>> interest rates we are seeing from all the central banks around the world, except the japanese, is going to slow growth. >> this is full on demand destruction. we have to slow the economy. >> people have been calling to speak of inflation. we say you can't call a peak until the peak is over. >> the consumer is continuing to spend, starting to eat into their savings. >> it could be a tough couple of months here. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. jonathan ferro, lisa abramowicz, and tom keene. on radio, on television, and obsolete extraordinary fed day. the ecb gets out front of jerome powell and holds an emergency meeting of what we have reported is mystery. all we can do is look at euro-dollar, which moments ago began to give way from the

enthusiasms of the morning. jonathan: we are still waiting for a statement. for the ecb it is about numbers. the spread between italy and germany last summer was inside 100 basis points. yesterday it threatened to blast through 2.50% and beyond. tom: it is the banking problem as well. very different than in america. i am thunderstruck they are doing this meeting out front of the federal reserve of the united states. jonathan: what are they going to do, wait to see what happens with the federal reserve meeting? they are seeing the outcome front and center. it is the one they are worried about, fragmentation. they know the detail they put out last week to address the potential fragmentation is not enough because this market needs to see a whole lot more. tom: where is lagarde on this? we really have not addressed that this morning. we can make mario draghi call

for italy or the bundesbank a step in, but where is christine lagarde, the politician? jonathan: she came out of the very beginning of the pandemic, we are not here to close spreads. apparently we are, even within place in at 8% and even as we try to hike interest rates. they are the contradictory goals of this ecb. how to use read that needle -- how do you thread that needle? chairman powell, that is not a tough job relative to president lagarde this morning. tom: we make jokes about it. i get in about 5:52. jon gets in a couple before me. lisa, where is the elasticity in the bond market right now of price down, yield up? which spread matters? lisa: i've been watching investment grade bonds, corporate bonds, because they have seen absolute low out when it comes to how much they have been hammered in the aggregate index down nearly 20% since last

year. the issue people have is when do we get market dysfunction. at what point does a lack of liquidity and a lack of buyers become a concern for the flow of money that happens in markets? we are not quite there yet, but people are watching this closely and how the fed may respond to it today. tom: we will have the fed show for you this afternoon. william dudley scheduled to be with us. just in the last 24 hours, 75 bps heard much more often. jonathan: take your pick. all the new forecasts i've seen in the last 24 hours all suggesting 75 basis points. that is the timeline. i want to understand if people think the destination has changed. is this a fed that not only has to do molar up -- to do more upfront, but also has to go higher further down the road? has that you changed? tom: absolutely historic day. stay with us, all of you affected on the effects -- all

of you interested in the effects of this on all of our lives. weaker euro in the last 20 minutes. jonathan: this equity market reeling from the moves of the last five days. down more than 10% on the s&p 500. much of this sparked by the inflation reread we are getting from the economic data. that sparked a monster move at the front end of the curve. 70 basis points higher on a two-year yield in just five days. this morning we take a bite out of it, but not much. yields lower by 10 basis points on the 10 year, 3.37%. tom: let's get a macro strategy view. he's with state street. but with decades of experience, lease average -- decades of experience, lee ferridge. are you convinced there will be major labor market moves within the powell press conference? lee: i think it is hard to avoid that conclusion.

nearly everyone is going for 75 now. if that was the plan to get that view into the market, that it has worked. in theory we have priced and 75, but the message is going to be very important. is this going to be a 75 and we are just getting ahead of things, or are we going to carry on and there's going to be a hawkish message? i think it is the latter. i think powell is going to come with a very hawkish message. they are worried about inflation expectations getting anchored. not only do we have that cpi friday, we also saw the rise in inflation expeditions as well. they are very worried about consumer inflation expectations. that is why the message is going to be a tough one, i think. jonathan: we know in recent history life on cable at $1.20 is not sustainable. how important is the fx channel, and how do using this is going to play out through it as the fed looks to go big, the ecb and

