slightly more compressed so earnings will have to drive the market. >> we think omicron will affect earnings. >> we think the market has legs to go higher. >> we will see if it ages well or ages poorly. >> this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. jonathan: from new york city, good morning. this is "bloomberg surveillance" live on tv and radio. alongside tom keene and lisa abramowicz, i am jonathan ferro. two days of gains into thursday. tom: let's get the level out. it is an enthusiastic market. there are indicators. the gloom has drifted away from what we saw before the testimony. jonathan: getting comfortable with the idea this -- how much

harder will it be for the fed to do more than the market already expects in 2022? tom: they will look at the data, the 7% statistic. they will have to cross their fingers, hope to die that it turns and moves the other way. we do not have the dead yet. jonathan: we heard from chairman powell. lisa: the preliminary comments have been about combating inflation. the number one issue when talking about the participation rate in the u.s. labor market back to where it was pre-pandemic. the focus on inflation, this will be more controversial. jonathan: ppi thursday. is that what you are calling this? tom: i woke up and i watched the first 12 minutes and went back to bed. jonathan: the need to spend some money. tom: is it ppi thursday?

we are making jokes, but this is seriously. retail friday, where we are on thursday. why is this important? the data matters to the vice chairman to be and to us. jonathan: good morning to you come up four on the s&p. yields unchanged. 174.64. the euro-dollar reclaiming 1.1463 and up .2%. a lot of the calls on wall street talking about dollar weakness. we will see the weakening as people price in these rate hikes. 8:30 am is the key figure. job claims.

morgan stanley says they do start seeing signs of the supply chain disruption peeking out and then starting to ease some. i am focused on the idea that we saw ism drop. 10:00 a.m., hearings begin on capitol hill. how much does she talk about letting banks be versus trying to clamp down and govern them more closely. how much does she emphasize inflation? at 1:00, planning to sell $22 billion of notes. how much do we start to see pushback at a time when the yield curve on the long and, the gap between tens and 30's has

come in narrow. how do we make sense of this when people are talking about a prolonged bout of inflation. jonathan: we can build on that this morning. joining us now is tony crescenzi . great to have you back with us. we have the strongest print we have seen going all the way back to 1982. the question i asked tom moments ago, how hard would it be for the fed to deliver more than what this market is already looking for in 2022? anthony: quite difficult. the power of communication is one of the powers the fed has. it does not have to deliver the action this year. the quantitative tightening, which we see not occurring until september, could be pulled forward. that is one other tool and use

that in place of the hike. one of the key things for the bond market, for the stock market, credit market, is the market price fair enough in terms of the terminal rates? it will start around 1.75. the said thinks neutral is -- the fed thinks neutral is 2.5%. the fed has to tell markets we to do more. tom: let's go to page 942 of your claim book. how far out is a terminal rate? you can't go out seven years. is it the fourth of july? anthony: as you said earlier, we talked about the amount of hikes built into this year. the stock market, bond market did not react to the new highs

in the cpi. the market is price for three hikes in 2023, but then nothing. tom: the money question, with great respect to the gazillion dollars that pimco manages, are you managing the short-term tony crescenzi space for the end of the world, let's see if they talk? or are you saying, no, but gloom is wrong? which is it? anthony: it is more of the former, but a little bit of the latter. a lot of it is the portfolio context. the equity data, correlation to the other aspect in the portfolio when buying bonds. think about the idea you just brought up. in this sense, you said, are you

considering market timing? in a portfolio that is balanced, it is akin to getting in a car and saying, today i think i will be safe, i do not need car insurance. we are under duration. we think markets are a bit underpriced for the potential for an increase in the terminal rate from the 1.75% or so that is built-in to what the fed thinks is neutral. it would probably not get much beyond the twos. looking at the bloomberg terminal at the five-year, where does the market think the five-year treasury will be in five years? most yields across the yield curve are around 2%, a pretty flat curve, which is a way of saying the fed will be successful in the long run.

that is what the market is saying, we disagree to an extent. lisa: in the meantime, we are looking at an actual yield, and actual return in cash, and actual return in the short-term space. you think this will be one of the best years in a while for people keeping their money in a cash-like space? anthony: yes. we have already seen an increase. look at the two year treasury note at 90 basis points. 100 basis points this kind of it for yields in general. there are times it could be higher than that, even 200 basis points. if the market thinks the fed's actions are not enough. stepping outside of the regulated world for the money market. tom: i stepped outside that last week. lisa: [laughter] anthony: it is an exciting thing to do, isn't it?

