♪ >> 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 morning, everyone.

a simulcast, bloomberg radio, bloomberg television. abramowizc off on 14 weeks of vacation. kailey leinz helping out this morning. it is a summer of discontent. we observe on the bloomberg terminal the attention of a july monday. jonathan: people were talking about tapering on high yields. this is not a taper tantrum. yields are much lower, 1.2286% on tends. -- on tens. tom: we will get more data checks on radio and tv through this hour. i believe jon ferro has his property, "the opening," at 9:00 a.m. to me, all of the dynamics of the bond market screams a global

slowdown. jonathan: yields lower to 1.23% on tens. your equity market lower on the s&p 500 a little more than 1%. getting back towards the 93 level on the dollar index. euro-dollar down 0.3%. cut the opec must deal in the mix -- the opec+ deal in the mix. an individual stock level, switch up the board and get to the airlines. it has been tough. over the last year, still up more than 50% on this sector on the s&p 500. but more recently, it has been difficult. delta down 3.6%, american down by more than 4%. united down 4.5%. delta variant is a factor in the trading you are seeing. you are seeing that isolated in travel and leisure. you wonder if that is going to bleed out into the broader market. now i am focused on the banks.

if we could have a look at the financials premarket, it is tough to make the banks trade work with a twos-tens curve threatening to break below 100 basis points. jp down 2%, bank of america down 3%. tom: kailey leinz, what do you see on the delta variant? what is your reporting this morning on the new tone of this pandemic? kailey: it is interesting because on the one hand, the numbers would tell you things are getting worse, at least when it comes to cases. look at the u.k., north of 50,000 new cases reported saturday. but it is not necessarily following through into hospitalizations and deaths. that is where the vaccine comes in. people may beat has been positive -- people may be testing positive, but they are not getting sick, so what is the response? president biden still saying there is a pandemic, but it is within the unvaccinated

population. the divide looks very different for each of those groups. tom: as we get to our esteemed guest on fixed income and how it folds into global dynamics, i've got to look at a european week here. i've got german yields enjoying what the u.s. is seeing. the swiss 20 year, my personal benchmark, now -0.01 points. jonathan: if we get a dovish news conference, does that lead to lower or higher yields? i think that is going to be really interesting. hsbc call is for them to have no rate hike. i keep going back to this line president draghi used. rates have to be lower now to be higher in the future. that is not quite working out for this bond market. a used to be a dovish federal reserve would lead to higher interest rates. now we are talking about tapering guilt skill aware, it is fed, yields go lower.

-- about tapering, yields go lower. it's the fed, yields go lower. tom: right now, tony rodriguez joining us, head of fixed income at nuveen. he is steeped in the supply and the demand, and cross -- demand coming across. what is the robust search for yield you write about? there's a massive demand for yield. how is it that you question the move we see in full faith and credit this morning? tony: good morning. it is difficult to quench that thirst for yield given the very low treasury yields we are getting, trending no 1.20% this morning. the really important point i think is that the search for yield is going to continue to be

a broader support for the fixed income markets. one of the main drivers of why we have these fund rates is the incredible amount of liquidity being supplied to the market. there's just a tremendous amount of global liquidity that is keeping broader sovereign meals that levels its force investors to search for that yield. jonathan: until recently, yields have been lower, equity markets at all-time highs. last week, things started to change for that just a little bit. tony: the things you are seeing right now, there's a little bit of concern on the growth picture , so we have seen some data

that's a little mixed come out of china, her example. there's a little bit more thought process among investors that maybe the said won't be as dovish as they thought, whether it is from the june meeting moving up their dots, some of powell's testimony talking about the willingness to respond if inflation unexpectedly is more persistent than they currently think. i think people are factoring and potentially more hawkish fed then what was priced in before in the technical unwinding we saw from treasury for positioning and curve flattening positioning. now lastly today, throw on top an increase in geopolitical tensions between china and the u.s., that all leads to a little bit of a risk off positioning i think in the broader market. kailey: do you need to rethink a

