>> you have two invest almost in any environment. >> the issue for the u.s. is whether or not the consumer buckles under the weight of the high inflation. >> there is an invisible momentum to the growth. >> the underlying trend will probably peak, we will get inflation back to 2%. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: got to remember how to do this. from new york city, for our audience will lie, good morning. this is "bloomberg surveillance" live on tv and radio. futures down about one half of 1% on the s&p. big bank earnings. tom: and the backdrop is fascinating. so much of this is the uncertainty for the american economy.

this morning, everything is about the inflation watch that brian monahan and one has to gauge. jonathan: and guess what the banks have done -- nothing. b of a has had one positive trading day for the month so far. it has been tricky. tom: and so much of this is the macro view, the micro view. we learned in previous bank earnings is to gauge cutting expenses. you slow down in banking, in equity and fixed income, you start peeling back and slowing down? we do not have indication of that. maybe we get that this morning. jonathan: what is happening with the banks on wall street. the curve is steeper, not flatter. the gap between the 2's and tends are wider -- 10's are wider. lisa: i am always on yields watch, because you are seeing the confluence of higher inflation and slower growth that

is not for the banks, even if you have higher yields, and that seems be the story whether china, europe, or u.s. jonathan: should we talk about this from jan hatzius. we are now assigned a roughly 15% chance of recession over the next 12 months, 35% in the next 24 months. shall we call that a tepid recession warning from goldman over the weekend? lisa: i would say, if it is surprising, it is surprising it is on a higher chance, given the markets and the speculation. the fact that it is not higher has copy both attention. but 35% -- you can say 100% chance the next 10 years? jonathan: usually they say it is a 40% chance. the words of goldman, hardpacked to a soft landing. tom: this is the value out of surveillance, and you can see it in china gdp. dr. hatzius knows there is the

official recession, two quarters negative gdp, it is a lot of inertial force to get to that outcome. the other way to look at it is jeffrey frankel of harvard suggested is more than a simple formula, and you have to fix in other things like labor. hatzius was on set, and he was heated about an overheated job economy. how do you have a recession with a hatzius overheated job economy? jonathan: thanks to you, i actually had a lot of people on the coast reach out to me. [laughter] tom: you and i are seeing a 40 degree chill, and ferro is watching the sunset -- lisa: you know what? not anymore. good to have you back. [laughter] jonathan: futures down half of 1%. yields up by a couple basis

points. the 10 year, 2.85. lisa: honestly, that is amazing. if you look at size and scope, that is the highest since going back to 2018. it is be driven back. -- an 8:30 a.m. call. this comes as you see stocks on the banks fall to the lowest going back to march of 2021. we have had a whole round trip, despite, as you were talking about, we have been getting this curve that is actually steepening in the yield space. does it indicate a certain pessimism or is there something else going on? frankly, a lot of people are asking that. 10:00 a.m., housing market index, this will be interesting. we are seeing it come off the highest levels on record going back to the 1980's. this comes as homebuilders look at higher prices across the world and a lack of conviction

if they do not build. if they have less conviction going forward, that means housing prices could be stickier because supply cannot respond in tandem with increasing demand, which may not roll over as quickly as some people may suggest in the face of high prices. at 4:00 p.m., we hear from the st. louis fed president jim bullard, speaking at a virtual event. and this comes if you look at real yields -- real yields, inflation-adjusted benchmark rates, at the highest levels going back to march of 2020. this tells us the fed is going to normalize. the russian is how quickly. just as we have a roster of fed, jay powell talking ahead of the quiet period, how far are they willing to go given some of the uncertainty we saw from the china economic data? jonathan: powell later this week a looking forward to it. let's get straight to the market

compensation with russ koesterich. yields are higher, the curve steeper, banks are struggling. why? russ: good morning. i think there are a few reasons creating headwinds for the banks. yes, the curve is a bit steeper today, but as we all know, 2's/10's much flatter over the last three or four months, and that is a headwind for banks, particularly smaller regional banks. the cases we will not see a recession, but to state the obvious, we have more and more investors, more and more people talking about it. if you are worried about a recession, banks are not the obvious play. finally, lily the issue that is top of mind for most investors is inflation. if you go back and use history as a playbook, there are other parts of the market -- energy, natural resources -- that have been better hedges than the financials. i think the underperformance of

