♪ >> we may once again be surprised in the second quarter to see earnings much stronger than maybe we thought. >> we are going to see the economy move to excess demand. >> i think we have seen the peak in rates for the cycle. there could be another twin peak later on. >> we think the fed is correct that inflation is transitory. >> we do get the sense that they are looking towards tapering there at a -- tapering their asset purchases. a lot of traders are going to be caught off guard. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: it is a risk off monday morning. from new york city, for our audience worldwide, good morning. this is "bloomberg surveillance ," live on tv and radio. alongside tom keene, i'm jonathan ferro. lisa back with us next week. kailey leinz with us this morning. tom: i don't think she's on

crete. i don't know where she is. this is a really important market. bitcoin craters, and we are going to go to that on gold and a moment. this market speaks volumes, and i need to say in the last 60 minutes, there's been a deterioration in the tape. jonathan: a 1.24% handle on tends, -- on tens, down four points. tom: the real yield comes in as well. what i would start with is the dollar rally, as you mentioned earlier, is of a different character than we have seen two times before. jonathan: this is risk aversion. we will talk about that. the united states to attribute the microsoft hack to the chinese government.

kailey: it is what seems like a series of escalations. we have them attribute in be hacked to the chinese government today. on friday we had joe biden issuing a warning to u.s. companies about doing business in hong kong. was that really a warning to u.s. companies, or an indirect warning to beijing? it seems like tensions between the two largest economies in the world are not using at all. jonathan: allies that include the eu, u.k., australia, japan, nato, and the first condemnation by the north american alliance on chinese cyber activities. that is a real escalation. tom: 20 minutes ago, maybe 15 minutes ago, we had that single headline from doj on some action against some chinese officials or a linkage to chinese

employees. i wonder if those two stories are linked together. jonathan: right now we derisk on your equity market, 4288, down 0.7% on the s&p 500. yields are coming in by four basis points, 1.2485%. yields are much lower over the last couple of months. in the foreign exchange market, euro-dollar going into thursday coming your ecb decision and news conference, $1.1779, -0.2%. kailey: wt by -- wti back below $70 a barrel for the first time since early june. what else to keep an eye on today? we are getting some economic data, 10:00 a.m. eastern time, the housing market index. does it improve from june, the worst reading in about 10 months? you have lumber about 60% off its highs. does that improve sentiment for

the homebuilders. then of course, earnings season is in full swing. ibm will be posting. also looking at sales growth and how the cloud computing shift is really doing for the company. finally, it is a happy day in the u.k. navy it -- u.k. maybe in that it is freedom day, but boris johnson is self-isolating after exposure to the health secretary, who tested positive for covid-19. of course, cases in the country getting worse, and yet restrictions are still lifting. jonathan: travel stocks have not been a good time this morning over in europe. easyjet down by 5.8%, carnival down 7.2%. airlines in america down more than 20% from the highs a number of months ago. it has not been pretty for these travel stocks. tom: no, and it is the covid worry over the weekend. on the other side, as carl

weinberg partitioned out america, we have tech earnings coming up in a few days. jonathan: netflix this week, then it starts to pick up next week. let's bring in matt maclennan, first eagle coed of global value -- cohead of global value. just walk me through your thinking now. matthew: the banks have these large deposit flows that haven't been earning much with interest rates so close to zero. they had done pretty well as interest rates had backed up here, but as you point outcome of the flattening of the curve makes it more difficult for sentiment. i think the key is to step back from trying to protect where the bond market is going to go and identify those banks that have sustainable earnings power not linked to their balance sheets. tom: good morning. tom keene in new york.

