>> rates affect everything. as long as they are going up risk appetite will not be in a good place. >> the fed is more likely to be responsive to credit conditions than the s&p 500. >> i know the narrative is gloom and doom, but we have to step back. >> what we are seeing is a good opportunity we think to get more aggressive and play the economy for now. >> this is bloomberg "surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: waiting for chair -- waiting for your chair powell, good morning, good morning. i am jonathan ferro. your equity markets up nicely on the nasdaq by more than 2%. tom: a precursor to a very important fed meeting.

i have to be honest. the statement is a mystery to me. i wanted the character of dissent we will see at the 2:00 hour. jonathan: on the dovish or hawkish side? tom: it is the level of hawkish. the measurement jerome powell will have to make. i said in the last hour we may see a record number of statements from the chairman where he literally reads in the press conference off of the script. jonathan: we spent the last month trying to out-hawk each other. lisa: the bond market lead this. we saw the bond move before the hawkish and re-hawkish assertion. how much is the stock market waking up to what was experienced in the bond market and how much can the fed do to push the bond market further or talk down some of the hawkish-n ess we have been hearing? jonathan: three weeks and a little bit into the year and we

are down 13% on the nasdaq. is that the objective? tom: i am not going to take part in that. the market matters to the fed but i don't think that they are working at the crazy three months. the day volatility we've seen. jonathan: this wednesday morning, good morning, up 64 on the s&p, one point 5% on the nasdaq 100, yields higher by basis point of 178 point 51. the dollar stronger, euro-dollar down to 11277. lisa: the bank of canada also meeting and releasing policy statements. if you look at markets, pricing and at a 70% chance that they will tighten rates. you can see in the two-year yield in canada, the highest level since 2020. at what point does that kick off

the momentum for the fed for other banks as they look at inflation running at the fastest pace since 1991. i 2:30 p.m. we get jay powell coming out with his press conference. this very much is on people's minds. we have nearly the flattest yield curve going back also to early 2020. does the signal some softening? is the market indicative of anything considering some distortion and fed involvement? after the market we get intel and tesla reporting earnings on the drumroll of tech report. this 13% correction in the nasdaq is perhaps running its course and people look at the valuations and see them being justified by earnings even without fed support. that tension right now between earnings and the fundamentals and fed backdrop is really interesting for this rate-sensitive group.

jonathan: the outlook for growth is front and center. goldman catching up on bloomberg tv had this to say. the key thing for equities is how much a shift of an interest rate expectations and a financial conditions will hit growth. that will be the issue going forward. tom: that is where i am, i have been there for weeks. i cannot wait to talk to diane this afternoon. for me, growth is they are coming to 1% quarter to quarter dynamic. that is a rate of change that is original. jonathan: let's get into price action. mike, the worst case scenario is continuing on the slow path to policy normalization? dovish is bad? michael: in this case it is. we are looking at an environment where the fed should've started hiking in the middle of last year and now we are stuck in market limbo where investors are

pricing in the future policy. we are looking at a situation where if the fed proceeds as planned it will be another six weeks before we see a rate hike. that is a concern for investors. it creates a lot of uncertainty going forward, a black cloud overhead. they want to start moving right away so they can make decisions going forward. jonathan: if i am limit long i need to hear a hawkish message? that is hard to digest. michael: you're going to hear hawkish messages for the next several months if not all year, so why not get that process started now? i know people call for a 50 basis point hike and i think that's a good idea. the quicker that you act now the more flexibility the fed has in the back half of the year, not

unlike how the fed response to crises when as soon as they see something wrong they act quickly in order to create a better outcome going forward. to drag this policy normalization process out will weigh on investors minds. -- investors' minds. lisa: how much has to do with cyclical and not growth? how much is limit long when it comes to the popular trades at the beginning of the year? michael: we have talked about the rotation adding to value and it has to do with the steepening yield curve and a more normalized environment. we talk about earnings season. i expect earnings seasons to be generally pretty good. microsoft numbers were fine last night. you're looking at a situation where the biggest problem is the incredible amount of fiscal and monetary accommodation over the past 18 months has pushed