banks, given the yield curve, given inflation, concerns about whether or not the fed slows the economy, it sort of makes sense. tom: we got the first print on the 10 year real yield this morning, off to a new negative number. how does behavior change with a 0 or positive inflation-adjusted yield? russ: i think you start to see what you have already seen. as financial conditions have tightened, and real yields are one of the better measures of that, you have seen a change in investor willingness to look at loan duration assets, early growth. honestly, i think this will continue, because part of the challenge is, as you pointed out, real yields backed up by a bit. they were negative 1.10 a few

days ago. but if you compare this to the average between the end of the financial crisis and the beginning of the pandemic, they averaged about positive 35. we are still a ways away from there, which means it is likely that, as the fed removes accommodation, we can see real yields backup further. lisa: what does that mean for the nominal yield considering the fact a lot of people are looking at the terminal rate for the fed that is a higher figure than what we saw perhaps a month ago? russ: i think that is right, and if you go back and just use a very simple -- think about the 10 year will move towards the terminal rate for the fed's fund rate, and we can all agree, whatever we thought it was six month ago, it is higher today. it is not hard to get to a world where the 10-year is trading at 3% or a bit higher. we were there in late 2018. again, this was not a huge number in the context of the last 40, 50 years.

but for a market has become conditioned to low nominal rates and negative -- negative real rates, it is an adjustment, and this is probably the main reason you have seen the volatility in equities and the challenge for risky assets. jonathan: have you put any cash to work, given the build up that position of the last you months? russ: we have been running with high cash. we are still running with high cash. the short answer is not much. we are trying to manage absolute risks and part of the challenges not just that you have a world in which financial conditions are tightening, which is creating the headwind i spoke about, the other problem is, and we spoke about this in other outcasts, there are not that many good hedges. -- in other broadcasts, there are not that many good hedges. loan duration is not acting as the traditional hedge rule if a feel for many decades.

if you look at the asset class that has been the most negatively correlated with the market, it is the dollar. in this environment, it still makes sense to run with a larger cash balance. you will get opportunities to put that to work later this year, but for now, we are sitting where we are. jonathan: russ koesterich there of blackrock. let's sit on foreign exchange for a moment. the dollar-yen has not had a down day, a down-down -- tom: listen to you with your bad language -- jonathan: dollar-yen, the currency pair advancing. tom: you are killing me. you got to go strong and weak. [laughter] what are you, british? let's translate this now. it is weak or strong, that is all it is. the young used to be strong, it

is not. it is weak-weak. a 1.27 yen would be a huge deal. what concerns me is foreign-exchange or leads to other repairs, and critically correlates over to selected commodities. jonathan: do you think people have missed you are not talking over each other? [laughter] tom: my week was ruined because tot did not play well. lisa: can i point out? it took 11 minutes. jonathan: to be fair, that is not bad. usually it takes about 20 seconds. [laughter] lisa: congratulations. jonathan: yield higher by a couple basis points. a weaker euro. this is bloomberg. ♪ ritika: keeping you up-to-date

with the first word, and ritika gupta. defenders and mariupol have been encircled but have not surrendered the port city. there are warnings of a possible naval landing mission. many of the troops in mariupol are reported to be in a giant seal work. and goldman says history suggests of the federal reserve will have a tough time culling inflation without causing a retraction. chief economist jan hatzius -- will help the fed. consumer spending took a dive in march and unemployment rose to the highest level since the early part of the pandemic. retail sales contracted 3.5% from a year ago. in the u.k., prime minister boris johnson faces another rocky week following newspaper reports about the party gate

scandal with story saying downing street gatherings took on a lock down-breaking nature only after johnson arrived and started pouring drinks. and the evergreen marine container ship stuck in chesapeake they mud for more than a month is moving again. several attempts to move it using tugboats failed, so they moved contain is to lighten the load. global news 24 hours a day on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪ this is bloomberg. ♪