average maturities around 60 days. there is a cap there and a limitation on the types of credit. jonathan: wonderful to catch up. send our best to the team. anthony: thank you. jonathan: tony crescenzi of pimco. listen to these numbers. maybe we have to get used to them. they are looking at balance sheet runoff, reduction of about $560 billion this year, $260 billion of that will be bill runoff. they are looking at $1 trillion more in 2023. they look at what that reduction would mean in terms of interest rate hikes. the team says we estimate the total drawdown of the balance sheet through the end of 2023 is somewhere between 25 basis point

increases. it is not just a rate hikes. it is the balance sheet reduction. tom: the question is, you have to do it into an estimate of what economic growth will be. jon, are they going to be effective changes with a 2% real gdp, or is it easier for a 4% or 5% real gdp that the growth optimists say we are going to see? jonathan: in the early part of the exercise, yes. we are looking at a 4% handle on gdp. i think a lot of people think that is where it starts to get more complex. lisa: we have heard bill dudley said the balance sheet roloff will be less dramatic than what people expect. at a certain point it starts to make a huge marginal

difference. as you get some normalization of the labor market, however that looks, some people are trying to map that out, there is a question mark. jonathan: speaking of uncertainty, it is all about when they start. march, let's get ready. we heard from a dovish member, ready to go. it is how high they take it from there. that is where the debate is. lisa: when you look at the data, that is just as uncertain as the trajectory of the yield. when do they make that decision? jonathan: tom keene, lisa abramowicz, jonathan ferro. yields up almost one basis point at 1.75. from new york city, this is bloomberg. ritika: with first word news, i am ritika gupta. curbing inflation said to be the

central bank's most important task. working people around the world are concerned about how far their paychecks will go. president biden is deploying the military to help those in new york, new jersey and other states facing coronavirus surges. they will be used to ease pressures on overwhelmed health centers. 350 military medical staff have been working in civilian hospitals. in the u.k., prime minister boris johnson bought himself some time after apologizing for attending a party at his downing street office during lockdown. people are still angry and johnson's grip on power -- an official probe. u.s. aviation regulators say they have made progress reducing

the risk from the5g service that begins next week. the faa is releasing restrictions. at&t has delayed their release for two weeks. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

>> looking at most professional forecasters, they project we will see an easing in price through the course of 2022. obviously, the fed is operating independently and the president has scored the importance of the fed operating independently to take actions to make sure these price increases do not become entrenched. jonathan: the national economic council director on inflation. with lisa abramowicz and tom keene, i am jonathan ferro. your equity market up six, up a little bit more than .1%. crude settles down with an $82 handle, media $2.64.

-- $82.64. inflation is too high and working people around the country are concerned about how far their paychecks will go. we are focused on getting inflation down to 2% and sustaining a recovery that benefits everyone. tom: the words of alan greenspan, jon ferro, this is unbelievably stupid, and so said an entire nation over the comedy of 1974 of whip inflation now. there are not words 48 years on to describe how silly all politicians look thinking they can do something about what then was really a serious, serious inflation. jack fitzpatrick with us. maybe that is not the right phrase, but the phrase is whip inflation before november 2022.

what is the plan? jack: one you have heard from the biden ebony straight and that they are looking to the -- you have heard from the biden administration. aside from the supply chain issues you have seen the president speak about. an unwillingness to add further stimulus which has worked its way into the legislative debate in congress. a lot of what you hear politically is looking at the fed and that will be a major focus at today's hearing for the confirmation. the senate banking committee where her testimony focuses heavily on getting back down toward a 2% annual rate of inflation. what you have heard from the president, trying to do something on the supply side is more or less the limits of what we are seeing from the

administration as they look to the fed. tom: i know you have never tried it, but spam is a meat product, a canned pork meat product. they are not going after the meat packers? jack: that has come up. there was the announcement on the focus on the relatively small number of meat packers. i do not know how much of a follow-up there will be on what came up a week ago on meat packers. to be honest, in congress, a lot of the focus has been on the fiscal side and looking back. tom: lisa, we have to stop the show. have you ever tried spam? lisa: i have, yes. are we done? tom: we are.