the bank of england look set to respond? lee: i think everyone is trying to pick a top in this dollar move. from a valuation point of view, from how far we have moved, i can see it. but the fact is we are in for a tough couple of months in markets. at the same time you've got stubborn inflation, it went up even further. that is not going to show signs of easing anytime soon. at the same time, the real economic data is deteriorating and you've got a very hawkish fed. that is a really bad backdrop for asset markets. when equities selloff, you want to be in the dollar. that is the bottom line. people keep wanting to pick a top of the dollar. we saw it in may, and they got their fingers burned. this is going to carry on being the trade. for me you still got to stay long of the dollar. we have not been through brexit before. we are not starting to see what we see now. the data out of the u.k. is getting really worrisome, and

the bank of england want to respond in kind, but they are in a different situation than the fed. we saw 1.15% in march 2020. i can get us below that. lisa: how much confidence do you have that italy will have some sort of containment of those yields, that the ecb will come out with a plan that will actually create some calm? would you be shorting italian bonds or would you be buying them? lee:lee: they will come out with something eventually. we have seen this in the past from the ecb. they recognizeha the problem is. they try to tackle it in a minimal way if they can, and eventually they are forced to do something more dramatic. i suspect this is the first stage of trying to tinker around the edges, and if the market continues to widen, which i think has got to be a real risk, we will see more down the line. i still think we will get there. we have seen it before.

tom: euro weakening more than halfway back to what it was at 1:00 a.m. this morning over the ecb emergency meeting enthusiasm. you spent over a decade in the trenches of treasury at rabobank. you have lived eu banking and their linkage to bonds, yet they have never seen bond price declines like this. i don't want you to speak for rabobank or certainly state street, but how do you view continental banking and bonds given these ab rep to moves in price? lee: the ecb will get there. they will control it. we have seen this in the past. how many crises where we worry about periphery? we had a similar comment this morning from schnabel, that there are no limits. they will get there. they may not get there today. we may see these spreads widen further. but the ecb will come up with a

plan and control these spreads. if you don't think it is going to leave the euro zone, which i don't, then 4% healed is not unattractive. get for poor what -- you get 4.5%, maybe 5%. at some point bias will come back, but the ecb will come out with a plan. we might have more pain in the interim, but we will get there. we have seen it before. jonathan: lee ferridge, thank you, sir. the ecb, and we talked about this before we came on air, it is easier to address these issues when inflation is low. when inflation is at a percent, to address so-called fragmentation, that is a little harder to do. lisa: how much of a soft landing scenario relies on inflation data cooperating which is out of the control of a lot of these central bankers? without that cooperation of inflation that is not high, how to they achieve shredding this

needle? that seems contradictory. jonathan: i would love people to write in. this fx channel is so important, when you hear people talking about imported inflation. not everyone is going to win that fx game. if i was the ecb, i would be worried about not just what happened in italy, but in the fx market as a consequent. the last thing you want is this doom loop between what happens in monetary policy and the currency going the other way. so far this stronger dollar story, maybe that does start to take a bite out of some of the inflation story for america. but for europe they are facing a weaker currency. the u.k. are facing a weaker currency. that exacerbates the problem. we have gone over this issue so many times over the last few months. the currency moves, are they positive or negative in response to higher interest rates at the ecb and the bank of england? just getting a couple of lines from the ecb, comments on the statement following an emergency

meeting. "the pendant has left lasting vulnerabilities in the euro zone." that is the first line crossing the bloomberg. i'm waiting to see that statement on the ecb website. they will apply flexibility in reinvesting pepp redemptions. lisa: what does that mean? jonathan: looking for a little bit more detail here. the ecb instructing committees to prepare a new crisis tool. how do we get the it highly and 10 year -- the italian 10 year? sit on this story, dial back the music, and let's talk about this. the ecb instructing committees to prepare new crisis tools. to me at first look, i do want to go through that ecb statement , i don't see a plan here. i see a plan to make a plan down the line. lisa: this sounds very similar to what came out with the ecb meeting, where they said they were going to maintain flexibility. you did see a knee-jerk reaction a little bit in the btp's.

yields fluctuating around, but obviously this is underwhelming at a time when people were looking for details. without details, they knew this was a problem. the fact that they really have not come up with anything other than very similar language is indicative of the conundrum they are in. jonathan: yields coming back a little bit. the italian 10 year, 3.82%, now 35 basis points on the day. tom: i'm looking for the statement here. i think i've got it coming up. the gerbil is working. i did not pay the bill on the bloomberg. i've got the statement now in front of me. it is a short statement. let's start with that. "based on this assessment, the governing council decided it will apply flexibility in redemptions. they are going to mandate the relevant t. rowe system committees, together with ecb services. i had dr. rattling with me in davos, the architect of emergency actions.