first eagle is about focusing on minerals and gold. have you aged every time you hear someone link bitcoin to gold? matthew: you know, bitcoin is an amazing algorithmic innovation, and i think many people started seeing it as a form of like market gold. but as the server network behind bitcoin became global in its scale, i think it is better off being seen as some form of call options on digital gold, if you will. i think it is fair that people have asked questions about that. having said that, gold has been around for millennia. you have to weigh that against a network that is relatively useful -- relatively youthful. we think it is an interesting develop and. but meanwhile, in an environment of double digit money supply

growth, the supply growth of gold is below 2%, so that is one of the things that helps maintain its store of value. tom: is the disinflationary correlation still there in gold? is the movement we knew 10 or 20 years ago still there? matthew: we continue to trade as a rational store of value, so if you look over the last decade, we had a pretty tight inverse correlation with real interest rates and with the dollar. in the short term, it has exhibited characteristics you would expect from a potential hedge, and over the longer-term, it has maintained its value relative to money supply growth. so if you want to hedge for the long term, something that is inversely related to real interest rates and perceptions around risk and the health of the economy, but over the longer-term has preserved its value relative to economies, i

think gold still maintains its luster from our standpoint. kailey: speaking of the health of the economy, should i.b. reading into the pain we have seen for small caps -- should i be reading into the pain we have seen for small caps? can you even play the small-cap trade right now? matthew: confidence doesn't breed opportunity for our standpoint. i think the difficulty for small caps -- and not just small caps that are down, but the chinese equity market has been down -- we run in environment of elevated confidence. you had the fund managers survey post generational highs. all of these things were signaling confidence being above a little what was -- being a little above what was sustainable. i think it is a healthy thing

for markets -- when we see the tide coming out, i think it is a healthy thing for markets. jonathan: are we pivoting from the fear of missing out to the fear of wiping out? matthew: it is very difficult to call the market's zigs and zags. we were in a fear of missing out type environment. i think in an environment like that, it is about focusing on cash flow generated businesses, things that have survived the test of time that can still hold their value in a moment of market panic. we will just have to wait and see if that's what we get. but if you own businesses that have income and see value -- have incumbency value, you can hedge. that is more challenging if you're trying to bet on the short-term. jonathan: thank you. want to summarize a story that came out of the top of the hour. the u.s., u.k., and allies

formally attributed the microsoft exchange hack to actors affiliated with the chinese government. other nations joining in that assessment, escalating tensions between the u.s. and china. dominic raab, the u.k. foreign secretary, this is his quote. "the chinese government must in the systematic cyber sabotage and must spec to be held to account if not." -- must expect to be held to account if not." tom: buried in the article is the linkage to that doj headline that we saw 45 minutes ago, in that four chinese nationals have been charged by the department of justice. this is a way bigger story than the headline blaming the government. no, this is about actual legal action. jonathan: how does this fold into commercial issues, investable opportunities in tech in china? opportunities of chinese tech

firms being in places like america? tom: it is there, and that is a moving story, but it is much more buried in the article about ransomware and the fears we have, particularly for small businesses that one day, you are just shut down. jonathan: you've got to throw in the tech ipos in the united states. investable opportunities for chinese tech, for u.s. tech, there's this hard line being drawn down the middle of the map right now. kailey: there is indeed, jon. jonathan: coming up, we will be catching up with tony rodriguez, nuveen head of fixed income strategy. down 0.9% in the equity market. yields come in five basis points, 1.2435%. for audience worldwide, this is "bloomberg surveillance." leigh-ann: with the first word

news, i'm leigh-ann gerrans. opec allies have reached a deal to inject more oil into the economy. saudi arabia met the united arab emirates halfway in its demand for a more generous output limit. the opec+ coalition will start pumping more oil next month. prime minister boris johnson's plan to get the u.k. back to normal is in disarray. pandemic restrictions are ending here in england today, but covid cases are rising more than any other country in the world. there were almost 48,000 new cases reported yesterday, plus johnson and chancellor rishi sunak have to reverse a decision after first refusing to self-isolate, despite being told to do so by the nhs. the u.s. and european union say cyberattacks conducted from china have compromised the microsoft exchange server,

affecting thousands of computers and networks worldwide. the eu denounced the attacks and called on china to stamp out activities undertaken within its borders. robinhood hopes to raise up to $2.3 billion in an ipo. the trading app company at the center of this year's meme stock frenzy says it will sell more than 55 million shares. robinhood expects the ipo to price between $38 to $42. the company's monthly average users have more than doubled in the past year. zoom has agreed to buy call-center provider five nine. that will bolster zoom against increasing competition. the acquisition could propel zoom into the $24 billion market.