>> the situation in mariupol is dire militarily and -- after bucha, it became difficult as continue talking with the russians, but as my president mentioned, mariupol may be the redline. jonathan: feature shaping up, negative on the s&p, on the nasdaq last week, negative about 2%. down another one -- down another -1.5% at the moment. the dollar stronger against the euro and the yen as well. later this hour, 20 or 30

minutes from now, bank of america with earnings out. tom: they have a nuanced, maybe not as nuanced as usual, but it will be interesting to see off banking. i was -- would suggest brian moynihan is the one who gets out on cost cutting chat more than anyone, and maybe that is what is on the conference call. jonathan: that is where your focus is on. get the wages up -- tom: while you were gone, hsbc was moving forward, pulling out of asia. now they are pulling back into asia and saying they have to build out wealth management in asia. but i am face needed -- fascinated what woynihan will do on the call. jonathan: where is the fat to cut some of these banks? tom: that is the question. i don't know. i am just try to get my toaster at christmas. jonathan: they are still giving them out?

i am not sure they still need deposits. tom: they don't, but when you are in triple letters all caps, that is what you do. right now, this is an important conversation. emily wilkins joins us in washington as, in the last hour, the washington post and others note, western ukraine hit by missiles with the first real attack there. it really brings home the despair news of what president biden has to deal with in ukraine. simply, this monday, what is the president's plan? emily: the president's plan is to continue sending that aid. we heard over the weekend the white house would send $800 million more for weapons and defense. this comes after president zelenskyy called for a different kind of weapon, to have a heavier on the ground forces, longer-range missiles, acknowledging the tone of the war is shifting as we are preparing for perhaps a much longer conflict in the eastern

part of the region. what we are seeing, the headlines and stories out of ukraine, lviv, this was an area not initially hit a lot, was not a main target, and now you are seeing that going ahead and expanding. congress is still out this week, but biden has ability to continue to move on a. tom: you nailed it. congress is out. guess what -- russia is not out. ukraine is not out. in terms of being on top of this, what is our plan with allies to prosecute this thing to get the next weekend? emily: i think one of the big challenges right now has been trying to get european countries to put a ban on russian oil. we have seen sanctions have not done what is needed to get russia to back off that pressure. we have seen peace talks devolve. zelenskyy says they are at a dead-end. they could completely and if -- end depending what happens in mariupol. it is on european allies to ban

oil, find ways to supply them with what they need. lisa: there worst news of protests in libya, that is why there was a lift in oil prices. what is next for this administration, given the fact that people who traveled over the easter weekend and the united states realized they were spending $100 to fill up their tank? emily: i think you saw the administration cave to a lot of pressure, saying they would start allowing drilling on federal lands, they would begin having permits again. this is something that goes directly against what biden said on the campaign trail, that he would not allow any drilling. by doing this, he is angering a lot of those on the left who are very concerned about the environment, who looked up to biden has a very green president, but the curve pressure has lead biden to return to fossil fuels and

drilling, because he knows gas prices will be a huge problem for americans right now, but looking down the road, democrats are not looking at a good midterm situation for them. it only gets worse the higher those gas prices are. lisa: and when you say gas, we are talking gasoline prices, but also natural gas prices reaching the highest in more than a decade. how much is there a discussion to try to export from the united states at a time when you start to hear people talk about maybe two years before germany can remove reliance on russia? emily: that is the huge problem with europe, a lot of these countries cannot just make the change overnight like we saw with the u.s. banning russian oil. there is a discussion, but you have to weigh it out. how much of that natural gas should be going to europe, there has been a lot of conversation, but also how much needs to stay in the u.s. to make sure prices here are not skyrocketing. tom: one of the big advantages is we have two women who know farms. moments ago, corn just went to a

