet yellen's team is in touch with chinese counterparts, but there are no plans to restart those higher liver talks. -- those higher level talks. it is evidence that biden is toughening his stance on china. the european governments are growing increasingly frustrated, citing inconsistent rules, academic costs, and an outdated strategy for stopping the coronavirus. the travel ban is likely to come in today when the president meets with germany's chancellor angela merkel. south korea seeks to move up its spot in the global space race. the country says this means launching satellites on homegrown rockets, and eventually a mission to the moon. >> the reason for moon exploration is because we expect it to be utilized in the future

for not only national defense and the public sector, but the economic sector as well. in that sense, we believe we have to actively take part in the artemis program in order for such cooperation to take place smoothly. ritika: south korea saw limits removed on its rocketed element earlier this year when the u.s. restricted sanctions in a bilateral agreement. the private equity giant also agreed to manage $50 billion from aig's life in retirement portfolio. 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'm ritika gupta. this is bloomberg. ♪

>> and our commercial banking business, we are continuing to see those loans climb because

clients have a lot of liquidity. there's supply chain issues. there is huge demand. they are not able to build inventories right now. so we haven't quite seen the inflection point there yet. but i think people are hopeful that at some point over the coming quarters, we will. jonathan: that was the wells fargo cfo. from new york city this morning, good morning. alongside tom keene and lisa abramowicz, i'm jonathan ferro. morgan stanley members behind us. your equity market taking a little dip lower, down 0.3% on the s&p, -13. yields come in on the tenure to 1.3257%. morgan stanley down by 1.59%. once again, another bank coming in a little bit lighter than expected on fixed income trading revenue. $1.7 billion the number. expectation for $1.9 billion. tom, we are down by 1.6%.

tom: they cratered. what are they up in the last three years? jonathan: i think 30% year-to-date. they are doing ok. tom: right now, and the summary of what we have seen, alison williams of bloomberg intelligence. what i think is so important here is the view out. where are these institutions on july 15, 2026? alison: they are in great shape. it is really a solid quarter. we have seen most of the stoxx trade-off, but -- most of the stocks trade-off, but it is about expectations. 1% after a huge move is not something i would get overly upset about. we look at morgan stanley's results today, and the one thing people might be worried about is the retail trading nine. tom: terrible. gray hair is just flowing. james dimon a couple of years ago said all we do is hard work. what is the hard work for the american banks to succeed

internationally? alison: i think the hard work is really the investments. on the ground, building the business. these banks, there's a difference between buying and building, and jp morgan is doing a little bit of both, and to your point, going international is something that is new for them. on the retail they are obviously a huge global bank. they bought this business in the u.k., and i think we will see that built out over the next couple of years. i think he said something a blood, spit and gravel at one of the conferences. tom: that is shakespearean, jon. jonathan: blood, spit and gravel? nice. getting paid extra for blood, spit and gravel over and morgan stanley. tom: i guess so. alison: it is the war on technology. we know the banks have money and they are spending it. it is hard to see what the return on investment is today.

lisa: how important is it that morgan stanley showed an increase in interesting lending compared to what we sought other banks? alison: i think that is a positive, but for them it is perhaps a smaller part of the business. it is part of their wealth business, which is overall a big unit, but what investors might be looking at is the equity trading line. we know they are the biggest in equity trading. morgan stanley beat come up to perhaps a little higher by coming into the earnings. the question may be, after last quarter, what we saw with archegos, are there some changes making an impact? they did say in their statement that prime brokerage was a help? we know that -- was a help. we know that jp morgan and goldman have record prime balances. bank of america and citigroup are gaining share. they had really strong growth, although easier comparisons.

that is i think really the one saying that investors may complain about. otherwise, flows looking really good. some slow down from last quarter, but that should be expected. lisa: the big side of u.s. banks have reported already. how much have the u.s. banks gain share? which banks are the main gainers? alison: i think that has been the story of the last decade, and the biggest beneficiaries have been morgan stanley, goldman sachs, and jp morgan. in fact, equities trading has been a key area, but also fixed income trading, and even though we talk about equities, they are one of the biggest gainers over time. these three, the leaders have been consolidating share,

especially within the cash equities business. this was teased by deutsche bank beneficiaries. credit suisse making a more dramatic pullback. they specifically said they are going to be cutting their balance sheet there. we think the banks are benefiting not just in prime brokerage, but through sort of knock on. bank of america and citigroup have also gained, but we think this is now the opportunity for them because the other three are already so big. tom: the salary has lifted for first year analysts. lack rock to lift compensation 8%. it is terrible -- blackrock to lift compensation by 8%. it is terrible. come on, this is a rounding area. alison: i think the big thing we

are focused on coming out of this quarter is the cost. i think that is what investors have been reacting to. jp morgan has guided up about $5 billion since early september. citigroup is upping their guidance. ignore the short-term noise. tom: do you think paying 6.8% for young turks is going to affect their ratios? alison: not that specifically, but overall, we have higher costs across the banks. how much of that is inflation? how much is the cost to compete? in terms of compensation because the banks don't just compete with each other, competing with hedge funds, competing with tech firms. so it is the cost to compete, and in businesses like credit

card, is it going to cost more? tom: they are just going to go spend the money at chanel, right? lisa: you know about chanel better than i do, tom. jonathan: that was a good comeback. alison, good to catch up. tom: that was brilliant. jonathan: i know outside the banking industry that there are the smallest violins for the people in the banking industry. there has been a while that these banks have been delivering record profits. people within the bank feel like they haven't had a big enough share of that. you can get a feel of that almost instantly. here we are, the battle for talent. i think lisa touched on something really important. can the europeans really play that game the american banks are about to start playing? tom: i don't know. what i know for certain is it is not just the banking sector. it is all you're going to see intact and all of them. pay the kids. jonathan: i know where your

wages are going now, that's for sure. lisa abramowicz, jonathan ferro. where are those shoes from? tom: the store just across from mcdonald's on 3rd avenue. jonathan: 10 year yield which 1.3257%.

♪ >> is still have room for positive surprises, but what i am worried about right now is sentiment. >> some of the strength in the consumer that we are seeing in the credit card spending data, that is going to start to shift to the business sector. >> we cannot afford higher rates, and it is very unlikely that we will reach the height of the last cycle. >> this is going to be a very long expansion. >> it is pretty clear that whether it be the september meeting, jackson hole, the fed is going to have to address the tapering need. >> this is "bloomberg surveillance" with tom keene,

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