i wonder what cost rattling with say -- what clouse would say? jonathan: what we see in the italian bond market is things slowly, as we start to work our way through these headlines in this statement, turnaround. today we had yields aggressively lower off the back of this idea there would be an unscheduled meeting. yields are going the other way now. still lower on the session by a whole lot, by about 31 basis points. the italian 10 year at 3.88%, but certainly moving in the wrong direction off the back of this. lisa: it is underwhelming. they need to come out with a plan. this is not a plan. this is reiterating that they are going to come up with a plan. how do they even craft one at a time of not only political dissent on all sides, but when they have to tighten financial conditions enough to suppress inflation? otherwise, what is their goal with this tightening plan that they have? jonathan: the challenge right now in this bond market is how far do you want to push this

again, knowing that they are trying to come up with some kind of crisis tool? do you question their ability to come up with one, something that would be effective? can they come up with something without limits that can address fragmentation and simultaneously raise interest rates at the same time? ultimately the market is going to be the judge of this, not us. i wonder how far you would be willing to push this as the ecb has set out this morning to say we are preparing a new crisis tool. lisa: they will eventually find a way, so i would not bet against them, but this is the reason why the existential crisis of the euro, this goes to the cohesion in the euro area if you do have this concern about a member state. but what is the political dissent within the ecb and the european union that pushes back and says it is not our job to take care of a country and their finances? they have been doing it for a long time, sweat what point does that cohesion really take the dominant force?

jonathan: happy to say that standing by his maria tadeo out of brussels. your take on what is developing in frankfurt, germany this morning? maria: to your question, you don't put out a statement like this, you don't call a meeting like this if there is not consensus. what is clear is that the governing council has now agreed that this is what the market wanted, and they put it out on paper that they will accelerate the completion of a new tool designed to fragment or to deal with the fragmentation in the market. this is basically what investors out there, particularly in the european market, wanted to hear and had been wanting to hear. this is not just an abstract term. the european central bank will fight fragmentation in rate hikes and put it on paper, something concrete. i think it goes beyond the initial idea that this would be about reinvesting the pepp, so it does take it to the next level. if you are an investor, you had reasons to perhaps want to test

the european central bank, to put it to the test, the pain level that they were willing to tolerate, but i think this meeting in this context, they actually provided more than a lot of people were expecting when going into the meeting. they now see very clearly we have to create a new tool. jonathan: and that tool does not exist yet. the bond market is pretty calm off the back of this. euro-dollar has rolled over a fair bit, almost unchanged on the session now. if you are just tuning in, we have seen this massive move in the italian bond market. you've all witnessed that over the last couple of days. clearly they got the attention of the ecb. they scheduled an unscheduled meeting, set around the table for two hours and had a discussion about what to do. they have reaffirmed something we have been talking about for weeks, but they co-a step further kind of. it is the kind of that is going to shape this market this morning. the governing council decided to mandate the relevant euro system committees together with the ecb services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by

the governing council. there's a few steps here. you've got to come up with the instrument and it's got to be approved by the governing council. i don't know how long that is going to take, and in between, i have no idea what is going to happen with the bond market either. your italian 10 year, 3.89%. tom: euro woman's ago breaching where we were at 1:18 a.m. new york time, and it is a weaker euro. basically it has gone completely round-trip on the strength and the hope of that meeting. so i do think that is really germane here, with euro 1.0436. jonathan: any indication how long this is going to take? maria: things have changed so much over the past week that they could go quicker from now on. i would say is the last time there was a meeting like this which was not on the agenda, that was called in a panic, was back in 2020 during the pandemic. that is when the pepp program came about.