>> in terms of irs reform, that

will no longer be in our proposal. it will be in the larger reconciliation bill, we are told. jonathan: that was rob portman, the republican from ohio. good morning. alongside tom keene, i'm jonathan ferro, together this morning with kailey leinz. lisa back with us next week. a cap lower of 0.9% on the s&p to 4282. outside of that come of that, the attention very much on the bond market. your lows right now, 1.2469%, still down four basis points and well highs of the year, 1.77% intraday. that feels like a long time ago. that was the end of march. we've got some dollar strength in the mix, too euro-dollar down to $1.1778. tom: the dow off record highs. i just recalculated this, the dow jones industrial average is

an important index. a correction is under 32,000, plus or -100 points. we are a long way away's from correction. jonathan: i am not going to weigh in. i will talk about the s&p briefly, down a little more than 1% from all-time highs. but a part of the market which is been absolutely punished, small caps. the russell was down 5% last week alone, worst week of the year. we haven't seen a hi there since the middle of march. it has been that long. tom: it's near a correction, down 8% or so. right now we've got 14 things to talk to martin schenker about, our managing editor for all we do in politics. but we need to rip up the strip -- the script on china. marty, this important reporting by the team at bloomberg dovetails into four chinese national taken into some form of

legal process by the united states this morning. this is a huge deal. marty: the top-level issue here is that the biden administration coming in headset on china that they want coordination with our allies, and today with this accusation that the chinese are engaging in cyberattacks on creek institutions, it is just that. tom: you mentioned dominic raab in the united kingdom. this speaks to what we saw at the g7 meeting and on to geneva. jonathan: "the chinese government must end this systematic cyber sabotage and expect to be held to account if not." how do they intend to hold the chinese communist party, the government in beijing, accountable? marty: that is the major question. so far they have been lots of threats not just to china, but

to russia as well. we have not seen any tangible response yet from the western governments on punishing either china or any other actors. jonathan: this is the issue, isn't it? the approach has changed, but the objective is the same. we are trying to get china, beijing to change its behavior. this administration is trying to do it anymore multilateral fashion -- it in a more multilateral fashion. tom: it's also -- marty: it's also against a backdrop of trade with china that is still at record levels. the codependency with supply chain and the other connections are going to be very difficult to break without pain on both sides. tom: marty, this is what you are so good at. what is the reporting on the changed behavior of our financial institutions in hong kong? not specifically to this article this morning, but is there any

changed behavior? is it business as usual? marty: there doesn't seem to be any concerted response to the bided and been the street in morning -- the biden administration warning about operating in hong kong. the infrastructure that connects the financial markets of hong kong and mainland china are unimaginable -- our unmatchable anywhere else, so if they want to do business there, they are going to have to stay in hong kong. kailey: this the question i asked on friday when this advisory issued, but was it really meant for the banks, or was that a message really meant for beijing? marty: clearly it was meant towards beijing. there's no question that hong kong as a financial hub is a good important source of financial power for the chinese government. they don't want to see anything upset that aspect of hong kong, so it certainly tweaked them. kailey: there seems to be some

bipartisan consensus around countering china. we saw that bill advance in the house last week. there doesn't necessarily seem to be that much in census on infrastructure. you are starting to get some pushback from republicans like rob portman, for example. what is the likelihood that we will see action on that this week? marty: this a critical week. chuck schumer has decided he is going to fast walk this bipartisan infrastructure bill, and now the republicans who supported it are getting tremendous pressure from their colleagues to slow it down at the very least. so this week is critical. your guess is as good as mine whether schumer is going to get through. jonathan: marty schenker, bloomberg editor-at-large. tom: you give schenker love. i don't get any love. jonathan: marty doesn't mention the dow like you mentioned the dow. tom: down 348 points. jonathan: thank you, tom.