call on the market for year-end? tony: that's a great question. i remember being on the show in march and trying to convince investors why we weren't going to 3% on the 10 year. now we are back to 1.20% and trying to convince investors why we are not going to revisit sub 1%. so we think you will see that the inflation story is a bit transitory, whether it is used car prices or lodging. that will reverse, so the fear of a fed having to be hawkish prematurely and tighten early i think will start to reseed, whereas we are still going to have a healthy consumer. we think you are still going to see solid growth in the second half, and that i think will pressure yields back up towards the top of the range. the broader story of lower rates for longer, that we are not going to see that 3% 10 year for various long-term reasons around disinflationary forces, low

productivity, that story i think remains in place, so the upside to yields, while we do think we get back close to 2% by the end of the year, we are not going to see ourselves much higher than that over the course of 2022. jonathan: let's talk about the story about the price action, whether it is technical or fundamental. you know how this works. some of those stories are impeded, and people are looking around to try to put one together again. that's always the risk, that moves like this can take a life of their own. mohamed el-erian saying if this continues, the narrative will shift to stagflation. that would be a bigger worry for markets. can you speak to theft, the risk that this takes on a life of its own? tony: i think it is a great point. right now, 1.21% is a pretty technical level. you can get all the way down to 1.05%.

so i do think that this inflation, stagflation be a bigger risk for broader capital markets, both risk markets, fixed income, and the equity market, and that is part and parcel why the global central banks in our mind are going to continue to be definition, and you will see that this week, what i think it will be a fairly dovish outcome from the ecb strategists. jonathan: looking forward to that in a way that i was not. 20 rodriguez, nuveen head of fixed income strategy -- tony rodriguez, nuveen head of fixed-income strategy. the s&p 500, negative one point 16%. in the bond market, we are off the lows. we are down six basis points on tends to 1.2269%. i've got to be honest, if someone ask this morning what is

going on in the bond market, i have not had a clue what has been going on the bond market for the last couple of weeks, and i don't think many other people have, either. this has taken a lot of people by surprise. tom: in the last couple of days, i do think it is about a set of things. global scare, the new delta variant worries. thank you, joshua sharfstein, for a brief on that. but as well, it is just a question of how the u.s. moves to the next stimulus. it is not there. i had a -500 on the dow moments ago. jonathan: thanks for the update on the dow, tk. the nasdaq 500 much softer. tom: but the dow is much were gloomy. jonathan: if that what we are trying to do, establish some gloom? we are negative a little more than 1%. this is bloomberg. ♪ leigh-ann: with the first word news, i'm leigh-ann gerrans.

for the first time, nato is calling out china for cyberattacks. the u.s., the u.k., and their allies have formally blamed the attack earlier this year on hackers affiliated with the chinese government. it is foreign secretary dominic raab says that beijing will be held to account if it does not in this "systematic cyber sabotage. opec and its allies have reached a deal to inject more oil into the global economy. have overcome a split' that threatens thes cartel control of the market -- a split that threatened the cartel's control of the market. the opec+ coalition will start on the oil next month. prime minister boris johnson's plan to get the eu back to normal -- the u.k. back to normal is in disarray. pandemic restrictions and today, but covid cases are rising more

here than anywhere in the world. he and the health secretary both had to reverse decisions not to self-quarantine after being advised by the head of the nhs. 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. ♪

♪ >> summers are difficult period for the market. what we are kind of setting up

for right now is to get to august, cap interest rates pretty low, have the markets shocked by the taper announcement. so i think this is going to be a transition year. jonathan: it is a difficult morning for the equity bulls. your global bond market looks like this this morning. good morning. live from new york, on radio and tv, yields in six basis points. we are -1.223%. we are down to a positive real yield of .2236%. in germany we have a negative normal yield, about 0.3%. we were talking about may be getting to zero. in the equity market, down 53 on the s&p 500. looking at the lows of the session at 1.4 to 65 -- at 1.4265%.

have you changed your view for the rest of the year? michael purves of tallbacken has , but not in the way that you think, moving higher to 4800 year-end. tom: love it. it is a double-digit move. good morning ben laidler, as well. this is always a blur within the joy and privilege we have with all of these intellects. for the first time, i am on day 0.99 twos-tens spread watch. massive curve flattening this morning, out to new twos-tens flatness, and there's perv's with the pendulum of optimism. -- there's purves with the pendulum of optimism. jonathan: michael purves on better earnings to get you to 4800. kailey: this idea that even if

we are peaking, the slowdown in the second derivative isn't going to be a problem. people aren't going to sell equities because of that. i also find this mention he mentions that because the reopening has been stunted a bit , the fact that there are still concerns related to variance, some of the growth from 202021 -- from 2021 is going to extend, which i think is an interesting notion. tom: let's sum it where we are right now with cameron crise. he joins us this morning. you talk about a sum of our risk aversion. describe our risk aversion on this monday. cameron: it seems to be a covid thing, which i am a little hesitant to say because it is a convenient scapegoat. when the market goes down a day,

people say it is because of covid, and it bounces back. you've got a confluence of a number of factors. clearly, the focus in the u.k. has been on so-called freedom day, the relaxation of all of the restrictions, at the same time that cases are shooting higher, possibly because everyone -- because of everyone go to the pubs and watching the football, the european championships. so that is not a very pleasant situation. if you look under the surface at the performance of equities in the united states and more globally, all of the industries that were terrible last year during the pandemic have suddenly turned terrible again. we've got this sort of narrative that we've got this great reopening, if you look at what is going on with the stock price

of airlines and cruise lines and hotels, they kind of look pretty terrible. that would seem to be pricing some sort of reversal of all of this reopening stuff. if you think that reopening is going to have to fade, which is what these markets are telling you, then all of a sudden that price action in the 10 seems a lot more reasonable. jonathan: twos-tens threatening to break 100 basis points this morning. this has been developing for a while. we talked about nominal yields as well as the end of march. the airlines breaking down is not particularly new either. the banks peaked at the start of june. when i think about what is new, very recent is just the broad index starting to come with it. any think about what is new in terms of this correction in this market, how important is that? cameron: i think the issue as we

enter into earnings season is there's a sort of inflation dynamic. the fed is easy to say it is transitory, but real companies are facing real pressure. sort of downside risk that has been alluded to by couple of the other reporters is margin compression. there is some capacity to pass on higher input costs to end-users, but some of these companies are going to have to be absorbent of the higher input costs, and that is going to be a hit to the bottom line. that is something that perhaps hasn't been appreciated enough. kailey: the word inflation was mentioned on 80% of earnings conference calls by s&p 500 companies this month, up from 33% in the same period a year ago, so clearly something companies are worrying about. do you expect to give impetus to

the value trade, or is it going to give growth another leg higher? cameron: there is certainly the possibility that the answer is neither. [laughter] everything is kind of priced to something approaching perfection , and there has to be some sort of, if not comeuppance then perhaps a small repricing to reflect that we are maybe not living in the best of all possible earnings. for much of this year, it was both. yes, value without performing growth. small caps were outperforming large caps. but everyone, everything went up , just a varying degree. there's a possibility that everything could go down, only temporarily. jonathan: the s&p down 51.

cameron, it has been way too long. cameron crise there of bloomberg. i reached out to michael purves of tallbacken. he says the bond move is not an indictment of growth. over the next three -- of growth over the next two or three years as much as it is a healthier risk premium which affords more dip eyeing respectively. that is just dip buying -- more dip buying respectively. tom: i like that. he's picking up on the idea of traditional equity over to what we are going to see with earnings growth here in a boom economy. granted, it's my slow -- it may slow down. purves picks up on the tone of kailey leinz, which is the pendulum of optimism. jonathan: the pendulum of optimism. ken -- can kailey and lisa do a -- do a program?

jonathan: do you want to mention our special? guy: we will have -- tom: we will have tang as part of our special. jonathan: are you excited about that, tom? on radio come on tv, this is bloomberg. ♪

jonathan: live from new york for our audience worldwide, let's get your monday morning price action. if you are bullish, cover your ears and eyes. down on the s&p. not that dramatic. you might be on the wrong side and the bond market. yields lower by seven basis points. 1.21 on 10. the tenure breaking down quickly. it comes with dollar strength. this is a real risk off moment. this is what it looks like. yields are lower, dollar stronger, crude softer. 69 point $19 on wti.

-- 69.19 on wti. kailey: -- tom: we are not there yet. megan greene is with us. out with the book. waiting for her book on theory and reality of our economics. megan greene, can you explain the theory and reality of the summer of 2021. the three of us weight with bated breath. megan: what i am looking at is everything economics that does not work anymore. there are a number of examples. one that is relevant now is how inflation works. that is what everybody is talking about ian economics. -- in economics. if you're an old school economics you look at the output gap we are trying to fill with the stimulus.

you worry about overheating the economy and generating inflation. we are seeing significant inflation. that was predictable. the question is will it last. if you think about the world as a more complex system, not just a single potential growth rate, the point of filling the output gap is little bit irrelevant. the fed policy is to fundamentally prevent scarring from lasting. or lift us to a higher equilibrium and then you are not worried about inflation. tom: your work at harvard is the ambiguity we are presented with. every idea can cut this way or that way. what you do with the ambiguity of a boom u.s. economy and a slower global economy. how does that ambiguity cut in 2022?

megan: everything will be driven by the virus as it has been for the last year and a half. therein lies the ambiguity. if the new variant continues to drag on global growth, vaccination across most of emerging markets remain slow, that will be a drag for growth for the u.s. as well. this is why investors are starting to consider we are past peak growth because of the domestic economy is firing but the global economy is sluggish, that will drag. that is the main component. jonathan: we had a read of consumer confidence in america on friday and lisa was pointing out how important it is to look at that. shout out to lisa as she enjoys her second vacation in the space of a month. we will talk about that later. she talked about how higher prices could weigh on confidence. are we starting to see that happen in america? megan: i do not think we are there yet.

if we look at the university of michigan survey when they out there pretty high but they come down in the medium to long-term. that anchors inflation expectations. i do not think we are seeing that yet. if this were to last for another year, and no one has defined what transitory is, least of all the fed, it could last a while longer and then start to impinge on consumer confidence. jonathan: one thing the fed did tell us earlier was it was the vote of confidence, validation of a better outlook. that was because real yields were upwards. now they have come back in again. i wonder how the federal reserve would characterize this move we are seeing? megan: i think they view it as an opinion on growth. i know you just had a guest that disagreed with that. the idea that the delta variant is causing a spike in cases.

there are concerns about the parts of the world that are not vaccinated yet. also i think their concerns about inflation at the short end . that is what is driving the short end up. kailey: i was asking earlier what is it going to be that as a catalyst for higher yields because it is not been hot inflation, it is not been the commentary out of the federal reserve. she said it is all about the labor market. is that the only data that matters? megan: i do not think it is the only data that matters. if you had inflation sustained for a significant period of time , that could also cause concerns about long-term debt sustainability that could push the yield curve up as well. kailey: what about wages? do you expect any wage pressure to materialize? megan: there are a bunch of

structural drivers in the economy that have kept upward pressure off of wages, things like digitalization, market concentration, mobilization. none of those things have gone away. most of them have been accelerated. in addition to the fact we are adding a bunch of service workers to the labor force and they tend to be low our, low-wage jobs, that will keep upward pressure off of wage growth in the short term, but they're all the structural drivers that will upset any significant wage price spiral. if you do not have a wage spiral it is hard to have inflation spiral. it is impossible. tom: john mentioned this two hours ago. are we just moving the timeline on monetary policy out? jon, did you mention 2023? jonathan: hsbc looking for the fed to change their guidance until 2023. tom: is that where we are right

now? i've to make some news. the red sox, 2024. megan: i'm a little worried about the red sox too. the inflation outlook in europe is different from what it is in the u.s.. persistently low for a longer time in europe. even more persistently low. even though the ecb has change their monetary policy strategy to no longer include an asymmetric bias in their target, so they are willing to overshoot on inflation. they have no credibility in terms of being able to achieve inflation over 2%. i think it is appropriate for the ecb to be easing longer than everyone else. the ecb is finding itself in a lonely corner as every other major central bank started to talk about accommodation. the ecb stepped in for quite a while. i think they will end their bond buying program in march of next year as planned and then they will have to figure out how to

revamp their old asset purchase program. greece is not eligible, and that would be a huge blow for greece. i think there will be some tweaks to increase it for other countries as well. jonathan: i have struggled with that ecb news conference. you think this one could be interesting this thursday? megan: no. i am sorry to -- -- i am sorry to dash your hopes. i do not think it will be that interesting. the ecb has baked into their official mandate what they already said they were going to do. there are other interesting tweaks they've made to the monetary policy, particular around climate change and how they will consider climate change in monetary policy not just in regulations, but we do not have many details on that and i do not think we will get many details for some time. the main message we all know is

coming is the ecb is going to need to see the white of inflation eyes before they withdraw accommodation. they have been saying it already. it is just official now. kailey: the ecb has been dealing with a very different fiscal equation than the fed. in europe it was much smaller, and the u.s. very large. it just keeps coming. we could be getting trillions more in long-term economic spending. how are you viewing that in terms of whether it will lead to an overheating of the u.s. economy? megan: we do not know what we will get for starters. we should get significant fiscal stimulus in the u.s. a lot of that will go towards productive investment, productive public investment, and that should fundamentally boost the economy. that is absolutely positive. all of the infrastructure

spending and all of the investment in human capital, that is aimed at fundamentally boosting the u.s. economy to a higher potential growth. it is to be released over a number of years so it is not like we will get the spending in the next year. it will take just under a decade to resolve the spending. it could continue to boost the economy. i do not think we have to worry about overheating. the output gap is an antiquated notion. the output gap is designed around trying to find where potential growth is or a single equilibrium. the biden administration is not worried about the single equilibrium, there time to boost us to a higher want. jonathan: megan greene, harvard kennedy school senior fellow. your 10 year very briefly with a 1.21 handle. tom: yields take a breather. the tweaks of the moment, spx

futures -53, the vix apostolic three figures. the dow has deteriorated down 1.3%. jonathan: a perfect guest to discuss this with. jp morgan's david stubbs. here is the state of play for our audience worldwide on radio and tv. quite a morning. quite a way to kick off the week. yields in around seven basis points. your equity market is softer, down 53 on the s&p 500. in the fx market, euro-dollar, dollar stronger, euro weaker. euro-dollar 1.1774. on the radio and tv, this is "bloomberg surveillance." leann: opec and its allies have

overcome an internal setback. they reached an agreement to inject another 400,000 barrels of crude a day into the global economy. saudi arabia met the united arab emirates halfway on a more generous demand. toyota will not air tv commercials in japan for the summer olympics. its president will not attend friday's opening ceremony. concerns about holding the games in the midst of the pandemic have been rising. toyota is one of the olympic sponsors. last month it said it hopes the company and athletes get a satisfactory explanation about the purpose of holding the games. senate majority leader chuck schumer has set up -- he is hoping to have the first test vote on the bipartisan infrastructure bill this wednesday. that is the same day he wants

all senate democrats to get behind a much bigger spending vote that would carry out the bulk of joe biden's agenda. bill ackman will buy a share in universal music group. u.s. regulators looked ready to block the plan to deal citing rules. pershing square will now by 5% to 10% of the music label. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans, this is bloomberg. ♪

>> if you aggregate up the impact of consolidation to an american household in terms of

prices and wages and other costs, the best estimates is it is costing about $5,000 a year for the typical household. tom: the biden administration national economic council director speaking to barry ritholtz, a spirited conversation. we turn to the markets with the vix up 2.5 points, -51 on the s&p. dow futures have been -500 for good while. the bond market with not a historic move but something that gets your attention. kailey leinz in for lisa abramowicz. get to tomorrow's flight. this is radically different than what we saw with sir richard branson. jeff bezos in a rocket. kailey: in up past the carmen line, which richard branson did not do. the line what commonly delineates space. he will be on the tip of a

rocket, not a plane like richard branson. this will look more like your traditional rocket launch. him, his brother, and an 18-year-old. peeking at 18. i wonder what it feels like. tom: it will be interesting from 18 to 87 years old. i believe there are five passengers. we will have more from our team in texas. the weather seems to be good at this moment. the weather is always good for barry ritholtz. he wakes up optimistic every day. you will get a call from people who have entrusted you with their money and they will say go to cash. what do you say? barry: the secret to dealing with clients who get nervous with volatility is having this conversation, not when there is read on the screen, but when they actually come to us and say

here's what i want to do with my money. here is the history of markets, here is how often we get a 10% drawdown or a 20% drawdown. 1%, 2%, 3% moves, there are dozens of those every year. if you go to cash every single time the market twitches, you will never be invested. that is not what our thought process is. it is not day today, it is decade to decade. tom: the decade to decade timeline gets across a set of worries we have this morning. what is a consensus call with higher yields. we have gone the other way. what happens to consensus when they are wrong? barry: you say when. consensus is right most of the time when it comes to market prices, but when it comes to forecasting the economy, consensus seems to be wrong most of the time.

i cannot count how many times i've been told the bond bull market is over, yields are done going lower. the 10 year will never drop below 2%. i meet 1.5%, i mean 1.25%. here we are. we are 1.2%. that is astonishing. the people betting against bonds have been on the losing side of the trade for almost 40 years. kailey: as you say we are at 1.2186. why? is that growth concern, positioning? what you make of that? barry: it is hard to look at the u.s. is completely separated from the rest of the world. we have seen negative yields in japan for how long? negative yields in europe.

that blackhole, that gravitational pull has been exerted on the u.s. because there is so much capital and it is not just the fit and qe. -- the fed and qe. money is looking for a home. who cares if it is 1%? if i put $1 billion in a bank there is no guarantee that bank will give me my money back. this is a way to make sure money that gets part is safe -- money that gets parked is safe. maybe it has to do with economic concerns. the biggest issue is an immense amount of capital. trillions of dollars without a good place to hide. kailey: how high do you think the risk is of a policy mistake?

barry: every economic cycle that ends, most contractions are eventually caused by a policy -- mistake implies that if we only get this right, we can avoid recessions. eventually economies get old and vulnerable and what was not a mistake in one year, suddenly the next year becomes problematic. we tend to siebel markets killed -- we tend to see bull markets killed not by old age but by fed tightening that is excessive or too quick. if you believe the underlying economy is stable and strong, sometime next year we should start moving off of this emergency putting and slowly bring rates up. the question is where does that become problematic for profits and what does that become issue for consumers who depend so much on credit.

is it 2%, 3%, 4%? that is anybody's guess. where people get that long -- where people get that wrong is your policy mistake. tom: barry ritholtz thank you so much. looking forward to the interview on the podcast. i look at the tape and there's been fractional improvement on the tape of the last couple of minutes. i know you have to put up with matt miller on an hourly basis as well. let's channel matt miller with kailey leinz. how about that big dog? bitcoin -- it is being tested this morning. kailey: i would argue it has been tested for a while. we are well off the highs we saw a month and a half ago. it is interesting to me, for a while there was a narrative that bitcoin is an inflation hedge. this is what you do to protect your portfolio.

that is not something that has worked for you at all as we see these hot inflation print coming in. tom: the gentle we talked to earlier on goal was -- on gold was generous in his condemnation on linking bitcoin to gold. what else do you see? kailey: i am watching oil. we have not talked a lot about it given the action in the bond market. crude we are down nearly 4% on wti. this could be because of many factors. give a stronger dollar. given opec-plus supply deal. on top of that -- you have an opec-plus supply deal. on top of that the delta variant could dent demand. that is a broad theme. tom: rbc capital markets says it aside of relief for the biden administration to see uae and saudi arabia together. on radio and television, these are markets on the move.

12:00, balance of power, heather boushey a with the biden administration. this is bloomberg. good morning. ♪

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jonathan: from new york city for our audience worldwide, good morning, good morning. 1.22 on 10's.

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: we begin with the big issue. a relentless equity rally getting some resistance. >> we will see the market have trouble. >> we think there will be higher volatility. >> people are starting to worry about is growth going to come back. >> price volatility will go on for a while. >> probably some other numbers are not coming in is expected. >> there is more worry about medium-term growth prospects. >> for stocks to stay or rise come inflation fears have to go away. i cannot see that happening near-term. >>