lisa: focusing more on the fiscal side of the issue, amid fiscal talks, these myriad topics, voting rights is what president biden is spending his time on. chuck schumer is spending his time on voting rights although this law is unlikely to pass. why the focus? jack: political pressure. economic priorities stalled to such a degree that that is being set aside and will see if they can get back to that. voting rights is a high priority for the left flank of the democratic party. it was something the president was supposed to push hard on and it has been on the back burner. there is an opportunity for democrats to look elsewhere as billed back better gets set aside for a little bit. they want to try to have a vote

that will lead them into a conversation about what kind of change, if any, can they make to the filibuster rules, which would have wide-ranging effects on all sorts of things. they want to have a showdown, including leading up to martin luther king day. the pressure from the left wing of the party has made its impact. lisa: you have been covering washington, d.c. for a long time. is this more whiplash than usual? the democrats are trying to hone in on a specific message when there are so many issues piling up? jack: it is a real pileup of issues in terms of trying to figure out the legislative agenda. it is really significant. it is more than what we saw in the last administration, even when they came in and tried to do a couple of things through the reconciliation process, trying to do health care and taxes. the way the biden administration

did a stimulus infrastructure, attempted a broader bill and wanted voting rights and has put off a lot of work they will need to do funding the government, a lot of the regular work is getting bumped back, from now on it gets to be campaign season, i think there will be a rush to try to get as much done as possible on capitol hill. jonathan: jack fitzpatrick down in washington, d.c. tk, you brought up what politicians can and cannot do about this. the administration has the calendar on their side. a year on your comparison. the peak for inflation, thank you, america, it is not my view, it could come in march of this year. that is on their side. the next point on their side is

the hope that through the calendar year the good space price pressure we have seen over the last 12 months starts to fade as we address the supply chains. tom: our hope is to bring it down to real terms that are audience on radio and tv can use. here are the numbers. food inflation is up 1% or 2%. spam up 15%. we needed to bring in the united kingdom. it is up 6%. jonathan: have you had it? it is a breakfasting you pour milk over. if we carry on, bramo is going to step in. lisa: [laughter] jonathan: i do not want to face that look you got two minutes ago. lisa: [laughter] jonathan: look at those markets.

the nasdaq up six. we are up 0.04%. spam with mango? tom: spam with mango. lisa: [laughter]

jonathan: live from new york city, for our audience worldwide, on the nasdaq, unchanged. a group of strategists think there is limited risk with the nasdaq because there is limited upside. limited upside on 10's. after a move of 25 basis points, they think this move is to 2%. right now, 25 basis points short, 1.75. 30's basically unchanged at 2%. the dollar is weaker on the

year. the dollar index, 95, 96, it is now down to 94.82. the u.s. dollar is weaker on the year. we start to have a conversation on how much more this fed can do relative to what is being talked about. tom: the dollar is a compensating factor. nobody is talking about that. you get the dollar to do strange things. i do want to mention abby joseph cohen is scheduled to be with her, her first interview after leaving goldman sachs. she is joining columbia. someone who has read the literature of abby joseph cohen, andrew slimmon. how do you find the courage, the cacophony of this week, the

cacophony of this early january, how do you find the courage to stay invested? andrew: that is going to be the story of this year, there will be a push-pull between the fear of the fed and the -- good corporate fundamentals. we are coming up to earnings season. the story of last year was companies doing a lot better than what was expected. what we hear when we talk to companies is, business is good. there are exceptions and retail. that is when the courage comes, when you drill down into companies. tom: this is lisa abramowicz's question. i am going to front runner on this. what is the use of cash of all that debt corporations are

taking on board? andrew: i think there will be buybacks. what we hear is spending technology is excel the running next year. there will be further buybacks. there is a lot of cash. that is the positive. there are definitely negatives. we have to be tampered in our outlook overall, -- we have to be tempered in our outlook overall. jonathan: later on this morning, i will pick up on where the banks have been in europe. there is a rate hike conversation in the mix in the way there has not been in a long time. when you look at europe versus the u.s., what are you leaning toward more heavily? andrew: that is a great question. the key question is, where do you want to get your bank

exposure? we have had our bank exposure more in the u.s. than in europe. that certainly work last year. we stuck to it by acknowledging that yields are going up in europe and perhaps it is time to dip your toe in there. we like financials and energy and have been biased toward that in the u.s. over europe and that has certainly worked but it is starting to revert. lisa: you like financials, you like energy, do you think people can still get into these trades now or is it already done, they are priced in, frankly overpriced for where the are going this year? andrew: i am glad you asked that. they are too hot going into earnings season. it worries me that these companies have done very well

and -- i like to buy into companies that have recently underperformed but i am confident about their earnings coming out. that is not true of energy and financials. they are too hot. i would not be chasing these. i would look other places. some of these growth stocks are underperforming. not the ultra growth stocks. to your point, i would be a little bit cautious on financials and energy because they so outperformed recently. lisa: i want to thank you for color coding your notes. you put the negative points in red and the positive points in green. you talk about some specific companies you like, including google and microsoft.

andrew: there is a difference from the year 2000, when the nasdaq blew up. that was a period when all tech stocks traded at absurd valuations. you have a lot of companies with no warnings, no cash flow and trading at five, 10 times sales. you have these tech stocks that did not get to the valuations that they did in the year 2000. i think there is a meltdown in these very expensive, long-duration tech stocks. i do not think it will bring down the large tech stocks because they are generating earnings. here is a statistic i find incredible. alphabet was up a lot last year, but their earnings revision,

what they made last year, was up even more. in other words, it rose more than the stock did and ended at a lower p.e. than where it started the year. the point is, once the stocks break, my experience, a long time, once something like that -- once the fever breaks, it takes a long time for them to find their footing. i would avoid the temptation. i remember people that did that in 2000, they go up a little bit and then they go further lower. tom: some would argue he is a financial executive of the decade. his morgan stanley and the sum of all the parts you observe, do

you see more combinations coming ahead in the boom, almost china-like nominal gdp. is that the urge to merge the only solution to get scale? andrew: i think balance sheets are very strong. there will be an urge to merge. more permanent gdp growth. i think there is going to be more topline growth. listening to jamie dimon, it goes back to my original point. there is a lot of focus -- a lot of optimism toward the economy. consumer balance sheets. i do not think it is just an urge to merge because you will see good, topline growth coming out of companies.

by the way, one question i get a lot from clients and investors is costs are going up, aren't companies going to get squeezed margins? my response is as long as topline growth is there, companies will be raising prices. jonathan: andrew, awesome as always. good to hear from you. we heard from delta airlines. this is interesting. look forward to some weakness in the near term, decent numbers at the back end. they say they look for a meaningful profit in 2022, but losses in january and february. this is delta airlines. lisa: i thought it was really interesting, she said by summer, we will not be talking about delta, omicron, the pandemic as much. i already started looking for plane tickets. who is not trying to figure out how to get out of the orbit they

have been stuck in for two years. jonathan: the people who do not want to go back to work are the ones booking plane tickets to go on vacation. lisa: [laughter] tom: it is funny. this is a huge, huge issue. i cannot remember who it was, i will give credit to james gorman, i might be wrong. he said if you can go out to dinner in soho, you can go to work. jonathan: get the booster as soon as practically possible. office workers are tested on site three times a week. they are trying to make a big push to get back and i think it will be even bigger going into spring. tom: i was talking with the guy yesterday, i cannot remember, newport, rhode island, the context is, is it in london?

mike is not worried about people coming back to work. mike wants less soccer talk. jonathan: he likes the boston celtics. tom: less soccer talk. our people love english football. jonathan: i think lisa just wants us to shut up half the time. lisa: [laughter] jonathan: futures up two on the s&p. yields at 1.7482. ppi data at 8:30 eastern time. from new york, this is bloomberg. ritika: with the first word news, i am ritika gupta.

the san francisco fed president calling for interest rate hike as early as march. he supports three rate hikes this year. the fed should act to temper consumer demand. republicans could still block a final vote. senate democrats are continuing a long shot dead to change the filibuster roof -- longshot bid to change the filibuster rules. the world's largest asset manager plans to test workers on site three times a week. blackstone is joining other firms to take more test. the boeing 737 max is set to return to commercial service in china. a significant milestone for the jet that was grounded worldwide

in 2019 after two fatal crashes. china's study jobless rate in the labor market is hard to ignore. an anecdotal report suggests the situation is worse. jobs will be a big consideration when the comet's party has its twice a decade meeting to share. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪

>> i think the factors are when it peaks so quickly, we expected

to be just as significant. south africa was around 30 days. the transmission cycle is more, which makes us more hopeful this will end sooner. jonathan: we are hoping the same thing. that was a doctor from the johns hopkins school of medicine. good morning. tom keene, lisa abramowicz, jon ferro. yields unchanged at 1.7482. ppi data out at 8:30 eastern. delta airlines putting the brakes on the recovery. losses in january and february, but looking for a decent year of profit. tom: full disclosure, it seems like they are working 20 47 to keep it going, even amid -- working 24/7 to keep it going,

even amid omicron. he is truly an expert on frontier economies, epidemiology. he joins us now. i want to go right to thailand. what can thailand teach us. i am protected from what is out there in thailand. the present news from thailand harkens to a further shutdown. what can china learn from the southeast asia treatment as they face the olympics? dr. beyrer: a very good example of where we have not seen a lot of measures where mask wearing was accepted early and has been widely accepted and used. when i was there in the 1990's, everyone what a cold or any symptom was always masked.