down 35 on the s&p. tom: kailey, do you want to weigh in? kailey: i'm having fun watching you guys. jonathan: you enjoy yourself. basically at the lows of the session for the u.s. 10 year. tom: i am watching real yield. let's define this right now. you've got a nominal yield which is what jon is quoting, at 1.24%. you've got the inflation expectation. you take that away. then you've got the residual, which is the so-called real yield. so they don't move directly link. i've got -1.09%, awfully close to -1.12%. jonathan: the -1.12% you point out, the lows of the year. what we are unwinding here was this immensely large, positive growth shock we experienced through to the end of march. this is when people were aggressively upgrading their outlook for the economy. we have really unwound that.

in fact, we have totally unwound that. my issue with the bond market at the moment, pick an expert right now, pick someone on wall street . his immense confusion about what is going on in the bond market at the moment. tom: we protect the copyright of all of our guests. get it from in km partners. mike darda's research note this weekend was a tour de force. he and i talked about it last week. the basic economic theory, there's the i.s. curve, the real economy, and the lm curve which is the monetary system. darda says this is different. it is about monetary die max -- monetary dynamics and not the real economy. jonathan: unbelievable to look at this gap lower. kailey: the breakdown of the relationship between yields in the dollar, too. in the first quarter it was higher yields, therefore stronger dollar. now we have lower yields, and yet a still stronger dollar.

jonathan: the dollar back to her it was, but this is a very different kind of dollar strength. i'll cover that in just a moment. $1.1778, euro-dollar -0.2%. from new york, this is bloomberg. ♪

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♪ jonathan: live from new york city, for our audience worldwide, good morning. here's the price action. 4277, we take more weight off the s&p, the nasdaq, the russell. on the nasdaq, down by 0.8%. after a loss of ty percent last week on the russell come up worst weekly performance of the year so far, off again by 2% this morning. in the bond market, your yield as follows on tends, 1.23% handle. starting to move lower again now by five or six basis points. 1.2366% on tends. 30's, one point 8490% -- 30's,

1.8490%. on april 2 we were looking at 1.72% on the 10 year. why do i mention april 2? because your dollar is the strongest since april 2. here's the difference. we are in the one-point 70's -- in the 1.70's now we are in the 1.20's, so what is going on here? this is a very different kind of dollar strength. in the first quarter, it was about u.s. exceptionalism. in the middle of this year, it is very much about risk aversion and dollar strength being the wrong kind of dollar strength for this kind of market right now. tom: i think we've got to pause here. we will go to a guest in a moment, but we've got some other stuff to do one stocks as well. i am going to suggest this retreat in yield is off the bloomberg story. i don't have any reporting on that. . i am just observing the news

flow, and this new tension between china and the united states. you really have to wonder if it is price up, you'll down on the 10 year -- price up, yield down on the u.s. 10 year. jonathan: the bond market bid, yields lower, threatening to break to 1.22%. in this bond market, we keep gapping lower. your equity market headed south on the s&p. europe underperforming all morning, and that story is going to be my different stateside. kailey: the airlines come the cruise lines -- the airlines, the cruise lines all under pressure. you have a court slapping down a ruling that is going to ease up pandemic restrictions on cruise lines. you have the likes of carnival, norwegian, royal caribbean down for percent or more.

american airlines is down about 4% as well. there are some more 80 greg stories also going on beneath the surface, including -- more idiosyncratic stories going on beneath the surface. it was about $200 per share for zoom as of friday. it is trading up about 8% -- lower by about 2%. we also have facebook lower by about 0.9%. of course, joe biden talking about the misinformation out there related to covid-19, percolating on social media platforms like facebook, saying they are "killing people," so some harsh words from the president of the united states. virgin galactic in the last six sessions, down 38%, even after richard branson's successful flight nearly up to space. it is down about 6.5% again this