record high, eight cent per bushel. who does that benefit in washington? emily: i have to wonder aloud a little if that is tied at all to what the administration recently did on biofuels, allowing biofuel cells that would have stopped september 1, to continue through the year. this is something a lot of people have pushed for in iowa, in the u.s. tying it back to the elections, these are key for democrats. tom: lisa, weigh in here. lisa: actually, when i worked at fargo, one of my colleagues got the sheep journal every week. frankly, you have not been able to see some of the planting globally. when will we see the trade-off between feeding hogs corn and pe ople corn. i can tell you are really interested. jonathan: i will just say thank

you to emily. hoping we do not come back or that extra question. [laughter] tom: it is a 19 degree low in fargo this morning. jonathan: let me ask you this -- wall street is obsessed with this mechanical peak in year-over-year inflation that could be kicking in around about now. you think mainstreet feels at the same way? tom: no, totally different. i think it is completely different. i get the year-over-year, and we will do a valley there with michelle meyer and the rest of it. the public is flat on its back. what is important here is the deciles of the public are flat on their back over the inflation. if you do a core analysis with a beverage of your choice now, you get slapped in the face. jonathan: moving away from the inflation conversation and focusing on the growth fears for the back half of this year? lisa: the longer this persists, even if we reach a mechanical peak, even if it stays high, that will affect sentiment, affect both.

jonathan: is michelle back? this is good news. looking forward to that conversation in a moment. features are negative, down 0.6% of the nasdaq, s&p down 0.5%. this is bloomberg. ♪

jonathan: live from new york city, here the price action. futures negative .4% on the s&p. and on the nasdaq, two. this morning down about .5%. higher rates. not a cyclical story. capturing that is the equity performance. let's take a look at consumer staples as well. on the year, the banks down and down hard by 14%. staples have held up ok by 2.5%. it's a recent story over the last few weeks. bfa will report earnings -- b of a will report earnings later.

we will wrap up a bank earnings for you in just a moment. this is happening in the treasury market. yields up. that's a move of 50 basis points from the end of march. 10 year yields up 50 basis points in a very short amount of time. the yield curve has actually been steepening. the curve is steeper, yields are higher and the banks are not responding. tom: i get all the curve dynamics but what's overwhelming that is the inflation dynamic. finally we are really on the positive real yield watch in america like we were in germany. jonathan: this is exactly what morgan stanley are talking about. that's about the equity market

is picking up on research. becoming really defensive in a quick amount of time. lisa: it's justified if you look at the data overnight. jonathan: what did you think of the chinese data overnight? lisa: diplomatically, no. we are not getting a clean read. especially the fact that unemployment came in so bleak. it is having a clear impact on the economy. especially because those lot nouns are not ending right now. jonathan: to remember waiting for the supply chain to evolve to work itself out, for the labor market post-september. it just did not happen. lisa: now we are talking about supply chain disruptions that may never go back.

tom: michelle meyer has changed the shingle took mastercard economics. she is u.s. chief economist at mastercard in economics -- mastercard economics. you are all wallet share and wallet shift. how much is my wallet shifting after this weekend? >> it's wonderful to be back on with you. i'm honored to be able to represent the mastercard economics institute. it really is about the consumer. the consumer is the pulse on the economy. we are paying attention to whether or not you are seeing those wallet share shifts. really get an understanding of the trends in consumer spending

on a granular level in terms of the different categories. spending on experience, goods. and clearly spending on necessities. i think that's one of the key stories right now is with the inflation stock of necessities. food, gasoline. -- shock of necessities. food, gasoline. tom: for you parents out there, tuition and summer break. what do you learn from charge card's. when you look at what we actually do with our various and sundry charge card, what does it tell you about our share in shift? >> clearly the data is robust and the main data we are looking at is going to be able to capture all types of payments to some extent so it's a really

holistic view of the consumer and right now you are seeing the consumer generally still plugging along spending very strongly. we are looking at nominal spending trends and that is reflecting this incredible inflation environment. once you adjust for that real spending is clearly more modest given the price pressure. but the consumer is still out spending on a variety of items. even durable goods. furniture spending is still looking very strong. you mentioned my love for the housing market which still exists. we are looking at detailed spends on items which are still looking quite strong. lisa: tom was talking about gentiles of income -- kin tiles -- quintiles of income.

