>> we are dealing with a stagflationary environment. >> it is important to realize we have got a lot of emotion in this market. >> investment comes accustomed to good returns, low volatility, being supported by the fed. >> this economy is quite

resilient. >> this is "bloomberg surveillance." tom: good morning. an extraordinary monday. kailey leinz in for jon ferro, a beautiful thing. futures, -91, a little improvement. -84, that is not dow futures, that is standard futures, -2.1%. l futures, -35. lisa: there is a lot of weakness in sterling. how quickly inflation is taking off, it is broadening and becoming more protracted. we are looking at the possibility of a 75 basis point hike in july. tom: i am betting the terminal rate comes up. we get through this quick. give me one insight into what you have seen in your reading

from sunday. kailey: the only thing you are safe to buy in this environment is the dollar, your 60/40 portfolio, not going to do it. worst quarter for the 60/40 since 2008. tom: do not get me going. euro, 104.66. that strong dollar mention cms showing the stresses, mexico out to percent this morning. two tens spread, we had brief inversion for a moment. up for basis points, let's call it a flat curve. 10 year real yields, 0.45%, a higher real yield, the backdrop of 4% italian piece up to the german two-year, up. the u.s. two-year, 13 basis points. 3.19% is a market adjusting to the fed lift we may see, we

mentioned he formally says brief bitcoin -- lee says -- lee says -- lisa's brief bitcoin. lisa: going forward, we are looking at not a lot on the table, except for market action. federal -- jay powell speaking at 2:30. yields exceeding 3%. will they confirm that? thursday, the bank with a decision, the conundrum, how do you hike into weakness? that is facing the u.k. as they see two-year yields climb, longer expectations for growth shrink. friday, the bank of japan policy decision. in the fx world, a market. the market is signaling record

weakness going back 1998, the yen weakening. tom: we are getting through this quickly, futures, -83. doing better because they are blowing up the show to give you the best of market coverage. we are thrilled to tell you with important research on friday into the weekend, lori culver sena of rbc will join us later on surveillance. she makes clear, there is a growth delay. she is optimistic, but she has a growth delay from value into growth. working with evercore isi, julian emanuel joins us, the chief equity and quantitative strategist. you have a privilege to work with amber core isi team, dovetail, the microanalysis of -- your equity work. the heart of it, as inflation comes down, but gets down in the vicinity of 4%. >> that is a change, the

acknowledgment that what we saw last week says, well, there may be a peak somewhere in there. mathematically, you get to nothing but bass affects. you get a peek, but it is likely to be a higher plateau for longer. ed took his inflation number 42023 up 4%, that is the issue. that is where the fed has much less wiggle room then we would potentially like, given the stress we are seeing on assets. tom: cj lawrence, we have watched the white paper with the black marker. you have to buy me a new shirt, stupid black marker. is the black marker calling for a recession? julian: no. ed took his growth number down for 2022, a long time ago. he saw these headwinds. we think the best case is no recession, but the same asset

applies to the potential peak even inflation. also tells you, 1.4% to what could be a recessionary number, there is not a lot of distance there. lisa: when does your bear case become your base case of 21 hundred in the s&p? julian: when we spoke about this last week, we didn't envision three days of carnage in the markets that we have seen since we adopted that march, -- more cautious view. you think about it from a trading perspective, what has been missing the entire last several months is what i would call a cathartic flush out, where you get the vix above 40. which is one of the things you need for at least the trading bottom. this week is fraught with peril. tom: in the carnage we got and more data checks, we need to point out it is the brando best

case, bear case. lisa: this week is fraught with peril. i couldn't say it better than myself. going forward, how do you determine we see catharsis, the 40 level on the fix? or is there forced selling, this orderly unwind we have yet to see, despite the pain? julian: what we are likely to see, regardless of whether the markets decisively take out the may 20 low, which looks like it is a distinct possibility today. certainly, and wednesday. you are going to have an and norma cement of volume at mend month -- midmonth and the end of the amount -- month, we would love to see that volume, 20 billion shares, perhaps 25 billion shares on the day, along with the vix surging towards those levels. those are the recipes for a catharsis that we think you need

to entice buyers back. the last several weeks have not been about selling overwhelming. it has been about a complete lack of buying. kailey: we have seen the summons selling pressure, even before today, the s&p 500 has teetered on the edge of bear market territory. you have a 10 year yield at 324. we have only just seen the start of quantitative tightening, it has just begun because these markets are anticipatory. they are forward looking, how much longer until the market says, the fed is going to have to pump the brakes and we start to see things reversing? julian: watching the bond market, one of our cc around the views of -- that 2022 was going to be volatile before russia invaded ukraine, a correlation between stocks and bonds was flipping between is gone risk

off -- risk on, risk off. between eight positive correlation, we are looking for the 10 year, a sent in the 10 year yields to moderate. it would not be a surprise if we get towards three and a half in the near term to start to see buyers coming to bonds, that would save a lot of stocks. lisa: maybe there will be a entry point into bonds. do you see an entry point in the equity market? julian: i think there are pockets of value, pockets of stocks that have been proven, still growing earnings in this environment. and that are returning cash. in an environment where we are focused on return of capital, companies that can return

capital successfully are names you want to own. tom: are they going to return cost-cutting? julian: part of the dynamic that is causing this incremental market pricing closer to recession being a base case is the fact that these factors together is going to cause pressure in the labor market, which paradoxically, the fed would -- to see, the difference between soft, soft issue, and something else -- soft-ish, is fine. tom: i do not know where to start with the data check. the currency space, a continued dollar advance. sterling, i do not want to use a word like plunge, but there is not a bid on sterling. we want -- went to 1.2182% rap

idly. lisa: the united kingdom reports monthly gdp growth statistics, this has been the second monthly negative print for the gdp in the united kingdom. a lot of it has to deal with them in free covid funding -- covid testing. a lot of the multi-prongs of the economy are slowing down. how does central thanks deal with weakness? how do they signal they will be more dovish, when the weakness is being driven by inflation, which they have to control by raising rates? this is the conundrum of 2022. tom: the conundrum would be, the partition of inflation. part of it will go away rapidly, you come down, but for percent inflation is unacceptable to any central bank. lisa: projections say, even if

gas -- gas prices stay where they are, it is going to be a big problem. that is the conversation. they are moving quickly. even that will create a problem for consumer sentiment. i can handle, a lot of people cannot handle. tom: -569, stay with us on radio and television. this is bloomberg. ♪ ritika: chinese officials in recent -- told u.s. counterparts the u.s. taiwan strait is not international waters, which has caused concern within the biden administration. ally say they constitute international waters. russia continued its assault on ukraine, pushing ukrainian troops out of the central area.

president zelenskyy in his nightly address, fighting over a city -- russia using indiscriminate shelling in arche. the u.k.'s added credit sweeps over concerns it hasn't addressed wiki culture, a series of scandals. last month, it was adding u.k. operations in the international unit to enlist a firm monitoring close monitoring. claims of encountering sent and ai on google servers after being suspended for sharing confidential information about the projects. -- went on paid leave last week, breached its policy. a maverick had its crown stolen.

the north american box office leading with top gun. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

>> it is clear that peak inflation theory is wrong. the fed's forecast from march saying inflation would be coming down to the twos by the end of the year was delusional.

tom: we are going to stop the show right here. that is lawrence summers, the four -- former u.s. secretary. it is a call of this crisis. there is no question about that. what is important to me, lisa and kailey leinz with us today. his seminal work as a kid with a guy named olivia -- olivio blend chart. when you have a slowdown in the economy, what does it do to employment trends? we are not there yet. lisa: this is the concern. where does employment have to go, where does employment -- unemployment have to go to get inflation down? larry summers warned early this inflation way for be much higher in fashion than people expected. he was right. his concerns are worth heeding.

tom: i would love to talk to him now. president biden is doing his part jetting around the company on air force one to make fuel demand go up. 63,500 gallons of fuel to make air force one go. joe mathieu can do this math, joins us from washington. joe, not to be snarky, but it is snark monday. what is the president's plan this week to tame gasoline and inflation? joe: book a trip to saudi arabia. he was asked, i am not confirming, but i am going because of reasons other than energy. he is going to pop up there at some point. it says a lot about what we have been through the last year with regard to energy prices, to see the president going to a nation he called the pariah of the world, to try and unlock more

supply. he is booking a trip to philadelphia tomorrow, he is going to talk about the working economy. they want to point to this strong job market, you are referring to as the other side of the story from inflation. the messaging is not looking great. as you heard from larry summers, the white house looking back on decisions made coming out of covid. i wonder if larry summers was in this white house, the way he was during the obama white house and said, that is too much money. you are going to create too much inflation, the covid stimulus, i wonder if it would have changed the final price tag. people felt like they were in a desperate situation and had to do something. tom: that is called the counterfactual matthew, he does that with the red sox in late august. lisa: what we need to do is look forward, what people attempt to do to bring down inflation,

parsing beneath the hood is not just gas prices. it is a multifaceted issue with rent and a whole host of things. he had talked about gas, saying exxon made or money than god. are we looking at a windfall tax a can to what we saw over the united kingdom? joe: can't imagine there would be appetite for that on capitol hill. if you cannot do a lot about it, the best you can do sometimes is talk about it. the white house has been adamant, this is a global phenomenon. this is not an american experience, this is felt around the world. the president's language recently has been about vladimir putin, we haven't heard about covid lately, it is the putin price hike. he called out exxon mobil at the same time. this white house is supposedly engaging with companies like exxon right now.

it speaks to the relationship president right in has with oil companies, when he -- president biden has with oil companies. >> other than his -- putin's price hikes, there are thousands of wells the oil companies are not utilizing. the idea they could produce more if they wanted to, they just aren't. something has been -- he has been trying to do, we are less than five months away from the midterms. how long does the president have before the fate of november is sealed? joe: it was sealed before the war in ukraine. the inflation that existed before putin ever went into ukraine. this white house doesn't have a lot of options aside from messaging. i think most of us overplayed the idea of the impact of the president of the united states, even washington as a whole can

have over the economy and inflation. in many cases, the economists in our capital are watching it from the sidelines like we are. tom: the last four weeks, the new york times about a one term biden. when they clean out the white house to invigorate the white house? joe: we saw jen psaki go away a while ago. once we get through the midterms and the messaging and posturing going into election day, we are going to see quite a number of people going through that revolving door. tom: futures, -93, reversing down. dow futures better. fix up 4.95 points. there is research that comes in on an incredible monday through this weekend, carol weinberg with a tour de force on china. it is many pages long.

he is heated. their numbers are baloney. he said, where are the lockdowns in the data? lisa: a lot of people would agree with him. if the official figure is 5%, you could look some 4% in terms of gdp growth. in china, that is what the granular data is showing in the beige book. how does that bleed out in perspective? who is going to be the driver in growth when china is bowing out, where is the marginal growth? tom: the idea of supply this, supply that. maybe it is a diminishing global demand which slips in in the summer months. kailey: you saw that reflected to a certain extent, inflation we got out of china. people are not buying as many goods because of the impact of inflation.

if china is able to figure out the covid zero policy, that has ripple effects in terms of commodity prices. there will be a lack of supply the rest of the world is dealing with. china being off-line helps that narrative. tom: sterling, 121.78. spf futures, -92. bitcoin, flat cannot find a bid. 23. lisa: one of our guests said, ahead of this market open, they were nervous. tom: levels of nervous. lisa: neurotic. what do you expect? tom: stay with us.

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

mom: how was school? dad: wow! ♪ vo: music can help you express how you're feeling. when you can't find the language, find the lyrics.

♪ tom: good morning everyone, let me get right to the data check here. futures, -92, now -88. they are a little bit off the bottom but i don't really want to spell that to you.

rounded up to 5.5, 30 2.71. they made clear they are looking for catharsis in a 40 level, not at the 30 level. the expert on that would agree with that assessment 3.20%, a 14 basis move higher in the two year yield. all you need to know is yields are surging, which i believe is prices going down correct me if i'm wrong on that. oil commodities showing a weaker growth. down from the 1.23 level on crude. obviously, one dollar bid as well. you what individual names, kaylee lines assists. -- kailey leinz. kailey: this market is very

worried about an aggressive federal reserve and higher rates to come. that is the pressure on higher multiple companies. amazon down more than 4%. just these three names together comprise 15% of the s&p 500 and more than 28% of the nasdaq 100. it is very, very difficult for the broader market to hang in there. one asset class that is definitely not hanging in there is cryptocurrency. you can make fun of me all you want, but this is very real. tom: explain -- nobody knows that name. what is michael's strategy. kailey: is a bitcoin proxy because it continually adds quite with allen's sheet. it is essentially turning in tandem with the cryptocurrency. it is taking it on the absolute chin this morning.

25% in free-market trading and it is not just micro strategy. basically any equity that is tied to cryptocurrencies in some form. it is laying people off, really doing not so great with the broader macroenvironment. coin base down 15% before the bell. tom: mike wilson of morgan stanley out with an orton research note and i just really want to parse it in the idea of will it conserve cash or continue use of cash share buybacks? we will talk more about that in a bit. right now we have demanded what she is is expert, even though federated, a wicked short-term market. cunningham, you are focused on not the two-year yields, but the fear to move inside of one year. what is happening in the 12

months or lower space? >> first of all, we have offices in boston, so i am wicked understanding. as far as the one-year space goes, one year and under, you are looking at preservation of principal. if you're even in the two-year, you are worried still about big breakouts from a pricing standpoint to the low side simply because of the rising rate environment and not having enough income yet to cover that difference. on the one year and under space, that is pretty much a stable value product that you are looking at. your return is basically what your income is generating. that income is not huge yet, but it is continuing to go up. june and july it is going to go up i another 100 basis points. kailey: give us a feeling of the

retail investor. do you see flows right now into cash accelerating anyway -- in a way? >> the retail investor moves very slowly. it is not in any kind of a huge wave or a huge force that we are seeing that yet. it is more what i call an operating trend that is going from the riskier asset classes into those that are a little bit less risky which ultimately would be the cash market. more like trends that are heading in that direction. >> you are at the heart of a lot about people are worried about, which is liquidity problem. as the fed raises rates and at the fed withdraws liquidity, there have been a few disruptions in some of the most safe markets including the cash market have you seen any sign of dysfunction in that market? >> we happen seen that yet at

this point. what we seen is a lot of demand. lots of people coming into the market, retail as well as institutional. in good supply. good supply outside of the treasury market. treasuries have been low in supply because effectively bills have been cut since back in april, and they continue to be in low supply but with a high demand. that is why you see lower yields on the short-term treasury market sites. when you go into credit markets, commercial paper, other types of stuff, short-term notes, they are in good supply with liquidity and good demand at this point. kailey: as lisa talks about the fed pulling liquidity out of the market, that process is only just a gun. what can we expect to unfold over the coming months if that happens in substantial fashion, considering how far this market

has already moved just in anticipation of it? deborah: to get treasuries back into the marketplace would be a great thing. longer-term treasury market standpoint, you seem the rrp, trading at over $2 trillion on quantity basis for the last two or three trading sessions, and if you end up with more collateral than what i would call traditional counterparts in the marketplace, maybe that starts to bring that rrp back down a little bit and back into what would be more normal supply , having the supply coming from the quantitative tightening for the fed. i don't see it as being a huge problem unless all of the sudden investors turn away from the cash market and we don't see that happening anytime soon. >> what kind of cracks would you be looking for?

where do you think the first thing might break if the fed is too aggressive? deborah: well, i think you want to look for a lack of demand. when there is all of a sudden a huge spike in pricing, it is not due to inflation, it is not due to an outlook from a sampling of normalization turning into tightening, but rather due to what i say would be more credit concerns. everything we've seen so far seems to stem true from supply-demand issues, issues from supply chain imbalance, lots of things that are contributing to it. when you start to see some credit imbalances, that would be a true sign of a problem. tom: thank you so much, really appreciate it. this is what we are doing today, we are moving around. i forgot my glasses. somebody said, where are the

glasses? i have my chain, but i left my glasses at home. let's move on. i want to talk about what i think is not being talked about which is the latest bear market in bonds in my lifetime. let's go away from what the media quotes and look at the work of lise abramowitz. she is expert at ig. i'm sorry, lisa, it is a -50%. i just look at the 10 year piece down 19%. >> is shocking. the fact we have not seen wholesale estimates from some of these portfolios is notable and actually, here is the issue: at the core, we have not seen corporate breakdown. the corporate fundamentals are still pretty good. at what point do people start selling off that as well, or does that become a haven? the s&p is on the brink of a bear market. we are 2% away.

we are in a bear market for s&p. credit has not broken down the same way. this is the reason people think the federal reserve will not step in. if you don't have that credit impulse, if companies don't need to refinance, then what is going to cause the fed to say my goodness, we need to back away? nothing. that is the reason people are getting so bearish on stocks. tom: if we can't do it, it is fine, but at 5:00 a.m., over on the equity side, ok, we are above 30, and everyone was above 30, but not above 40. it is elevated, but as lisa said, it is not that catharsis this morning. lisa: that is the thing, the selling is still so orderly looking. we haven't seen that volatility

than everyone is capitulating, everyone is forced to sell. the question is when is that coming? is that the only point at which people can get a little bit more optimistic in saying that the bottom might be in inequities? we could enter a bear market today. how much lower could go after that? tom: what does this duty issuing? i make jokes about the auction, but what the chief financial officers do when they see bonds lower yield higher? lisa: they definitely don't issue bonds opportunistically unless they see things getting even worse down the line. you're seeing things slow down to get ahead of whatever may happen, but occasionally when they do issue, they offer yields that are so attractive that everybody comes in and is a fight. they actually issued bonds a couple weeks ago at this incredible coupon and everybody flooded in because you could finally get a yield. people have been deal-starved for years. tom: john from maria -- korea --

you've got to quote the german tenure. 1.6 0%, up seven basis points the german tenure. stay with us on radio and television. futures at -91. >> keeping you up-to-date around the world, the government reduces covid-19 testing. border contraction is underway. french president emmanuel macron is facing a challenging upcoming elections. his party and allies are likely to remain the largest block in

the national assembly. if thick hearing narrowed in april's presidential election from five years ago. and china re-imposes covid-19 restrictions just after using. the action is raising concern that country may once again employ strict lockdowns to control its outbreak. china enacted this covid-19 measures, but still worries about demand. the steelmaking seeing a drop. beijing has been warning about its struggles. japanese bonds tumbled monday, sparking a warning from the bank of japan. the currency fell more than five

point 5%, the lowest since october 1998. the yen has tumbled almost 60% this year, the worst-performing major currency. 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 don't think that we are in a recession now and i don't see a recession this year. i think the recession will come after the fed gets itself into a restrictive monetary posture, and that is going to take some time. tom: absolutely brilliant, i believe that was on friday. if you are really looking to focus on nominal gdp, we will talk about that any moment. the animal spirit of a turmoil american economy. the data right now, lisa, help me out here.

>> the generation across the board, how much did friday's cpi print change the narrative with widespread and elation continuing and peak inflation not being peak? tom: to me, it was inflation expectations and a reset of where the terminal value is out there i go back to julian emanuel which is getting inflation down to 4%, but the dream is to drive it lower. well, there we are, we will give you more data here. right now, a uniquely ugly morning. financial commissions. >> we have to talk about the combination of all the moods, not just the stock market dropped, not just a drop in price -- treasury yield. combine all of this together with a little bit of credit spread and you get the financial conditions index which is coming

back onto levels that have served as a kind of roadmap, a pivoting point in the past for the federal reserve. if you actually look at this chart for a radio audience, it goes back into negative territory, back to 2018, 2016, even 2012. these major pivoting point where you hear from the fad after some fourth selloff in the broader market that this is the most notable, at the end of 2018. christmas eve 2019 or 2019, really combing the market to some degree. do we get some sense of that again this week? tom: thank you so much. kriti, kailey. kailey: this is your warm up before the show. tom: gina, you've got a team of

200 security sites. what is the theme with bloomberg intelligence? >> the theme for everyone is still inflation, all of the market responded so viciously, it is historically much more important. tom: this is a three-level price index series that used to be gospel 30 years ago, you're telling me it is gospel again? >> it is, absolutely for the s&p 500 earnings stream. it is very meaningful. cpi might represent the cost, but ultimately, the spread between the two is what makes margins on the s&p. if you think back to this time last year, we were talking a lot about margins at risk to the earnings stream moving forward. margins piqued by the third quarter of 2021, and estimates have been leaning earning estimates lower, a predominant source of risk and the equity market even though we are certainly contending with a lot of volatility related policy.

earnings are but ultimately drive stock prices over the long run. tom: is it almost sinking or with what you just said, are goods companies striking because of the important prices, but service companies are not? >> it is a very big mix because some consumer services companies are suffering. restaurants, for example. they are not necessarily good producers. yet they have a very high input costs. tom: we have to stop the show. is mcdonald's a goods or services company? shake shack, is that goods or services? the juice bar is a service. >> restaurants our services. you do have goods that are obviously struggling as well. tom: tell me that sushi is not a

service company. i kailey: have a feeling that any restaurant you name is going to be a service. tom: kailey, pick it up. kailey: i'm looking at the markets this morning, s&p 500 that looks like it could very well close and the bear market today a 10-year treasury yield, and the only thing that seems like it is safe to buy is the dollar, which is just going from strength to strength. we saw it from microsoft cutting its outlooks. is this just an excuse, or is that real? >> for some companies it is certainly real. the dollar has had a very fuzzy relationship with the fed to say the least. in the index, 65% of constituent actually had a positive correlation to the dollar. most companies in the index actually benefit when the dollar rises. at least, historically. some companies may not have been

hedged properly in are certainly going to experience dollar-related cost reasons or dollar-related earnings weakness, but it is not a story that you can paint the ending with a broad brush with. even if there is almost zero correlation. but the dollar spikes can be very meaningful. the dollar spikes, these really, really big moves. at this point in time, we estimate that every 1% move in the dollar shaves about $.19 off of the earnings stream it doesn't sound like a lot in the grand scheme of things. some of the consumer space to have exposure that a somewhat meaningful. >> just over the course of that answer, the 10-year treasury yield is now about 3.28. what is the 10 year yield approaching 3.30? >> gives very meaningful because

it is spread between the tenure in the two-year and has shifted flatter, almost negative again. it is incredibly consequential. what we tend to use is the two-year, actually, as the framework for deriving valuation expectations for the index. the two-year is back to 3%, back above 3% again. that would imply that your valuation equity needs to be closer to price that kind of landscape in. and then you pile on top of that the inverted learning curve and that only suppresses your expectations for the most part. tom: don't be a stranger, i have six more questions. she is the queen of having the courage to stay investing.

>> it is painful out there across the board, tom. it could be bear market territory for the s&p 500. you are seeing weakness and bonds as well. we are up 11 basis points on the 10 year yield. the bond market adjusts to a federal reserve that potentially could move 75 basis points next month. the only thing stronger in terms of u.s. assets today is that dollar, weaker by 6/10 of 1%. tom: i don't mention sterling having a weak reason 15 minutes. the really young, over half a percent on the tenure inflation. percent on the tenure inflation.

today's challenges require real insights, to get to tomorrow's opportunities. ( ♪♪ ) what can we expect in the coming year? this has been a record- shattering year for m&a. five trillion dollars in deal value. and we're still very bullish on the deal market for 2022. in this kind of climate, what are you advising clients to focus on? we really think companies need to elevate their risk management processes and also scenario planning. what's your outlook, kim, for the 2022 labor market? organizations really do need to take a pivot on their lens of their people and talent from a cost center to make that a value creation center. for key insights into what matters today and what lies ahead for business, this is real time business with ey.

♪ >> i think what we've