valuations what i would suspect to be unsustainable levels. you see investors rotating back into the more cyclical groups that are going to benefit from a more normalized policy environment and less monetary stimulus. lisa: do you think the markets are pricing in a reduction in the balance sheet of more than a trillion dollars for the end of next year? michael: i don't think the market is pricing in much of anything it. we had a nice correction of about 10%. i would say we are back to september. we had an incredible run in this market coming out of the pandemic the last 18, 19 months. i would suspect more volatility to come. the fed is still buying assets, so it's hard to say that we've priced anything in. tom: i get misty eyed over o'rourke and you making six

cents per share on advice back then. you say that we are still on condition and victims of pavlov. when do we break that? michael: it will take some losses to break that. the environment we are witnessing with massive intraday moves, if this keeps up for another few weeks i think that trend should break. people keep talking about the big recoveries and big rallies and it's not a good sign. it's actually not. the main trait of a bull market is a lower volatility environment. the main trait of the bear market is a high volatility environment in both directions. the biggest rallies come . say that we are in a bear market now, what we've seen the past few weeks are consistent with

the bear market. tom: we have to watch the political equivalent of chiefs-bills. jonathan: are you calling for us to go to parliament? tom: why can't we do this in america? jonathan: listen to the prime minister go at it with the leader of the opposition party. >> we have all of the big calls right. >> in hindsight our appreciation was a party. we have discovered real hindsight, haven't we, mr. speaker? let me spell out we are going to have to defend some of this nonsense. let me spell out the significance of yesterday's developments. sue gray uttered to the police having found behavior of

behavior that is potentially a criminal offense. prime minister, you don't understand the significance of what happened yesterday. i really do despair. prime minister, the police, having gotten that material from sue gray subject to a test whether to investigate. the test is if it is the most serious and flagrant-type of breach of the rules. the police felt that what they meant by that those involved ought to have known what they were doing was an offense and there was little ambiguity. mr. prime minister, mr. prime minister -- >> this question will continue and i will hear the question. unfortunately, you might not believe this but our constituents are very interested in the questions and answers.

if the members not wish to hear it please leave quietly. tom: who is this guy? >> having gotten the material from sue gray the police have to take a decision if what they had before was the most serious flagrant-tight breach of the rules. if members want to laugh at that, laugh. the police spelt out what they meant. they decided on the material they've already got -- tom: if i can interrupt, is this normal? jonathan: this is weekly. tom: it is this energy every week? jonathan: this has very specific energy over the allegations of calling a party during the pandemic, lockdown, and breaking restrictions, tom. tom: don't you find it odd that we don't do this in washington? it would be so much healthier. jonathan: i have noticed so many officials in the american government that get offended at

the sight of a real question. the fact that the prime minister does this with parliament on a weekly basis let's them get real questioning from journalists. i find the press to be very different in the u.k. than what i experience in america. tom: on fox on the uproar over a few days ago, that is what america has devolved to rather than this theater that feels like it's from another time. jonathan: it is important to see people in power elected by the people questioned in this way by other people elected by the people on a weekly basis and for this to translate into everyday dialogue. my conversations with mps were very different than what you would expect to happen in america if you interviewed a congressman. there seems to be this outdated level of respect which enables politicians to get away without having a direct line of questioning. tom: your solution is the three of us have to move to london and

get the desk out the size of rhode island and do the show from london. lisa? your kids will have a british accent inside six months. lisa: 100% and they will pretend like they are in harry potter. it is important to have these hearings. boris johnson has been through so much controversy, but this feels different. he is still there, but this feels different. jonathan: he has to wait for the investigation to be completed. it is fed day. jp morgan asset management will be joining us wondering if we will talk about that or the bond market. from new york city, for our audience worldwide, good morning. tom: order. order. ♪

>> we no longer have the build back better fiscal package in our baseline and we are expecting monetary tightening in the u.s. baked into it. there are supply disruptions. this is behind the downgrade for the u.s. jonathan: from new york with tom keene and lisa abramowicz i am jonathan ferro. a bounce back from yesterday on the nasdaq by 1.85%. on the s&p up 56 advancing 1.3%.

tom: i don't have much to say about it off the carnage of the volatility. the vix is still angst-riven but not the 34 level that we saw the last couple of days. the information moving too much, we have to get right to it. on the lawn at the white house, on the lawn in berlin, we welcome both of them. on thursday it will be nine degrees fahrenheit in eastern, eastern ukraine. let's get back to first principles. away from nato policy why does putin want to go into eastern ukraine? what is the why? >> for many reasons. one he would say essentially what we are doing is uniting our people, we come from the same place and speak the same language and share a history. they don't and that is what is

important. ukrainians will tell us it is ingrained that we want to belong in the european union and join nato. we don't speak russian, we speak ukrainian. they say the view of history that vladimir putin pretends is fake. they don't agree and they would not say that we are russian in any way. tom: maria is from berlin who just texted and said tom, you have to do it in celsius. -12 celsius. thank you for sending that love note. it is not -12 degrees celsius on the lawn in the white house but there is a chill as to what the events in europe can do to the domestic agenda. what is the linkage? >> this will take a lot of oxygen out of what they want to get done. the president is trying to focus the message on his centerpiece economic agenda, still trying to

get chunks of build back better through. he will meet with ceo's to discuss that. yesterday you saw a slim public schedule for the president. behind the scenes and our reporting what we saw was that there was a defense secretary, a secretary of state. you see the administration pivoting to focus on foreign policy. we should note that the leader of the republicans in the senate, mitch mcconnell, has said that he thinks that what the administration is doing is lining up into how they are going to confront president putin. lisa: what about in germany? is there discussion about how to reduce reliance on russia for some oil and gas that has been such a huge issue, not only for germany but with relations in the european union? >> with the germans will say is that every possible sanction is on the table including nord stream 2. ever since crimea was annexed

illegally by russia there have been no sanctions. some would say it's not just nord stream 2, they should look at nord stream 2 1. the perception -- nord stream1 . for many germans they don't get the view perceived at times that they are soft on russia. they feel that the diplomatic way is always the best way. they say given our recent history in this country still has a very large war guilt in terms of everything that happened in the second world war, they don't want to be seen as aggressive or military in any way. in their view they are doing this the right way to try to de-escalate and do with the diplomatic way instead. jonathan: it is incredibly difficult to unite europe. let's talk about italy. the bizarre story in the last 24 hours of italian businesses having a meeting with the russian president? >> germany is getting a lot of

flak for putting up a hard front for the west to coalesce around sanctions but you have italian executives sitting down with president putin. this goes to the heart of how close european economic stories intertwined with the russian. for decades they have been doing projects. 30% of their natural gas they ship outcomes from russia. at the same time you have a political president mario draghi trying to put pressure on these companies. please, don't go ahead with these meetings given what's going on on the geopolitical front. still, the money outweighed their decisions and they are taking the meeting with president putin. jonathan: our transatlantic coverage from berlin and washington, d.c. the president has good intentions trying to work with the united front to deal with what he believes is a situation he believes we have to deal with, russia. china is another one.

uniting european friends on a single issue like russia or china is really difficult. tom: it is a history that certainly goes back to world war ii and the dynamics there, and frankly world war i. it is an ancient discussion about how america fits into a european continental debate. i would suggest what we've done since 1946 is show the troops. i grew up with thousands of american troops, wisconsin and germany, the entire problem was unwound in 1980 9, 19 91. show the flag, show the troops is the way america does it. are we going to do it this time around? jonathan: that seems to be the plan. lisa: you raise the point when you're talking about why our nation's still dependent on russia given the fact that this has been an ongoing issue with respect to tensions? have we missed our window for some of these big governments to

try to insulate themselves in building out their infrastructure, or could you see some project going forward? jonathan: there is a long list of research about not building out the nuclear in germany. these issues are not going away anytime soon. up 1.2% on the s&p. the nasdaq 100 up by 1.7%. chairman powell just around the corner. tom: quickly, we have to go back to pmq's because i have an american question. the prime minister talks in the head of the other party talks, is england riveted to what the other people are saying? do they hang on every question? jonathan: the other people, the other mps? not relative to the prime minister or the leader of the opposition. if you are not a fan, a spurs

fan, you are probably following this more. tom: they are called spurs? jonathan: you knew that anyway, didn't you? futures up 1.2%. we don't have time for this tk. tom: i have to be responsible. jonathan: get it back on the rails. from new york, this is bloomberg. ♪