>> whenever you are looking at a high frequency data that is not the official stats coming out, you have to consider what you are capturing for the broad economy. my sense is that it is a really good representation. i think the general risk is that the very tears are underrepresented in the middle of the population is what we are grasping there. that's going to be a really hard to capture any high-frequency data points. lisa: for a long time people didn't have to dig into their savings. i want to get a sense of whether the ongoing spending momentum we are seeing is from people coming

into their savings or whether they are starting to borrow more and could that get crimped by higher yields. >> the past year we had very low debt. meanwhile we had an extraordinary amount of savings given the environment we were in . the fed's hiking interest rates. we're not seeing the same degree of fiscal stimulus. savings start to go down and leverage starts to come up. i think the silver line is that at least we have those buffers and that's really important to keep in mind when thinking about headwinds. tom: brian emails in from over

by hells kitchen. he is asking you what is the change to the duration, the x-axis of your inflation gas. brian wants to know that before 8:30 this morning, help. >> the inflation story i think is very clear which is that we are in the environment where inflation has risen meaningfully. tom: cut to the chase. do you buy the story inflation is going to ease up? he's on the phone here. >> i think inflation is going to come off these extraordinary highs. there is a broadening of price pressure and consumers have the ability to spend more as well so

you have both a wage push and a cost push. was that a clear answer? jonathan: thank you. good to catch up as always. bank of america numbers coming in just a moment. redfin put out a report at the back end of last week. some interesting numbers. i thought this stood out for me. the monthly payments are up 35% year-over-year. a typical home buyers monthly payment of 35% year-over-year to an all-time high. $2288. lisa: you are talking about high

mortgage rates and principal payments, the actual cost of homes continuing to go up. it doesn't necessarily mean that we are going to get a blowout of the housing market akin to what we saw in 2008. it means you're going to get less activity in some of these banks. les lending. that's what people are looking for in terms of bank of america's earnings. jonathan: house prices up 17%. tom: you got a delayed statistic. it's even as high as 20%. have we seen any evidence that 5% mortgages slow things down? jonathan: just a little bit. listings have come down as well. you wonder whether people think perhaps they won't get as much for their property right now.

tom: this is critical. you've really got to study the market. lisa: i'm sure somebody is doing that on the weekend. homebuilder sentiment is going to be so interesting. this is the difference between now and 2007 because frankly that supply is not coming on as quickly as people expected. jonathan: it has been tough with yields higher. bank of america earnings just around the corner. we will break that down in just a moment. from new york, this is bloomberg. >> billionaire -- has traveled to kiev in a bid to restart

peace talks between russia and ukraine. he met with ukrainian negotiators. he has longtime ties to vladimir putin and talks stalled after evidence emerged of russian atrocities against civilians. jerome powell may reinforce bets that the fed will raise interest rates by half a point next month. the fed will -- fed chair will take part in panel. the quiet period starts midnight friday. shanghai has reported first death in the midst of china's biggest covid flareup. tens of millions of people have been barred from leaving their homes as part of lockdown. there is criticism that china is inflicting too heavy a social and economic toll. china eastern allies has resumed flights. it's a sign the airline is working towards putting its entire fleet of boeing 700 back in the air.

china grounded more than 200 of the jets. there is a new twist in the battle between billionaire carl icahn and southwest gas. southwest will now explore a sale of the company and other options. last month they called his offer inadequate. global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

jonathan: ramping up earnings on

wall street with bank of america and we have the estimate 74. get some weakness. 1.4 $6 billion against an estimate of 1.67. there has been some first-quarter quarter training revenue. estimate of 4.25 billion. just on the bond market, some commentary from the cfo. we weathered the worst bond market in 40 years. every bank has come out and said something about russia. no direct material exposure to russia. we achieved solid first-quarter results continue momentum. it's been a tough month for this stock. tom: it's a real simple. they had the clearest exposition of what you do in 90 days of any major bank. buried in it is a stunning

statistic 53% of what they call sales is digital. that is absolutely extraordinary. jonathan: this step gets your attention and mine, too. this has been a tough market. lisa: which tells you something about the talent and i think this speaks well for trying to navigate this that saw such huge losses. one other aspect i think is fascinating. average loans and leases were up 8%. average deposits up 13% to $2 trillion. tom: a reason they had zero trading days is mr. moynihan is in the triple. what is the distinction between bank of america and j.p. morgan?

