>> i think the fed has a lot of catch-up to play. >> what the fed is trying to do

is achieve that elusive soccer landing. >> it seems like the it's of a soft landing are good. >> the risk is inflation. >> the view is we avoid recession but that means that that is stopping sooner than the market is thinking. >> this is bloomberg surveillance. tom: good morning, everyone. radio, television, wednesday before friday's cpi. tomorrow, ecb with some tough decisions, given what an italian paper is telling us. jonathan: they have to clarify the path ahead into 2023, laying the groundwork for something we have not seen since 2007. an interest hike around the corner. tom: definitely a road trip to milan for the three of us. what does that he leaves of italian paper mean away from

what is going on with the german 10-year, japanese yen? what is the signal that you take from italian paper? jonathan: why don't we just do a european tour? the fed has made a move, but the last time they did it on their own. the ecb, boj didn't come along for the ride. this is different. i don't know how long the ride will last but it will try. the boj is trying to sit it out. you see what is happening in the fx market consequently. tom: weaker yen. let's get this thing going on italian paper. it speaks to not faith and credit, but the idea of the mix of the bond market. it is price down, yield up. lisa: why isn't yield further up for those italian bond yields?

the ecb has had the back of the proverbial markets for so long. how do they support the areas that are most at risk while also allowing a tighter financial monetary policy at a time of high inflation? this is the shift in the dynamic. central banks have a different calculus than they have had for the past decade or more. tom: your view of friday's cpi, core cpi? lisa: i'm less interested in the headline numbers. i want to see underneath how much there are gains within the rental markets, the gas component, what there is in disposable spending. how much does the consumer start to pull back, what does that mean for inflation as well as growth? tom: really yield is solid. i know you are planning your

friday show. jonathan: you are going to do it, cpi special. everyone is excited now, i have called it. lisa: i was about to walk offset and complain. tom: this has not been cleared by my scheduler. 0.24% of the 10 year really yield. jonathan: there is a shift you from goods to services on the consumer. target now has a budget inventory, all of these goods that they have to sale down. when you put it together, what does that mean for the rest of the year? does the labor market continue to have this tightness and push inflation even higher through the rest of the year? that is the view of citi, not everyone. tom: sorry, i was sipping some

tang. the dynamics here for pros, serious rates of change. jonathan: not much happening with stocks, down one third of 1%. 3% yesterday on the 10 year. german 10 higher as well. the missing piece of this move in the government bond market, japan. not a single 10-year jtb traded yesterday. dollar-yen, 134 earlier this morning. tom: you have to sum these stresses together into a cogent idea of what to do with your money. it's been a terrible 2022 for that. vita kerr joins us now from alianza bernstein.

what is the distinction right now for sanford bernstein? beata: we have been thinking about the trade-off between stocks and bonds, alternative asset classes for some time. this market has posed some unique challenges, talking about the increased correlation between bonds and stocks. it's been an extra ordinary challenge. what we see today is a real opportunity in the high quality intermediate duration municipal space. yields are up to levels we have not seen in an extended period of time. we think a lot of the selling pressure that we saw in the first quarter in the bond market will ease as we come into the summer. tax-equivalent yields we are seeing in this asset class are starting to approach 5%. we see an attractive entry point for people with cash in that high quality intermediate market. jonathan: where does that leave

corporate credit? beata: we actually see quality and corporate credit. when you look at the markets broadly including high-yield, because the base case is a midcycle slow down and not recession, certainly not in the next 12 months, we are ok leading into credit, including high-yield. being active in today's bond market is even more critical than ever. we like credit, as well. lisa: how do you brush off some of the threats from deutsche bank's credit team that put out a report that we will see a default cycle unlike the past decade, that we will see default pick up around 2024 as we get slower growth and the glut of debt that these companies have incurred. beata: i have not seen the report but i can tell you that our fixed income portfolio managers are managing for today. what is happening in 2024 is not the market's current concern.

we have yields that are substantially higher than we have seen in practically a decade. today, we are going to be all eyes on the cpi report on friday, continuing to measure that output versus the growth that we see. our base case remains a midcycle slow down. that means we don't see a tremendous increase in defaults. we see corporate balance sheets that are really still high quality, and we see a consumer that has net positive wage growth, entering the cycle with strong balance sheets, as well. there is vulnerability on price, but something that we will keep a close eye on, and the cpi report will be instructive this week. lisa: that is where i want to go. what aspects are you looking for, how will you use it as an instruction tool ahead? beata: you were talking about it before i came on, the balance between goods and services. that is going to be the story of the year, story of friday.

we see moderation in the number likely to come. we think the biggest moderation is likely to come from the housing market. with mortgage rates over 5%, the highest in a decade, we have already started to see signs both in the price number as well as mortgage applications and refi. eventually that will make its way over into owner equivalent rent, the biggest component and services area. that transition from goods peeking to some moderation in services will take some time, but we are looking for evidence of that in friday's report. jonathan: you think there could be some downside risk to the print? beata: we are optimistic that we have seen a peak. we are not calling a peak in cpi but we could see signs of that starting to ease. jonathan: what is the risk of how the market will respond to it? more upside to the market

relative to the downside? beata: the equity market today have been pricing and risk at a high level. this drumbeat of recession risk over the last corner have been driving the downside in the market. what we see in the market in terms of earnings outcomes is actually much more positive than what the market has implied in terms of price. you have a u.s. equity market today trading at 17 times earnings for indo here. that is four points lower than when we started the year. we think the equity market will be looking for direction in terms of positive momentum on that inflation change. jonathan: thank you as always, beata kirr. wall street will focus a lot on that core month over month figure. the estimate so far, 0.5% in our survey. a lot of the country will be

focused on the year-over-year headline figure. the estimate, 8.2%. a little bit lower from 8.3. all of that could change but that is the survey so far. tom: lisa mentioned it, the inflation really matters. we have been nonequity today. i want to mention the lift that we saw in equities yesterday afternoon. the calculation of free cash flow forward, out of these shocks, including the inventory battle moving from just in time to just in case inventory through the pandemic. the analysis of what free cash flow will do into the end of the year and next year, to me, is a massive mystery. jonathan: you have to pay attention to how the market response to that. i think it is notable.

if i was wrong, i would not have mentioned it. tom: at 8:40 a.m. yesterday you were buying out of the money target. jonathan: we both got the message. tk's unreal yield. i will do summer fridays for the rest of the year and you can do real yield. from new york, this is bloomberg. leigh-ann: keeping you up to date with news from around the world, let's get to first word news. i'm leigh-ann gerrans. more problems for chris west. the lender has issued six profit morning, expecting the laws of the groupwide level at investment banks in the second quarter. credit suisse is considering a round of job cuts as part of every new push to cut cost lei.gh-ann: keeping you up to

for the war in ukraine. organizations slashed its outlook for global growth this year from 4.5% to 3%, doubled its inflation forecast to nearly 9% for its member countries. and why the awaited study on the omicron variant could pave the way for another round of boosters in the fall. moderna says its vaccine which targets omicron generated a supreme any response compared to the original shots. the trial is one of the first to examine whether the omicron vaccine may offer better protection against the strain. in san francisco, residents voted to recall chesa boudin. critics accused him of being too soft on crime. 60% of those who voted favorite ousting him. he will be replaced by an interim district attorney chosen by london.

-- mayor london breed. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm leigh-ann gerrans. this is bloomberg. what if you were a global bank who wanted to supercharge your audit system? so you tap ibm to un-silo your data. and start crunching a year's worth of transactions against thousands of compliance controls with the help of ai. now you're making smarter decisions faster. operating costs are lower. and everyone from your auditors to your bankers feels like a million bucks. let's create smarter ways of putting your data to work. ibm. let's create

>> the fed recognizes they are missing on their inflation mandate. they need to get that under control. they need to be hiking reasonably aggressively at the next two meetings and then probably guiding the market to expect further rate hikes. jonathan: good morning.

futures lower by a third of 1% on the s&p. the nasdaq done by a third of 1% also. coming up on friday, 1:00 eastern time. tom: you have got to be kidding me. jonathan: unreal yield. tom: nixon was president when that photo was taken. coming up this summer and until labor day, every single friday at 1:00. lisa: he's going to walk off the set. jonathan: as i get to rest for the end of the year. tom: david blanchflower of dartmouth college. gareth has to play regular games to get to the world cup for wales.

sounds like he is playing for cardiff. david: we survived it. a pretty big deal. tom: are you willing to provide some money for cardiff to get mr. bale? david: he seems pretty expensive to me. you and i will give $20. tom: get us out of here. jonathan: you want me to get you out? the last 10, 15 years, you provide this perspective to the consensus view. you did this with the labor market. by the time he got to the end of the cycle, people look back and thought maybe not. the amount of borrowing that consumers are making at the moment. what does that speak to? david: starting point is mortgages are now pretty high, we are seeing a slogan applications, presumably slowing in the housing market.

the other part of it, presumably what we see our people being stretched. you might expect as they are being stretched, they resort to credit cards, trying to pay the bills as they go. i'm not sure what to make of it. down the road we will probably see some defaults. your point is good in the sense that most of the discussion that i hear is on balance. we hear the conversation about the fed going to do two rate rises. that is fine. it depends on the data. something that gets us going is the oecd forecast this morning which to me looks optimistic. they cut the global growth forecast from 4.5 to three. certainly looks to be too optimistic. the evidence here is we are going to wait to look at the data, but everyone seems to be saying the same thing.

there is a credible argument to make that output will slow much quicker than you think. it is time to watch and wait. essentially, that is the position the ecb and bank of japan have taken. i am not saying i am right. lisa: let's just clarify this for a second. what is the correct policy prescription in your view, not to raise rates anymore by the fed? david: no. the answer is we have no idea. we have no historical precedent on what to do. the only data points that we have are from 2008 and 1989. we have to be dependent on a set of scenarios. inflation one, inflation keeps on rising. scenario two, covid moves on. scenario three, people start to default on things. depending on those scenarios, we would have to respond. my view is it is feasible to

argue right now that rate cuts are on the table. we will sit and watch, but suddenly some bad data comes, and all the commentators will say we know what is coming, the only issue is whether we get to 4% or 3%, but that depends on the data. the oecd realizes that they got there output call wrong. they are calling for positive growth in france. they all look overly optimistic. france just had their fourth quarter gdp reduced. are you going to argue that it will just be fine? the answer is we really don't know. it is a wing and a prayer. there are counter arguments that the labor market is much looser than you think. i think they have completely

gotten the labor market wrong, as i have set for a decade. lisa: do you think the reason why the fed is taking the approach they have is because it is politically infeasible for them not to come out with a much harder line? as you say, there could be a more material slowdown, that is not the main problem right now facing the u.s.? david: you may be right, but the reason you have an independent fed, just to cut through that political push. i would have liked to see a more balanced discussion. that is the reason you have an independent central bank. hang on, folks. we are going to cut through the political rhetoric, what politicians want us to do, and we are going to look at the data and understand what is going on. i don't really see that. if you go to the u.k., the votes were rate rises last month,

another meeting next week. there is a counterargument that says you should not raise at all. i am just saying the argument is much more balanced. the big thing that we know is that, consumer confidence data around the world is predictive of a recession in the u.s., u.k., japan, europe. you can ignore it, but that is the best data that we have. it strikes me -- maybe these folks are being pushed politically -- but they are being pushed into making an error. consumer confidence is saying this. in europe, we have seen a collapse in the past two months, collapse about their view of their financial situation, consumer confidence. we know christine lagarde and the ecb are taking it seriously. why is there not a serious discussion at the fed?

the worry is that the fed is beaten by events, and that it sees horrible data that they are not prepared for. horrible data on retail sales, the outlook, defaults. we need to balance this discussion. i certainly think -- you look at the fomc and others, the discussion is unbalanced. jonathan: one thing we can agree on, groupthink is deadly. good to catch up with you, david blanchflower. a lot of groupthink through last year, and some would argue that that is why we are where we are. tom: dollar-yen, wow. 134.20. jonathan: futures down .4%. from new york, this is bloomberg. because you've got the next generation in global secure networking from comcast business. with fully integrated security solutions all in one place.

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jonathan: live from new york city, good morning. the equity market is down .4% on the s&p. the nasdaq 100 down .4%. in the housing market, is the canary coughing? mortgage applications down 6.5%.

tom: everyone is watching this. we turn to jonathan miller's annual, but it's a national study. the ramifications if and when it snaps. jonathan: how does that fold over into the broader economy? imagine a scenario where housing prices come down but energy prices are still higher? difficult moment, tk. tom: dow futures, negative 152. with us now on housing, you'd shepherd sin, pantheon macroeconomics. -- ian shepherdson, pantheon macroeconomics. ian: the problem is people look back instead of forward. especially in the u.s. market,

we have a lot of information telling us where the market is going, but markets focus on the home price numbers which cannot tell you where we have been. the mortgage numbers are a great indicator of where we are going, and they are horrific. tom: define horrific. ian: they peaked in december. by may, they were down about 25%. they are still falling. by this june, down about 30%. that points to a massive falling home sales, which is already underway. tom: i have the clearest memory of 2006, looking at the potential mean reversion of housing prices. is this a mean reversion or more of a housing plunge? ian: more of a volume plunge story. what we saw in the great crash

was a huge wave of forced selling from people whose adjustable-rate mortgages reset. they couldn't make the payments, we had a wave of forced selling, all the buyer disappeared. this time is different because we have not had an adjustable-rate mortgage boom over the last 10 years. all that is happening is the new buyers are disappearing, but they are disappearing at such a rapid rate, the market will move downward in volume very quickly. we are already seeing it in new homes, we will see it in existing homes in the next few months. it is possible that is enough to trigger a short lived decline in prices, rather than a multiyear crash. but the psychological shock of seeing home prices go from 25% to minus five will be quite big. if we are going to see a drop in home sales, things connected to that, retail, furniture, appliances, all of these businesses will suffer when

volumes drop by 30%. this is underway now, the process is just beginning. lisa: that is where i want to go. what does this say about the pace of the potential -- i don't want to say downturn, because that is too dramatic -- but slowdown in the u.s.? ian: housing, when it crashed, was the whole economy, pull the rest of the economy to pieces for years. this time it is much more siloed. it's possible to have a housing rollover without the rest of the economy following suit. this is not something we have seen frequently but it is possible because the circumstances are so different from anything we have seen before. we still have consumers sitting on $3.5 trillion of excess cash, which they seem happy to run done every month. the assumption is nearly 70% of

gdp, and housing is tied to that. it is possible or housing to rollover and the rest of the consumer to get going. we have not seen this before. it is possible the rollover in the housing market crashes confidence to the extent where people say i will pull back on my other spending. what has that happened is this uncertainty has not permeated to markets or through to the fed in terms of interest-rate discussions. housing still does not get a mention. over the next few months, maybe july, september, they have to acknowledge that housing is not just softening but rolling over. this is a real potential threat to this 50-50-50 idea that markets have deeply embedded. i don't know about the timing or the extent of this re-think, but i think it is coming. we cannot ignore a housing meltdown on this scale. lisa: the federal reserve wanted

tighter conditions or bring down inflations. a key component of that is rent. rent has increased dramatically. it is not clear that rent will go lower if you see a loss in the momentum in the housing market. how much is that part of the problem, that rent will stay high or go higher, even if you get a drop in housing prices? ian: even if prices drop tomorrow, i wouldn't expect to see that filtering through to rents until next year. the silver lining for the fed here is that wage growth is a bigger driver rental inflation. pretty convinced that it is moderating, not weak, but less dramatic than last summer. that may give them a bit of relief, but it will be awkward for them. that rent component is slow-moving, it lags, is 40% of

core cpi. they will have to perform a juggling act here. at the moment it is easy, we will just raise rates. it will become much more fuzzy and difficult and more multifaceted as the summer goes on. tom: what is important to me is that job formation out of the pandemic was linear. it was step-by-step, beautifully sequential. i don't buy that on inflation. where is the next move down in inflation, 5%, 6%? can we make it to 4% before we really have a challenge drive inflation lower? ian: a great deal depends on energy prices which i will just put to one side and call it a wildcard. if we looked at the core, i think we have seen a moderation in some of the components that

are not so sensitive to covid. airline is still going crazy but that is a small component. the moderation in wage growth is already starting to creep through. it is dependent on the view that you take of the labor market. 11 million job openings, which is a ridiculous number. 2-1. but wage growth is already moderating. which will become the dominant force over the next six months? i don't know. i don't have previous experience to point to. there is no less time. but if the wage numbers continue to moderate, if we see a leveling off in energy prices, we could see inflation next year getting back to quite low levels, which will transform the policy debate. hopefully the economy has not rolled over by then and people talk about this expansion having legs, and we don't need to think about recession in 24.

but this really is an exercise in threading the needle. it is not easy. lisa: what is your highest conviction right now in terms of what we expect to see through the remainder of the year? ian: housing will be the talking point in the second half of the year. to me this looks like a total disaster area coming up quickly. the second thing is, i would be amazed if the fed could go 50-50-50 without any pushback from markets, without any acknowledgment of what is happening in the housing market. the rest of the economy actually looks pretty good. we have threats from every direction. china's covid mess, people at the bottom end of the income scale being squeezed by gas prices, food inflation. but consumers have cash in the bank, and that came things going. jonathan: great to have you, you

shepherds and -- ian shepherdson. they are betting against betting on a selloff in corporate bonds in europe and the united states. tom: discontinuous feel. along the way there will be massive data dependency which will allow the fed to adjust. they will not do it in a big jump condition. they will be massively data dependent. jonathan: it is the last 10 years in reverse for policymakers on so many fronts. lisa: i was referring to the deutsche bank report talking about more defaults to come. how do you parse out what corporate credit is worth at a time when 10 year treasury yields provide actual yields? all of a sudden, the fed is not

try to put or calm markets. this is uncharted territory and people are trying to understand what the credit market used to look like, transpose that to what we are looking at now. higher corporate credits, i will give the argument. jonathan: you have been asking for this for a long time. introducing some price discovery. lisa: i am not asking for it. people are worried about zombie companies getting money that don't deserve it. that is the fear. will we see a reversion to a lack of free money, and what does that look like? tom: i am toxic brew dependent. jonathan: futures down half of 1%. you are furious about that. tom: i have a staff of 14. the scheduler is gone.

we are getting an intern. jonathan: you can do it on location from central park. i would watch that. from new york city, this is bloomberg surveillance. ♪ leigh-ann: keeping you up to date with news from around the world, let's get to first word news. i'm leigh-ann gerrans. credit suisse is considering a round of job cuts after warning of a second-quarter loss. the cuts would be spread across divisions including investment banking and wealth management. it was credit suisse's six profit warning in the last quarters. former german chancellor angela merkel warns isolating russia is not possible in the long term. she said in an interview that vladimir putin made a big mistake by invading ukraine, but you said there is a danger

uprooting forming an alliance with china. microsoft is joining a list of prominent tech companies cutting back in russia following the invasion of ukraine. the company says it will scale down its operations. microsoft had already suspended sales of new products and services in russia. more than 400 employees will be affected. in l.a., a billionaire developer will take on a veteran politician in the race for mayor. rick caruso will take on karen bass in november. both are democrats, although caruso is a former republican who did not switch sides until january. the son of the founder of walmart has offered to lead a group to by the nfl broncos. global news 24 hours a day,

on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm leigh-ann gerrans. this is bloomberg.

>> what these companies are doing is acknowledging there is weakness ahead and that you have some company saying we are not even going to offer guidance because we don't know. i think what is happening is you are continuing to see that floor be revised downward, but i don't think that ends up being a very solid floor. tom: sam stovall yesterday on free cash flow and the use of cash. half the shock of target yesterday. futures, -18.

vix 24.61. on the turmoil of japan, kriti gupta. >> as dollar-yen hits 134, they say monetary tightening is not suitable. we have to look at the ripple effects. you have the offshore you want relative to the yen. these are both major asian exporters, major net importers of oil. both are being hurt by higher commodity prices. both are also competing to export to the rest of the world. the offshore you want relative to the japanese yen, when it hit that 120 level, then going back to 2015, it created some devaluation in the you want. in april, the dollar versus the you want started fixing higher, speaking to the fact that they are looking to compete with the

rest of the world, specifically with japan. when we talk about how much exports will cost, how much weaker the japanese yen or you one could get, keep and i currency pair. tom: we pull them off the beach. damian sassower our here with bloomberg intelligence on emerging markets. is japan and emerging-market, is their central bank deary so screwed up that they are literally em like but there zombie companies and illiquid bond market? damian: i don't think they are em at all, but the impact they are having on markets is significant. japanese markets are weakening. that is definitely going to weigh on the chinese yuan, the korean won, the rest of the asian complex. tom: are we at a tipping point? 135, new weakness for the day.

134.29. do you have a 135 as a radar? damian: these are big numbers. it is difficult to pinpoint a number. tom: what is the number where their institutions blink? damian: i think we are far gone. there is no top to it now. 135 dollar-yen, we don't know where the top is. the market will pull on that thread. you take what the market gives you. but now the path of least resistance is too short the yen versus the g7. lisa: concerned about china, the slowdowns, the lockdowns, what they mean for the entire region, the exports that we saw fall off a cliff to the u.s. from china. how are you gaming out what the next issue is to drop when it comes to the bleed through effects on the rest of the developing world? damian: the next shoe to drop is

social financing. the market was calling for 2 trillion yuan liquidity injected into the system. it came in less than a trillion. the problem is chinese banks, it is not that they don't have the cash to lend, but there is no demand because of the lockdown. we saw pmi's improve last month, but we are looking for new loans, new loans to medium and small households. even if we do get that, they will run into a liquidity crunch in june and july based on the numbers that i'm looking at. they will have to cut the rrr rate. we only saw 25 last time, it may need to be more than that. lisa: have the southeast asian trading partners factored in a three handle on the gdp print from china, even if it is not sent by officials, if it is like that in real terms? damian: forget about the asian complex, look along the

frontier, sri lanka, nigeria having to devalue their currencies. pakistan looking for an imf loan. el salvador has a bitcoin bond coming due next month. the bitcoin that they bought in the market over the last few months is down $40 million. how will they make that payment? these are issues that are front and center for me. the asian complex is managing well. the inflation impulse is far less than we have seen in other regions, specifically america. they can weather the storm in the near term. the philippines and malaysia have already started tightening. tom: i am looking at a call on yen. is japan devaluing their currency? is that the strategy of this fictitious fiscal effort? damian: that is a devaluation. tom: president trump, if he was

president, would be on fox right now screaming bloody murder. damian: you talk about how central banks target on employment and inflation. at the fundamental level, they are targeting currency. tom: the people of japan, frankly, toyota, the forced appreciation of the currency over decades. damian: a lot of tourists. i am joking. but they are leaning on the fact that they will see more people coming into japan, spending more money, seeking out japanese goods and services. maybe that is the competitive devaluation that we are in the midst of. tom: this is like kryptonite the way that he is doing this. for those of you on radio, damian sassower is wearing a new york yankees tie. lisa: i don't think anyone is looking at that. i do think the yen is a major issue.

i wonder what it means in terms of central-bank action. policy prescription has to change. damian sassower, thank you. tom: the yen matters because the red sox need middle relief. damian: the yankees have the best record in baseball, the best since 2001. cortez is on the mound tonight. tom: can they stay healthy? unbelievable what they have done. damian: you don't watch baseball anymore, you only watch the national league. tom: the even room and that -- ruined that. lisa: i was trying to make a point on when policymakers hands would get called. we are seeing that with china with respect to reversing some of the tightening and financial policies, trying to loosen them up more, how much we have seen the peak in japan.

tom: you don't know when it will push but it keeps on going. turkish lira, 117.19. i go back to the elephant in the room. yen ,134.37. what are they going to do, turn purple at 135? lisa: when do they start to realize this is increasing their imported inflation. tom: they will just fix it. how they fix it is fascinating. we will unfortunately need to have damian sassower on with his mets tie on tomorrow. stay with us this morning. this is bloomberg. ♪.

jonathan: live from new york city, good morning. no real drama, down by a little bit. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading, this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york city, the big