there has been that social, cultural tolerance that made a difference. they did go through some stringent restrictions. they have lifted those restrictions in many places. they have again shortened now from a two-week quarantine on arrival to basically a much shorter timeframe. they have done a really good job of balancing science and the public policy aspects. tom: has china done that? dr. beyrer: china is the last holdout. they are trained to use the severe lockdowns and social restrictions to try to keep spread down in advance of the olympics. they have another problem, which is they did do initial vaccination, but there covid-19

vaccines have very low efficacy against delta and even lower against omicron. while they appear to be a country with good vaccine coverage, if you think about it in terms of coverage with high efficacy of vaccines, they are in trouble. they know that and they are catching up with mrna vaccines but their population is not protected and we will see if they can use this zero covid approach to handle the arrival of all these people. lisa: dr. beyrer, there is a tension. the amount of time it takes to create a vaccine that targets the omicron variant and distributed in the population before you see outbreaks out of control in china. where is a vaccine the targets omicron and do you see that working out for china? dr. beyrer: the omicron-specific vaccines are not ready. they are under development and will not see them in any

timeframe that will have an impact on the olympics. however, the high efficacy vaccines like the mrna vaccines, the j&j vaccines, with boosting are showing robust protection against severe disease, hospitalization and death with omicron. what they are not able to do is dramatically reduce acquisition and transmission. that is why we are seeing so many breakthroughs in fully vaccinated people. it is not those folks who are ending up in the hospital. what china needs to do is catch up with high efficacy vaccines. lisa: we were talking earlier about traveling to china for the olympics and traveling in light of delta's earnings. i start seeing some of the omicron cases peeking out in high risk areas and i think, that could be a place to travel in a few months. is that the case?

how long does it take before a peak to become a trough and a safe place? dr. beyrer: in the u.s., we are not there yet. we are seeing rising case rates and hospitalizations. we had 2400 deaths yesterday. it is true that countries that have had the covid omicron variant peak earlier, like south africa, are coming out on the others of it. like my colleague said, it is something like 30 days. that is encouraging. it is always the virus and the population that it is circulating in, those factors have to come into play. we are hoping that things will look really different in six toe eight weeks after this. jonathan: as always, thank you.

the story of the moment, the willingness to look through the near term weakness in this economy and financial markets with this stock, the team at bloomberg news catching up with the ceo. we see our president's day bookings to be healthy. people are ready to go, ready to travel. the back end of february. that is the belief. let's get to march and let's go. tom: i just of the total return on delta. if you take it back pre-valentine's day 2020, stock down 16%, 17% on an annualized basis. jonathan: what will be interesting as these numbers come through is to look at these numbers through the perspective of a business and employer. when you look at these companies as an employer, look at what

they effective face. more than 10% of delta employees in the last four weeks got sick. many other companies across this country dealing with the same thing. lisa: that is part of the reason why people were expecting the cdc had to adapt guidance to the reality that people were calling out sick because of this mass wave of absenteeism across all industries. people looking past all of this, even the cruise liners have gained more than 10% so far this year, rotation to value is looking so far beyond the immediate data and depending on the urge for people to travel, for it to come back and for people to manage it, like delta has. jonathan: i have the urge to talk about cruises now. i just do not get it. tom: nobody needs to. jonathan: we do. tom: i do not get it.

what is the probability of a positivity rate when you are on a virus ship? jonathan: i do not want to bump into the same people around dinnertime. lisa: [laughter]

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>> this rally, this year will be unlike last year. it will be volatile. >> are multiples will get slightly more compressed so earnings will have to drive the market. >> we think omicron will impact earnings. >> the market has legs to go higher. >> it is a rapidly aging cycle. >> this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. jonathan: from new york city, good morning, good morning. this is "bloomberg surveillance ." alongside tom keene and lisa abramowicz, i am jonathan ferro. tom keene, ppi a little bit later this morning. all the sudden, tom: -- all of the sudden, business inflation.