what's the difference between the banks? lisa: bank of america is very heavily consumer focus. consumer loans only grew by 4% so that exposure to the consumer is a very big deal for bank of america when j.p. morgan has a much bigger investment bank and that asset and wealth manager. you see the market really rewarding the will is misses as opposed to consumer businesses, rewarding the banks that are able to capitalize on the wealthy client base which are not really seeing is the rest of the american consumer borrowing when rates are rising. and it's sluggish when you look at it compared to the commercial segment here. jonathan: you're in a position to wrap up earnings season for us. fold in what's happened with

bank of america. >> this is one point that tom is looking for all earnings season. bank of america 52% is way below what analysts expected. tom: what does that mean? >> the costs are not rising too quickly relative to the revenue that anchor of bringing in. the net income was well above expectations. that means they are keeping costs in line. bank of america's headcount has been decreasing relative to a slight increase and we are seeing more digital uptake at bank of america. lisa: i've been struck with the beats that we have seen for most of the big investment banks. if you look at bank stocks more

broadly, they continue to go down. what are investors looking at that perhaps are not reflected in the beats that we are seeing from all of the majors? >> you are looking at j.p. morgan and morgan stanley. goldman sachs justin line which shows you that a very heavily weighted trading business is going to be fairly valued here. people are worried about the volatility in markets. the point you guys were making earlier about trading losses, the value at risk for a lot of these banks has been going up as they try to make markets in this very tumultuous time. so then stepping in here is still something that makes investors a bit nervous when they are not clear about what the losses will look like ahead and we have seen some major losses. if you look past the second quarter, the second half of the year is still too uncertain to

see how consumers will react to those rate rises. jonathan: investment banking advisory. i'm surprised to read this. b of a notes a record first-quarter for advisory fees. >> it jumped very significantly over at morgan stanley as well. the reason investors are really shaking this office because there's a lot of telegraphing that investors, big corporations are just prolonging their deals. we have still seeing very large deals announced this year. deals in the debt market started jumping back where bank of america is usually top two alongside jp morgan. jonathan: you mentioned the keyword investors. the way investors see things are not exactly the way ceo sees things.

the banks aren't rewarding them at all. investors rather. >> these banks are very sensitive. there's a lot of federal reserve research that shows that when the yield curve is this flat, it really can incentivize risk-taking as well as a road and that interest margins that investors were looking for to bring those banks back up. donovan coat wall street correspondent. i will go through the numbers. 80 since getting stuck an estimate of 74. stock over the last month has been really difficult did struggling one positive day this month for bank of america. this morning in the premarket is doing ok. tom: i can't convey enough cards

that one hand was handed versus diamond were so different. jamie dimon wants to disagree with me, i'm all ears. price-to-book is squishy right now with the earnings just coming out but jp morgan is just flat out the premier bank in the world is a lofty 1.4 -- look how close moynihan is. 1.24. he's never gotten the credit for the pieces he was handed that he's put together over a generation. it's amazing how he's catching up to jp morgan's price. jonathan: fantastic leadership from both of those men that you mentioned. this market is telling you something and that's what piqued my interest. the bank earnings are not resonating with investors.

bank stocks have been a struggle. lisa: they are looking towards slower growth and what the readthrough will be. jonathan: from new york city heard on radio, seen on tv. tom: on washington and wall street. jonathan: this is bloomberg. ♪

>> markets are moving quite a lot. volatility is high, uncertainty is high. >> the issue for the u.s. is whether or not the consumer buckles under the weight of the high inflation. >> you hit shock aftershock. >> the trend in inflation is going to peak soon. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: live from new york city, good morning. this is bloomberg surveillance. i'm jonathan ferro. tom: