>> what we are seeing this quarter is consumers pushing back and saying you cannot raise prices. >> inflation is high and it will not be back to the 2% target. >> the overwhelming urge to flight -- to fight inflation can create volatility. >> the risk is that they raise more than you see prices right now. >> we still have a possibility of a recession by the end of 2023 at 30%. >> this is "bloomberg surveillance" with john king --

john keane, jonathan ferro and lisa abramowicz. jonathan: live from new york city from our audience new -- the audience worldwide, this is "bloomberg surveillance" live on tv and radio. i am jonathan ferro, futures down 1.6% on that naz -- on the s&p. tom: the vix down two big figures. 30 is the level of brutal as you described. we are onto 33.02 and anything on the 40 level is the beginning of that cathartic wipeout that everyone has been calling for. did we get there yesterday? no. with today's action we are getting there. jonathan: deutsche bank says we are at the recession rate crossroad. those risks are right now and barclays the risk is up firmly. tom: when you own equities with a three year or longer time horizon this is supposed to happen. we have a global wall street

that has no history with a bond bear market. we are in one big time and minimal history of true equity sell down, not -18%, -25 or -35. that is when you get the emotion. jonathan: this is not your regular correction. lisa, dollar tree down by .5%. cosco 12.5%. cosco 10.5%, all of these down by more than 17 percentage points which is a problem. lisa: this is a concern about margarine pressures -- margin pressures and compression. here's what i do not understand about the increasing gloom on wall street and how that is translating into a bid for bonds. i do not understand how people are basically saying we will be done with this in the short term and then we can move on and go back to the old order because we are seeing in a lot of the retailers a stickier inflation

and a fed that has to combat that. jonathan: near-term risk over 12 months you have a relief rally and things get better. deutsche bank captured this perfectly. 3650 in the near term. but the base case has not changed. the base case is that earnings are still in the year end relief rally with a trim in the targeting. 4750 is the price target right now at one shebang. 4750 sounds bullish to me considering where we are. lisa: frankly this speaks to the lack of capitulation. i was speaking to a big hedge fund managers saying that we have not seen -- tom: you are talking to ken griffin last night? lisa: i was not. looking forward there was a concern about how to deal with interest rate sensitivity of a market that does not know what to do with 3% or 4% yield on a

10 year. jonathan: we are working out what to do with this. the s&p 500 down 1.5%. let us work through the price action, that is equities and here is bonds. yields 2.8172. 320 on a 10 year monday and now three basis points south of that level. the fx market everything stronger. euro-dollar out of 105. 1.496. lisa: a lot of people watching and a couple of weeks time. the ecb meeting. the retail earnings get cold before the market opens. stores around 4:00 p.m. eastern time following target down 25%. the biggest draw down going back to 1987. we were talking about how much we could reduce margin -- margin pressure and how much is it a shift in the mix of goods or people staying away from bigger ticket items and leaving a lot of retailers in disarray with

inventories that do not fit the demand of the moment. we have smooth economic data including jobless claims. april existing home sales at 10:00 a.m. i am looking at a breakdown for the potential layoffs within the cuts we see within the initial jobless claims. we will not get a lot of them. but what about the construction workers. we have seen an increase in construction workers laid off as we see less momentum in the housing market. does that persist? what does that portend? resident biden is focusing on shoring up his alliances, we see that with sweden and finland leaders joining him to talk about their bid to join nato as other alliances that they make and then president biden is headed to south korea and japan to kick off the indo pacific economic framework amid rumors that -- amid murmurs of china and taiwan. jonathan: thank you. right now this administration

and society faces some real wealth destruction coming out of this equity market. you have the issue with energy prices and gas prices. this is a really tough moment. tom: it is a white house moment and a global moment. it will be huge. i was on the phone yesterday with the world economic forum talking about this set of totally unusual -- actually i caught a person -- i cut a person off in the middle of the conversation and i know you were shocked that i did that. i said do you understand that there is a war in ukraine, there is? here's the data point that sums up the risk. euro swiss e is four standard rate -- standard is -- deviations from plus or minus strong swiss which is a new safe haven. jonathan: joining us is max kennedy. your point, your lead point this morning is that this growth is