jonathan: let's talk about the year and the session, down by 13% on the nasdaq 100. the s&p down 9% on the session, a bounce back going into the fed by 1.3%. futures up 1.8 percent, nasdaq 100 futures. any further index weakness, peter oppenheimer seeing that is maybe a buying opportunity, but also pointing out what has been happening in markets is expectations around growth. is growth about to be hit in a material way? the bond market, yields like like this up a couple of basis points. on the year of 30. up another 2 this morning. 4 basis points above the 1% line

in the sand. are we seeing types of financial conditions? yes, we are. what are we seeing in financial conditions over the last five years or so? if you bring up any chart you will see a massive gap lower, lower, much tighter. then the fed kicks in, fiscal policy kicks in, looser financial conditions. recently we've seen financial conditions rollover. in many cases they are getting tighter. the important clarification tk, this is the desired outcome for the federal reserve. this is the objective. tom: this is a standard deviation study, and incredibly important chart that shows the size of the movement. we haven't broken down to tightening it. i take your point that the victor is in that direction. it is an inflation story and far more interested in oil printing

89 then what real estate prices are doing then financial conditions right now. jonathan: that is the difference this time around. it is always important. it is not just about levels, it is often about speed. if they are comfortable with the level they are uncomfortable with the speed. lisa: we are seeing something of a bid coming in and more people are saying buy the dip. i wonder if they see this as a disorderly market selloff or if it is still contained enough. jonathan: expected to stay there through the first quarter. let's get some single names. let's say good morning, romain. romain: a good read on the economy, microsoft had great earnings, 50%. the azure cloud business at 46%. that initially disappointed investors looking over 50%, 51%

growth, but the guidance the company gave for the fiscal third quarter seemed to please folks so shares up almost 4%. texas instrument shares up four percent after reporting last night. it's automotive and industrial business is on fire. a big raise very strong for texas instruments that gives you a bead on business spending and manufacturing. yesterday american express prior to the bell, 29% growth in amex's card platform business. boeing earnings crossing the wire, and it appears to be a pretty big miss. their overall revenue coming in down by about 3.2%. importantly, the commercial aviation unit and defense unit saw declines in growth and the declines were more than what they were looking for, commercial airplane revenue coming in. they had a .5% growth in commercial airplane business,

but the defense business was down 14% at $5.86 billion. keep an eye on boeing shares down 2% in the premarket and the suppliers that depend a lot on boeing. we will get those results after the bell, that company has seen sliding growth going down in revenue for the past few quarters as the pandemic boom wears off. after the bell we will get tesla. this will be watched and not for the individual numbers, but the roadmap the elon musk has been promising for the cyber truck, roadster, and solar panels. the things he has been tweeting about but hasn't delivered on. analysts expect an update on when we could finally see those things. tom: thank you for joining us for our fed special. i want to highlight one singular note from chicago and seattle. boeing sees 787 abnormal costs will boost to about $2 billion.

to me that is the one that really looked out here. boeing right now is showing some real movement down. i want to be sure that's accurate before we move on. boeing with a little bounce up, it comes back up to 2.04. a global fixed income strategy at black rock, what will jerome powell do for your bond space this afternoon? >> i think that he is going to try to convey a very measured approach. as you noted, the market has been extremely volatile the last few days. i think it got a bit ahead of itself in terms of what market commentators are expecting in rate rises and quantitative tightening, but i think they are going to try to outline a measured path in terms of ending

qe, which should be in march, and potentially a lift off in march. there is speculation around whether they might signal when quantitative tightening might happen. i think that is premature for today. the knowledge that the employment levels are maybe consistent with maximum employment in the economy and inflation remains high, so there is a need to continue to withdraw this loose monetary policy and move towards normalization. tom: what is blackrock as a general statement doing with duration? is it a microanalysis? are you looking at first , second derivative analysis? >> in terms of duration, we are starting to go a bit closer to home in terms of the interest rates in our portfolio. where we had been short or underweight in treasuries, for

example, we are closer to neutral. given the uncertainty in the market and uncertainty around the path of growth, we expect growth to remain robust and strong but there are increasing headwinds at the moment. around issues with ukraine, the slowdowns in various areas given omicron and different aspects. i think that in terms of duration we are a little closer to home and keeping it relatively light. tom: important research out of hong kong, i thought it was a real clarification of the camp. let's look at the major note, it is simple. the conventional wisdom is changing patterns of central-bank bond buying means that yields will go up. we beg to differ. can't get clearer than that. the qt teaser is not solved by just looking at one side. jonathan: let's get into the qt

teaser more. bob miller of blackrock, a good friend and colleague of yours, talked about the importance of the balance sheet reduction. deutsche bank coming out with huge numbers. $560 billion for the backend of this year. does that necessarily mean higher yields? is the translation that simple? >> it doesn't necessarily mean particularly higher yields. as you start to see the balance sheet reduction, whether it begins in the second half of this year or into 2023 or beyond , i think steve major is right that you see it more complex than that. the market is already pricing, maybe overpricing, the level of interest rates. it is pricing in four hikes. that might be excessive. we are seeing the back end.

i don't think it necessarily means higher yields. lisa: looking at the nuance, the yield curve, how much do you think the market overpriced or underpriced projections for longer-term growth at this point? >> projections for longer-term growth? we continue to have a positive view on growth going forward notwithstanding the headwinds. i think at the moment projections around growth have been revised down, but we think it remains on a pretty robust pack. -- path. we think that growth will remain pretty robust. jonathan: thank you very much. a federal reserve decision and a chairman powell news conference. i want to clarify comments about

a meeting between italian ceos and the russian president. i think that there was confusion over eni, a hydrocarbons company, eno was the company set to have a meeting with the russian president. tom: the highlight of my year is usually francine lacqua discussion with leadership. where they are at the meeting? jonathan: not that i see. maybe they are. tom: what is thewhy for this meeting? jonathan: they have a lot of meeting. it is the chamber of commerce. that is the foreign behind all of that. are we done with that story? that is just a quick clarification. tom: i think that we have run out of things to talk about. jonathan: we should focus on the fed and catch up with the former

richmond fed president later at 8:30 eastern time. as we have heard from former fed officials repeatedly, they have sounded much more hawkish than the committee publicly speaking. lisa: maybe we would have been better listening to them and not the fed chair, because they have been ahead of the need to tighten more quickly. i'm curious what data could make them question some of their assertions on the more hawkish ness. jonathan: former fed officials seem to be more comfortable saying what they really think. i said comfortable. just more comfortable. futures up. from new york city on radio and tv, this is bloomberg. ♪ >> the federal reserve is in the spotlight at the end of their

two day meeting. policy makers will signal interest rates, are expected to, the for the first time since 2018. they are trying to contain the highest inflation and for decades. president biden has wrapped up the effort to deter russia for more. he said he would consider sanctioning vladimir putin if the russian leader orders an invasion of ukraine. president biden has threatened some of the most severe economic penalties that the u.s. and its allies can muster if ukraine is invaded. speaker pelosi will run for reelection in the san francisco area but is silent about whether she wants to remain as the democratic leader. previously she said this would be her last term in leadership. nancy pelosi is 81 and has been in congress since 1987. warning hong kong zero-tolerance to covid could keep the city cut off for most of the world until

2024 fueling a large-scale exodus of international workers and executives. the warning comes from a draft report from the european chamber of commerce in hong kong. intel has won a historic victory in the fight in the european union courts. they have ruled regulators made a mistake when they slapped the chipmaker with a record $1.2 billion antitrust fine. intel has been in a nonstop legal dispute with regulators since 2009. global news, 24 hours a day on-air and on quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> will rates affect everything. as long as they are going up it won't be in a good place.

>> unless the fed announces yield curve control, which i don't think will happen soon, they should let the market find the curve levels to wear real rates need to be. allow financial conditions to tighten, so be it, but they have to manage it. jonathan: when i get back to london jeff is one of the first people i want to year from. real yields and the federal reserve. futures up 54 on the s&p. the nasdaq by 1.8. a conversation about rates and the balance sheet coming up later with chairman powell. tom: i looked at the nasdaq 100, i am really upset that i'm looking at meta-platforms inc instead of facebook. what a bunch of baloney. the weighting is stunning.

12% apple, 10% microsoft, 7% amazon. 12%, 22%, 29% of the nasdaq 100 is three stocks. jonathan: yesterday microsoft, today tesla, tomorrow apple, a quarter of the index three days, three names. tom: google will be 7% with their idiotic alphabet registration. let's get some wisdom with some -- the concentration is huge. >> you are seeing a let off. it leads the corrections, this selloff, and that is one of the blessings and curses of having such a strong weighting. the 40-day correlation between the nasdaq 100 and 10-year yield. a big story of 2021 was the idea that

the higher yield pricing and more hawkish monetary policy. that was spooking the texas -- the tech sector and index broadly. we are only at 0.3 correlation, so not key statistical significance, but we are getting there. that is the take away. tom: in your reading in general lucid is in the nasdaq 100, obviously developing but they have no visible hope of profit that i can observe. how do you partition in your reading between profit-making technology and less profit-making technology? >> that's the key difference between big tech and the rest of tech. microsoft is a key, apple is a key piece of the equation because it's not just how much their products have underlying

profitability, it is how much cash is in their balance sheets. it matters to apple in particular because they have the biggest balance sheet out of the s&p 500. i think 190 billion off the top of my head. don't quote me on those numbers. tom: we would never do that on surveillance. >> it was something they could pay all cash no problem and it brings us to earnings last night. they not only beat their earnings, but the standards are higher for big tech because of the profitability question, it is how much cash they have. lisa: also the growth opportunities with their cloud computing sector possibly seeing pretty good quarters ahead. when it comes the use of cash i'm curious what investors have been rewarding. have they been rewarding the microsoft version or the alphabet version of stockpiling? >> both. there are two pieces to the

equation. on the one side the earnings piece, to your point, we talked about the cloud computing. the stock got punished after hours 5% because it only grew 46%. it is strange when 46% sales growth is bad for a stock. what about earnings spirals? especially when it comes to big tech? you mentioned alphabet. what is interesting is that there is a divergence. fundamentally these five names are different in what they do. alphabet, facebook are going to be more receptive and sensitive to what's going on in the underlying economy and to business advertising and business spending as opposed to alphabet -- excuse me, apple or microsoft, which does more hard technology and makes a better inflation hedge. i will bring it back to my chart of the day, the yields and pick

correlation has become positive because as you see inflation higher and higher and not abating what is the best hedge? companies with pricing power. lisa: have we gotten away from big tech being the safety trade within equities? >> we like to think that we have, but at the end of the day if you look at what the moves are, even on a day like today where you are seeing a rebound in futures, it is the nasdaq futures outperforming. we like to think the ratio valuations perhaps are making tech unattractive, but at the end of the day it's not just fundamentals that matter. it is foreign flows. if you have an investor abroad you will go to familiar names and that keeps it in that safe haven basket. jonathan: thank you, as always with her chart. the weightings in the s&p 500. the losses are 6% on equal

weight s&p 500. tom: some of these studies are important and i'm sure we will see a read gauge at the end of the month when people look at the debris of the first 31 days. the rate of change, this is a rate of change they have to look at at the fed. amazon, a whole different income statement than the others, and we don't need to go into that now, the estimates is an explosion of out of pandemic free cash flow to $34 billion. that is stunning, a stunning explosion. jonathan: we hear from amazon in a couple of weeks. next week on the third. we need to have the conversation with jp morgan asset management. we have known bob for a long time. typically you goes against the grain. bullish when other people are

bearish. he is talking of the cash position. i have not heard bob talk like this for quite a while. tom: i agree. what is great about bob michele is he writes and speaks incredibly clearly. you will ask him questions, shut up, and listen. jonathan: a very different bob michele in the last few months. lisa: we are looking where there is a lack of age. we keep hearing this -- lack of age. we keep hearing this. there is a lack of clarity. you wonder at what point cash becomes a flexible tool or fit is a combination of assets. jonathan: the cio and head of global fixed income it jp morgan asset management. you will remember, a liverpool fan as well. tom: it is the first thing that he will mention. jonathan: in a commercial break that is all he will talk about. tom: he probably wants liverpool

to put david ortiz's number up. jonathan: of course, that makes sense. how many liverpool fans do you reckon know who ortiz is, tom? [laughter] this is bloomberg. ♪

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>> more communication from the fed about their intentions. >> we need to see how the fed interprets what's going on with inflation. >> they just have to turn the spec it off -- spigot off. >> the fed can win this battle, but the economy is going to see the cost. >> this is bloomberg "surveillance" with tom keene, and lisa abramowicz. tom: a fed day, we will be