morning. maybe a little bit of selling ahead of jeff bezos heading up to space tomorrow. tom: we will have to see on that. there is a citing, and it is not for the lou origin blast tomorrow. emily chang --the blue origin blast tomorrow. emily chang is leading our coverage there. she listened to toby keith on the way, i'm told. jonathan: for our special coverage tomorrow. do you want to promote that? 8:30 eastern we will start some special coverage. tom and i will be hosting that. emily chang helping out as well. a whole host of reporters from bloomberg radio, tv, and quicktake. tom: i believe mr. bezos will have tang in space. jonathan: can you confirm? tom, i've told you repeatedly, people can't tell the difference between when you're telling the truth and when you are making stuff up. you've got to be careful. tom: no, i'm serious.

bezos drank tang as a kid, and i'm sure he's going to be up in space -- i can't even say it. [laughter] subadra were joppa -- subadra rajappa is with us from socgen. what is driving the low yield? is the pricing in of global slowdown -- is it the pricing in of global slowdown? subadra: i thick it feels like a classic slide in quality. they have been reacting more to news flow and safe haven bids. there's general concern on the global economy, not so much on fundamentals. the data has been sort of back-and-forth. we got somewhat ok retail sales numbers. but the market right now seems

to be more fixated than anything else. tom: what we are really doing is pricing in the input of global disinflation, even if the u.s. booms, even if the u.s. does better, even a strategists call for higher yields. the fact is we input global disinflation into america, and that depresses yields. subadra: absolutely. i think it is a global bond market, if you will. the ecb has been very dovish. we get some forward guidance again in the ecb meeting on thursday. i think everybody is going to be paying attention 12 the details. but they are going to broadly remain dovish. i think lower bond yields are not a fact that is going to keep u.s. bond yields lower. the inflation differential between u.s. and europe is quite dramatic, so i think as long as

inflation remains contained overseas, you're going to see that global bond yields are going to remain low. tom: look at the 10 year yield. for those of you on radio, it is a decline. jonathan: we are down six basis points on the u.s. 10 year. subadra, you just mentioned something quite important, the inflation dynamics in america is a very different story to what we are experiencing right now in europe and elsewhere. why is that important for this bond market in the u.s., in the treasury market? subadra: the yield differential between bonds and treasuries, the way the global bond market trades, you can buy assets in other currencies very easily. as long as treasuries remained attractive, you are going to see this demand coming from foreign investors. that is not exact a what is driving this price action. it seems to be much more driven by a safe haven bid for treasuries.

. but broadly speaking, as long as yield differentials are wide, you're going to see at least treasuries are going to struggle to rise based on fundamentals. jonathan: i don't envy you right now. i think you are in a really tough spot in this bond market. can you give us some insight as to what your conversations with colleagues and clients sound like right now? there's a degree of confusion about what has taken place in this bond market at the moment. subadra: there's definitely a decent amount of confusion. this is a completely out of consensus move in treasuries. the expectation broadly speaking was for a gradual rise in yields in the second half, and now we have basically reversed all of the losses we have seen in the last quarter that we thought the beginning of the year. we saw a dramatic selloff between january and march. the flattening of the curve is

also not a consensus view, so i think those are all trying to figure out where things go from here. i feel like the bond market is in a limbo. we are waiting on a whole bunch of other factors to come into play for fundamentals and for treasury yields to rise. kailey: if it is not high-end -- not hot inflation prints, what is the catalyst that makes yields go higher? subadra: i think employment is key. we saw some data that made last month's employment look quite strong. i feel that the fed has reached their substantial further progress mandate on inflation. the only concern now is on the employment front. we need to see anywhere between 500,000 to one million jobs being created for the remainder of the year, and that i think is going to be the key for policy and for treasury yields moving higher. jonathan: consensus has totally broken down. good to catch up, subadra joppa,