right now, not 12 months out, it is right now. you also have to help me with your s&p 500 price target has come in but it is still 5.5 fifth -- 5.450 so can you recognize -- reconcile those two things. max: there is a temptation really to say that we are probably have another 12 to 18 months time to go and then it will turn eventually so there is no real risk on the earning side. the risk right now is that when you look at equities, part of the rating was purely functional value and purely a function of multiples. on the earning side of things nothing has happened so far. if you look at earnings estimates they have barely budged for global equities, they were pretty much flat. now, when you look at some of the sectors, particularly in block fields, they are looking and increases in europe 15 to 20% which is very wishful

thinking. it looks just outrageously too bullish. what we do however think is that we get that growth shock now being priced in which look sprite -- quite likely that it will happen over the summer months and then we start the end of q3 and q4 environment where china will have stimulated a little bit more in the china -- and the credit impose has turned top-down and we will be slashing more from the bar for positive activity is very low. that will have more people sucked into the long dollar trade so financial conditions will have sort of maxed out. perhaps by then we will see a little bit more evidence of the fed. all of that should be giving a tailwind, however really not in the next four or five months and it is too early to position for that. but by the end of q3 and q4 that

is when we get a few more politics coming in. lisa: how much does your view down the line, not in the next three to six months but 12 months really rely on basic -- basically the fed blinking and pausing and not going as far as i say they will go and seeing inflation rollover in a way that we are not seeing any signs of? max: it is a mix of activities and private fund starting to be more positive in expectations coming down and more stimulus out of china, the dollar impact rolling over at some point. and it is in combination with the fed, and is possibly the most important one. the big risk scenario is that we are roughly at neutral. and thee feys actually we might have seen a workshop but we have not seen any of this in terms of inflation data

rolling over and powell was saying we have not seen any evidence of that yet. so we will keep that in the background. we cannot be here for markets and growth which means we are going to go. i'll and that lead -- that will go full style, and that means that the s&p will touchdown to 3600, and that would be pricing equities versus rates and stationery territory well into recessionary territory over the summer. thereafter things could be better. jonathan: does to jump in, credit to you first of all, you have been very cautious through much of this year so upfront credit to you. i want to build on this, there are a lot of people receiving the same information from wall street, near-term cautious long-term relief which is what you calling -- which will is what you are calling for. many market -- many people in the market have seen the losses

pile up for the last several weeks. what is your advice as they sit there hugging the index getting absolutely hammered and hearing people say near-term this is a mess but long-term relief rally? max: it is a very interesting point because we are tracking across the largest real money accounts worldwide and what we have seen in the last couple of months is not capitulation. you have to be back to hugging the benchmark across everything, credit, equities, across everything and back to neutral. what that tells you is that the near-term pains could be so severe that you cannot live through it. you cannot simply say over the next 12 to 18 months, eventually it should be better let me just prices out by being neutral. when we look at parts of credit and dollar credit there really is not enough paint. ccc has started moving. when we look at spread

differential ccc against aa they are not near recessionary territory. there needs to be more pain and that is why people thinking hugging the benchmark is not efficient. tom: max kettner of hbc. spreads to starting to break out. lisa: that is a great way to characterize it. they are just starting to get the feel that people are getting nervous. jonathan: from new york, this is bloomberg. ♪ >> keeping you up-to-date with news around the world. china's top diplomat warned the u.s. about its increase support for taiwan in a phone call with jake sullivan. he said that the u.s. is going down the wrong road which could lead to a dangerous situation. earlier this week a top american

naval officer said that taiwan must prepare itself against chinese aggression. the world's richest person saw his wealth shrink by more than $12 billion in one day, tesla fell to the lowest level knocking elon musk 14 down. he has lost 49 billion since launching his bid last month, investors are concerned about how he will fund the twitter bed. president joe biden invoked emergency powers under the defense production act to try and boosted -- trying boost production of baby formula and then also says that they should import. the baby formula shortage is the latest challenge and it could ease soon. sri lanka has fallen into default for the first time in its history. they have flagged creditors that it would not be able to make payments. sri lanka has been struggling to hold -- to halt and economic

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>> i think it is very useful to frontload our policy settings at the moment. we did 50's our last meeting and it is extremely likely that 50 is the next meeting and

thereafter. jonathan: that was john -- that was charles evans sitting down with michael mckee. good morning. this market feels like you are getting punched in the face every single day. futures down 1.4%. yields coming in, the inverse correlations between treasuries and equities stake. yields lower by six basis points. tom: it is thursday, our this weekend are we going to see people talk about july 27 meetings at the meeting before that? jonathan: i think that is what is interesting about all of this tom: tom: so far. so far it has not happened. jonathan: back to what i think was the most important fed speak we have had in the last couple weeks is what we heard from mary daly when she said i expect financial cap -- financial conditions to tighten more. "i would like to see continued

tightening of financial conditions." this is why goldman has a three-month price target, they think we are cap here because any rally is considered a loosening of financial conditions and perceived as an unwarranted loosening of financial conditions which is a struggle and the equity market. for some, we have a ceiling. tom: we do not have time for you here, but there is one standard deviation on the bloomberg financial conditions index and if that breaks through 1.20 that is a big deal and we see this weekend a change in the dialogue. all of that wrapped around international relations. our champion owns that high ground in glasgow, scotland. jack fitzpatrick who knows how to pronounce glasgow is in washington. i have to go to jack on the biden trip because jack, to me it is actually hilarious how we

are turning tpp into itpf. secretary clinton said that he was against -- he was against tpp, and president trump was against it. and now we have the indo ppf. what is going on? jack: that might not be the main focus, i would like to see how they sort out, how the biden administration stands on trade. really what white house officials have previewed for us regarding this trip is that china and trying to make a display of unity among democratic countries is a major focus. i do not know necessarily we will get all of the answers on trade policy looking to asia, although clearly the sort of saber rattling comments from the chinese diplomat regarding taiwan are a major focus and

that seemingly is the top of the docket for president biden's trip to korea and japan. tom: what is the best outcome coming back? if week talk up -- if we talk about a one term presidency, congress is dead set of -- against tpp of a couple of years ago. what is the best outcome when he returns? jack: i do not know that they necessarily have a list of goals that they think they can check off, concrete goals after this trip. the president is -- the president's focus on east asia is more nebulous than that. as i mentioned sending the right message to china, and setting some sort of long-term stance and understanding seems to be the biggest and broadest goal, so i am not sure they will be coming back saying that we have

this, that, and this accomplishment at the end of this trip. lisa: meanwhile before president biden leaves he will -- leaves he will be meeting with the head of sweden and finland about their bids to join nato. what does turkey want and how far away as a concession to get turkey and sweetly -- turkey and sweden into nato. mark: turkey has been in -- has been at odds with the u.s. and a number of me -- of nato members including germany about the treatment of the kurds. from the turkestan point the kurdish group -- from the turkish standpoint some of the kurdish groups that the americans fought alongside with an increasingly also the political representations of kurds within turkey whose leaders are now in jail, these are all grouped together by the turkish leadership, who

considers them essentially terrorists. some of them are listed in turkey, the u.s. and elsewhere, others are not. because the swedes traditionally have been a kind of safe haven for refugees from conflicts and oppressive political systems, the harder conditions have become for the kurds in turkey, the more have gone to places like sweden and harbor there -- harbored there. that's essentially what president erdogan is saying, if you want to join nato you have to see the kurdish issue the way that we do and you have to say that we do and that is politically difficult within the swedish political system because there are curtis representatives who are quite important to the coalition. -- kurdish representatives who are quite important to the coalition. most of the diplomats involved

believe that a solution will be found. president erdogan is not always a team player and he has a prickly relationship with the u.s. already. it is not quite predictable. jonathan: thank you. what a tough moment. crude 108 -- 108.22. tk wti 1.0808. tom: i would say the same for the dollar. there is a lot of things to watch. they are driven by the equity markets and to extend the bond market. this is with the bloomberg in going cross asset as we heard from max, you look at the nuances of the moment. my nuances moment -- this morning is a safe haven this -- safe havenness of the past 24 hours. jonathan: it just feels like a weak dollar story. tom: weaker but it is fractional

between the two standard deviations of study it is contained. if it goes further that is a big deal. jonathan: the relationship over bonds and equities as reestablished itself. you see yields down equities lower. lisa: i do not understand this, the market looks like the fed is going to blank. you can see yields dipping a bit. inflation will come down enough and it will frankly slow enough for the fed to back away. the rhetoric is going in the opposite direction. jonathan: isn't that the hope? i hear it so many times from goldman, hsbc, deutsche bank, the base case is three months and in the fed backs off and things get better. lisa: predicated on them blinking. jonathan: futures look ugly after a big recession. from new york, this is bloomberg. ♪ financial picture. with the right balance of risk and reward.

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♪ jonathan: live from new york city, good morning. pretty open price action, negative two on the s&p 500, down 1.4% on the nasdaq. deutsche bank says with the

recession crossroads, barclays says the risk is to the downside. the growth shock is right now. deutsche bank has got an interesting call in the long game, things get better, a relief rally. -20 4% on the s&p so that would take us down to 3650, the near-term call from deutsche bank, rising in the average inflationary -- we work our way through what many consider to be an ugly summer. the relationship between the equity market in the bond market. the push/pull continues. 2, 10, 30, coming in five basis points. just think about the levels more

recently, two mondays ago all the way in. yields topped out at about 2.85. tom: two glasses of tang ago we were at 10% and we have moved 18 beats. jonathan: and the stepped relationship that it used to, the negative correlation between -- lisa: people expect inflation to come down and the fed is not going to raise rates as much as they say. is data backing that up? jonathan: growth now dominating the story. growth equity. your-dollar, going into a really important meeting -- euro-dollar, going into a really important meeting. you see some dollar weakness emerge on the session. tom: joe feldman with us yesterday, this is an example of

what you are seeing on the screen. he maintains upper form and target but lowers the price target big time from a 3.05 down -- 305 down to 200. patrick palfrey is cohead of quantitative research and senior equity research at credit suisse and is looking at the macro adjustments. how are you using the micro changes of your sell side research team this morning? patrick: when we talk with our analysts and go through the transcripts and look at where earnings estimates are moving, everything on the fundamental front seems intact. the 2022 estimates continue to rise. communications is seeing pressure but generally, estimates are holding up quite well including revenues. margins a little less weaker but still enough to progressed earnings forward in a meaningful way. tom: credit suisse hit the ball

out of the park 18 months ago with a wonderful barbell strategy. if you have got a constructive you like that, are we over focusing on margins and not looking in a pretty good or good revenue lift based on nominal gdp? patrick: i think you are absolutely right. companies live in a nominal world. economists, individuals like to talk about inflation but companies for the most part don't matter. they are in most places able to pass that on and we are seeing that come through with revenues this year expected to be plus 10%. with revenues that strong, there is an ability to give up incremental margins which will still be up 8% to 9% and that is spectacular. lisa: what are you counting on in terms of rates to get you to that level in equities faced on the fact that you have the nominal growth but you also have

a reevaluation based on higher inflation and based on a fed willing to raise rates beyond what people imagined a year ago? patrick: it's a great question and really what people are trying to understand, there is a lot of pieces moving around and our focus is on valuation. that's really where the biggest distortions are in the year. we started with a 21 point five multiple and are down to 16 .5 roughly in line with averages but companies were extremely expensive. you see the secular growth themes, technology, communications. outside of those groups valuations look more reasonable and the pain looks less meaningful. this has been a valuation berating because of higher interest rates -- re-rating because of interest rates. lisa: it is easy to say i liked those stocks before, let's buy them but it doesn't count for

the behavior of investors who see their statements and say, holy cow, we've got to get rid of this and start selling. we haven't seen mass sales. how much of an over sale to the downside could we get until it's a rally? patrick: we are getting to the bottom of that now. 20% right now is where the s&p is down. historically in fair markets we see it down a little more that tends to be recessionary. we have an incredibly strong economic outlook. inflation is a concern and i agree but nominally gdp is expected to be 9% this year with real gdp being 3%. that doesn't feel recessionary. tom: this is really important what you are hearing, nominal versus real. let's say we've got a nominal glide path, i will call it harmonic, from 9% to 4.5%, maybe

when you get down to 2.25% japan like, but corporations adjust and they just use of cash. what are you as optimist feel use of cash will be starting now into the summer and into the budget outlook corporations frame for 2023? patrick: companies are always very rational with how they deploy capital. right now we've seen shifts towards dividends, and buybacks and capex. all three of those areas will continue to see growth. we are seeing dividends and capex get rewarded more than buybacks so companies are shifting that way -- company shifting that way will likely see better returns. there is ample capital particularly on large-cap companies, given how strong capital is. lisa: they start to lay off

people to increase -- decreased costs and you get the likes of amazon and walmart talking about they have too many people paid too much based on the shift appetite by consumers. patrick: as long as the demand is there,'s -- companies are meeting the level of demand not stockmarket gyrations. i think investors assume it will impact companies but companies do not say, i will not do your order because my stock is up 80%, they say i will supply you with that order. depending on how much demand the kleins, that is dependent -- declines, that is dependent on how much they need. does it weaken incrementally? perhaps but i don't see it being a huge catalyst. jonathan: i know that companies don't base what they need to

supply the company with based on the equity market but some of the c-suite now is worse at calling their own company than some on this show calling the market and that's been the problem. companies have set themselves up for the demand of last year and it is not there anymore. we saw that with target, walmart, amazon. we have some stuff to work through, do you agree? patrick: we do. discretionary is an area that will probably be weaker and i think technology. investors need to be selective where they look at opportunities for companies. we are encouraging investors to look at cyclical oriented companies like energy, materials, industrials, inc. that benefit more from this backdrop and our last exposed -- and are less exposed to issues with technology and the consumer. jonathan: great to catch up, patrick. send our best to jonathan,

patrick palfrey of credit suisse. difficult to find the right balance in this economy now. tom: you have to find the right belief. this is where your belief structure matters. you have to have an outlook. i make jokes about the triple levers all-cash fund and i am considering -- it is under discussion with my advisors. critically important, you've got to have a belief structure with -- which starts with economics and forces its way into corporations and financial decisions. jonathan: looks like some of these corporations made a very bad call last year. you saw it with target, walmart, amazon, no error about it. they built passively aggressively, got all the staff back, built up inventory and look where we are. look what's happening with amazon, tall mark -- target,

walmart. they told you that on the call. tom: you are right, they and all of us are making it up as we go out of the pandemic. the optimism i would have is they will rapidly right size off of the shock of what we've seen the last two days. this will be at light speed. jonathan: first supply-side recovery, what has happened is demand has taken over. i am not an economist and not trying to be one but i listen to what the companies are telling you. lisa: this has been the issue. you've been looking for a supply-side response, has not come because of china lockdowns and the ukrainian war. you are looking at the workers to come back but which workers and to what jobs? you have structures of corporations paying that much more to individuals at a time when the consumer appetite is changing at light speed. how do they maneuver even if it is nominal growth, even if you

strip out inflation? jonathan: equity futures on the s&p down 1.3, the nasdaq down 1.4. we will catch up with claudia sahm. joining us next on this program with tom keene, lisa abramowicz, and jonathan ferro. this is bloomberg. ♪ ritika: keeping you up-to-date with news from around the world, in ritika gupta. there is a sign that beijing is strengthening its energy ties with moscow as europe turns towards banning exports. china wants to replenish stockpiles with cheap crude from russia. president biden will meet today with the leaders of finland and sweden to discuss the bid to join nato. president erdogan as opposed because of the two countries

housing those they -- he says are terrorists. in london, police wrapped up their investigation -- more than 126 fines have been issued to downing street. iag has agreed to buy 747 max jets and concludes a widely watched commitment that was reached three years ago. the 50 planes have a price of about $60 billion that iga says it is negotiating. 7.8 billion dollar hedge fund melvin financial management, more than a month ago it was in a game shot -- gamestop short squeeze. it never recovered. a comeback showed promise but

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♪ changes in the data in the coming weeks, i expect two additional 50 basis point rate hikes in june and july. jonathan: nothing has changed for patrick harker, the philadelphia fed president. live from new york city, equity futures shaping up as follows. small pain ahead, equity futures down more than 1% on the s&p,

1.2 on the nasdaq. we are off session lows and i have no idea if we will be in the same place in about five minutes. yields lower six basis points. yields lower, treasuries firmer and the fx marker is a whole lot -- market is a whole lot weaker. tom: a better tape right now. -338 off of -400, i will call it an easing in the last 20 minutes. jonathan: it is hard to read into it. how many times have we been caught offside? tom: we welcome you on radio and television. she created a firestorm the last time she was with us, claudia sahm has cooled off. claudia, it is amazing and sad how i remember papers from years ago and i remember a guy at a small school on the east coast

riding with a kid who looked like he was 16 -- named joseph wolfer it's. he wrote a paper 20 years ago and nothing's changed. we have disagreement about inflation expectations. if we get a growth slowdown, do we distance? claudia: as growth slows and we have room to slow, we are experiencing really fast growth right now and prices, the rate of increases in prices, inflation is going to step down. it is a big question how quickly consumers stop going out and buying more and more and then there's the question, how fast or slowly inflation starts up and down. there's a lot of factors. supply and demand make it. tom: there we go.

for those of you on radio, you just missed the famous sahm marsh alien cross. i see two things. jonathan has been great with the equity gyrations and lisa the bonds. bloomberg financial conditions index is going to new lows. does the market do the work for the fed so that we completely have wrong our parlor game of said guessing out one year? -- said guessing -- fed guessing one year? claudia: it will be decided by the consumers. do we slow down in terms of shopping? people do look at their

feel comfortable spending because i know i got a little back on the side. frankly, it is income. income is the big determinant of spending for the vast majority of americans. the stock market comes down, takes a little pressure off consumer spending. the fed is losing -- looking for this. they are not going to say the stock market down but it does move in the financial conditions but not enough to really move the needle in terms of demand and inflation. lisa: the consumer, even if their incomes are not keeping up are still borrowing an increasing amount of money and have been under levered the last year or two years. they are starting to borrow again to support their spending even as the stimulus checks run off and their checks don't keep pace. should that concern the fed? claudia: i think we need to keep in mind that during the pandemic, 2020 in a very unusual way debt went down relative to

income. people were able to pay off debt and this is so not common in a recession so in a way we are getting back to normal. i will say there is clear evidence that households including lower well households, that they have built up a little bit of a buffer. the fed needs to see it cooled down some. lisa: when you talk about unusual versus past recessions, you are going toward the elephant in the room, the stimulus plan. increasing numbers of politicians have been blaming the biden administration for going through with the next round of checks when we were emerging from the pandemic and the idea of how big was this and how much is this fueling the inflation, can you give us a sense of where you question your own beliefs on this front?

i know you think it was important to give stimulus checks out. where do you question the methodology that was executed? claudia: i have written recently that the one thing we can do next time is tie the stimulus to economic conditions. the last check should not have been the biggest that it was very political. president trump just pulled $2000 out of thin air so we can do better. i remain convinced, and we will learn this as we go forward, that the last stimulus gave us a question in a way that other countries did not get and this could easily be the difference between us not going into a recession and other parts of the world going into it. we've got a little bit of a buffer. it also absolutely contributed to inflation. jonathan: so you blame president trump for a bill that president biden plat -- biden past?

claudia: the flag was planted. jonathan: come on. claudia: serious, it was instrumental in the georgia runoffs, for example. early on, the democrats could have said, no, $2000 is too much and there were advisors that were saying very clearly at the end of this year. to me it is like $2000 was better than zero dollars. it is absolutely not the only contributor to inflation. the inflation that got a lot of americans really hurting and angry is food and gas. that ain't the rescue plan. we are seeing that hit zero ready hard as it is related to putin's invasion of ukraine. we were going to have higher prices anyway and the rescue plan gives the americans a little bit of a buffer. jonathan: claudia sahm, as always, thank you.

looking back over the last 18 months, difficult to look back and come up with an idea that gets everyone to agree but right now we have a problem and politically speaking, the white house has to deal with it ahead of midterms. tom: as you mentioned it, this is something that is the hallmark of "bloomberg surveillance," we refuse to go narrow and just focus on the stock market. the set of risks now, i just looked, australian coal, jon, never before have we seen what we see in coal shipped out of australia north. jonathan: i've never seen a guest come on and blame the former president for a bill of the current president. tom: that is politics. jonathan: getting ridiculous. ♪

♪ >> what we are seeing this quarter is the consumer is pushing back and saying you can't raise prices. >> inflation is high, not going to be back to 2% anytime soon. >> the overwhelming urge to fight inflation can create volatility. >> the ris