socgen head of u.s. rates strategy -- subadra rajappa, socgen head of u.s. rates strategy. yields are lower by six basis points. the lows right now, 1.2302%. your equity market soft. we are down 46, off by 1.08% on the s&p 500, down about 47 points now. the gnostic 100, it is part of the story as well. if you think about it, more recently, what has held up? it has been the nasdaq 100 into last week. then last week, it was everything lower. tom: i would go to that. we will go into earnings on that. it is hugely discrete to big tech, and you see that with an 8% pullback on the russell 2000. i look at it, and what i see in the research tone over the weekend and to begin the week is the loneliest -- the loneliness

of the united states in that fiscal stimulus. just the separateness of it from the other dynamics out there. jonathan: q1 was u.s. exceptionalism. what is q3? what would you call q3 right now? tom: i think you talk to subadra about it. jonathan: i think there is total confusion at the moment about what is going on. tom: i agree. tom keene, kailey leinz, jonathan ferro. lisa back next week. tom: so she says. jonathan: she will be back, tom. no doubt about it. she will be missing this. equities -1.1%. lisa will be missing this kind of price action. i'm sure she will write in at any moment. 4270 on the s&p 500.

this is bloomberg. ♪ leigh-ann: with the first word news, i'm leigh-ann gerrans. opec and its allies have overcome a split that threatened the supply in the oil market. they have reached an agreement to invest 4000 -- to inject another 4000 barrels of crude a day into the economy. saudi arabia met the united arab emirates halfway on its demand for oil output. those that helped smuggle former nissan chairman carlos ghosn out of japan are going to jail. they received a 20 month sentence. senate majority leader chuck schumer has set up two major tests this week. schumer is hoping to have a first test vote on the bipartisan infra structure bill this wednesday. he wants democrats to get behind a much bigger bill that would

carry out the bulk of president biden's agenda. finally, an american has entered the record books with his victory in the british open at royal st. george's. he came from behind to win the title by two shots over fellow american jordan spieth. no other golfer has won two different. . majors in his first attempt last year he -- two different majors in his first attempt. last year he won the u.s. major in his debut. 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 leigh-ann gerrans. this is bloomberg. ♪ this is bloomberg. ♪

>> the 400,000 barrels a day put into the market will turn out to

be a pittance, and we will see prices going up at higher, if not a lot higher by the time the summer is over. jonathan: that was ed morse of citigroup. we have an opec-plus deal. that is not where the attention is right now. alongside tom keene, i'm jonathan ferro. kailey leinz with us. lisa back next week. 4271 on the s&p, down more than 1%. but the bond market keeps getting everybody's attention. 1.2269% on tens. i will repeat it, 1.2 sue 69% -- 1.2269% on tens. we are just off the lows of the session on the u.s. 10 year. tom: this is a nominal yield moving quicker. i'm looking at inflation expectations and the residual, and this is about the nominal yield. i've got to say it again, the timing of that with the bloomberg article of significant chinese-u.s. tension, maybe that is a further catalyst. jonathan: using that is

contributed to this? tom: i think that is the right word. a mind -- i'm hesitant to say it is because of this. but the connection is tangible. jonathan: certainly a continuation of the theme we have seen of yields lower. the 30 year's at 1.84%. at the end of march, the 10 year was at 177%. just think about that, where yields were and where they are now. we have gone from 1.77% on tens all the way down to 1.22% right now. and the outlook from any people, we haven't mentioned this yet, it is the peak everything theme that people keep leaning on. we've moved past peak everything. tom: i have trouble coming up with a theme right here. maybe it will be earnings as well. let's get to what jon has mentioned a couple times this morning, which is the russell 2000 can't get out of its way. dave wilson notes this. what do you have? dave: we've had quite the

reversal in the last few months. it is something -- pointed out the other day, looking at exchange traded funds. i went to the underlying indexes. saw the russell 2000 move up 44% relative the s&p 500 and the space of about a beer -- relative to the s&p 500 in the space of about a year. we are really back to where we were in 2018 2019 into 2020, with the larger companies ruling the roost, so it is the s&p 500 again showing relative strength. tom: it is relative strength, but relative strength compared to the last time they had relative strength. is it for real? dave: you had a lot of back-and-forth lately, and we have seen a whole number of changes. think about a few months ago, we were talking about the cyclical stocks, the ones most affected by economic growth leading the way. we have seen a swing back towards the big tech companies,

the ones leading the market for years. you could argue that with russell and the s&p 500, it is indicative of bigger shifts in the market at this point. tom: one more question, as we've got to get back to the markets and the dynamic as well. you are the guy in earnings. there's a point where david wilson had like 40 companies to report on in a 20 minute period, and homely -- and only he can do that. what used deal -- what are you steeling yourself or with earnings season? dave: how are people going to take the results, even if they are great compared to estimates? you've got more than 70% earnings growth for the s&p 500 built into analyst estimates for the second quarter, according to our numbers we've compiled. so it become the question of do we see people look at the numbers and say, they are all right, and then they don't really react in terms of the

shares? or worse, they move things down because they don't like the outlook? tom: dave wilson, thank you so much. we've got to get back to the markets now. you can see his work on the bloomberg terminal. the 1.22692 near -- 1.2269% 10 year right near the lows. jonathan: you mentioned the earnings. those earning calls, the tone off them, they are going to sound radically different compared to what we will hear from market participants. corporate's right now are putting wages off and wondering about the cost space for the future. the bond market is staring down the barrel of 1.22% on the u.s. 10 year. it is like two different worlds. tom: three different worlds. it is like an alternative universe. to me it is extraordinary what we are seeing, and right now, this is where the bloomberg terminal really comes in, it is not about one or two statistics. jon and i are watching 5, 6, 7,

8 statistics on the screen. one proxy for me is the sterling that is going to give you a $1.36. that is a heck of a move from johnson optimism of a number of months ago. jonathan: the canadian dollar, -1.3%. the only outperformer in g10 is some japanese yen strength. morgan stanley have called this a rolling correction. it was small caps the middle of march where they topped out, and they were aggressively lower last week. within the equity market this morning, trouble stocks over in europe hammered. in the u.s., the airlines down more than 20% from the highs earlier this year. this is not the point people thought we would be in 12 months ago. a lot of people thought the travel situation, international travel would be a much better position. kailey: you are talking a lot

about how consensus calls have been wrong. all of these consensus trades have been breaking down. that is true for the small cap overlarge cap trade, also true broadly for the reflation trade. look at some of the premarket action. the energy select sector's down 3%, the financials under some pressure as well, and it all comes back to that yield story, down six basis points on the 10 year. where is my reflation trade? tom: she's quoting etf's on "surveillance." can we let that happen? [laughter] jonathan: the banks are down almost 10% from the highs at the beginning of june. for a lot of people who are long this sector, they have done tremendously well year to date, but more recently, can you really have any confidence about that trade working? tom: well, it is a spread market. the twos-tens spread is deteriorating. just as a rule of thumb, how do the banks do it in their traditional business with a 0.99 twos-tens spread?

the vix now out to three big figures. jonathan: the twos-tens curve threatening to break 100 basis points. just what has gone on here in the last couple of months? the level of confusion, the degree of confusion, last week we joked about the c-word, consensus. i don't think there is any consensus in this market. i think the people who believe we can get back to do percent -- back to 2% don't really have the conviction. tom: we don't really do this on mondays, but you'll dynamics are basically four factors in the equity market. the real emphasis this morning is on the inflation-adjusted yield as being one of those factors. there's going to be a lot of work. bond experts are going to have to weigh in on the character of this price up in bonds. jonathan: we've got to talk about this bond market. we will do that with tony

rodriguez, nuveen head of fixed income strategy. down 47 on the s&p to 4271, -1.1%. yields lower six basis points points to 1.2286% on tens. heard on radio, seen on tv, this is bloomberg. ♪

♪ >> we may once again be surprised in the second quarter to see earnings being much stronger then maybe we might have thought. >> you are going to see the economy moving to a position of excess demand. >> i think we have seen the peak in rates for the cycle. there may be another twin peaks later on -- another twin peak later on. >> you do get they sense from the federal reserve that they are looking towards tapering their asset purchases. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good mo