that is essentially the comparison that we have to this. the statement does not clearly say it, but to me, the fact that you have isabel schnabel coming out with their no limits to what we can do, and now they say let's get to work and let's create something that is an effective tool does show that behind-the-scenes in the governing council, at least they are more united than they were a week ago, where they were not able to answer that question. tom: is a general statement, is it brussels or right now is it every nation for themselves? maria: i think a lot of things have changed. when you compare this to the sovereign debt crisis, if you look at everything that has happened since the pandemic, it is clear that the european union is becoming in many ways a fiscal monetary union and a political union, not just a simple trade block. but there's questions about the fiscal that come with this, and i guess some of the numbers of the governing council will say if we provide this tool, we also

want to see guarantees that some of the countries, particularly in focus on this, are going to take things seriously come of that things are going to change in terms of the fiscal story. lisa: do you have a sense that the ecb was taken off guard on how quickly the italian 10 year yields moved? maria: i think they were, if you look at that press conference last week. christine lagarde was asked how do you fight fragmentation, and he thought that would be enough to say we are ready to do it, and we are very committed that monetary policy feeds through to all of them. the challenge for the central bank is that you deal with 19 different countries that are very different, so one policy fits all. it is harder than other central banks. but i think they were caught off guard, and that is why this meeting is happening today, and they have decided to say this is not an abstract concept. we are going to put something on paper and create a tool that works. jonathan: let's think about that. the most effective tool in central banking of the last 15 years was a tool that was never used.

it was the ultimate mechanism behind whatever it takes from president draghi, and sometimes they are the most effective mechanisms of central bankers. it is a backstop. it is the threat to you something that the market believes in that you never have to deploy. mario draghi managed to tighten spreads without buying a single bond through that program. my issue this time around is i am not sure, and of course i don't know for sure, but i am not sure at this point you can come up with something that is not deployed because of where inflation is and where rates are set to go, because of what has happened with the treasury market and what is happening at the fed. i am not sure a backstop is sufficient to address what is happening in this market. we will see. tom: on radio, we've got the banner up right now. ecb tells staff to prepare new anticrisis tool for approval. the antichrist's tool is simple. who is going to take the loss? i can't say this enough.

this is alan meltzer 101. somebody has to figure out who takes the loss. in meltzer 101, a la bernanke later on, is the united states under the fed takes the loss. who takes the loss in europe? that is the debate, right? jonathan: a great exhibit of what is happening in monetary policy right now is the bank of japan. here's our cap on 10-year gilts. just saying it is not enough anymore. you have to back it up by getting into the market and buying at that level. lisa: and buying at record of mainz -- record amounts, and even then it is not good enough. the reason why i am referencing this respect to the ecb if they have to be ready to deploy it. what do they do when it does not work anymore, when markets push against them so much based on fundament two issues, including inflation, that they are forced to capitulate? at what point is the ecb not necessarily in the same

situation, but in an analogous one? jonathan: this is the plan to make a plan. we will see if that plan to make a plan is ultimately approved further down the road and whether it addresses what is happening in this bond market i can't tell you this bond market is turning around. we are down on the italian 10 year, threatening to get to 4%. we want to bring in javier blas of bloomberg opinion. at the epicenter of so much of this is what is happening with the energy market. we are seeing the average gas price in america through five dollars and we are seeing central banks respond to what is happening with headline inflation. we heard from several politicians that they would like to see more refining capacity. they would like these companies to spend more money. at the same time there are windfall taxes. make sense of what is happening with what we are witnessing right now and the global energy market. javier: it does not make any sense whatsoever. you cannot befriend in the industry with windfall taxes and at the same time telling the

country to build a refinery because now we have realized that we don't have a refinery. at the same time, we would prefer to do it without you and move to green energy. the energy policy right now is a complete mess. we are paying the price of very unfocused energy policy over the last few years. the most important point today, the fed is looking to 2023, and the landscape is pretty ugly. oil demand remains very strong despite a cooling economy and supply is not able to match, so we are heading for pretty high prices for the rest of the year, potential he into 2023. tom: in the united states there was a refinery of marathon in louisiana, and now years later, there is a new greenfield opening in north dakota with meridian. that is how hard it is to build a refinery in america, isn't it?

javier: it is very hard. no one wants to build a refinery. the biggest problem is over the last two years, we have lost a significant amount of refinery. worldwide we lost the most refining capacity in 30 years in 2021, and that is going to take time to address. the only way to address the mismatch we have right now between supply and demand is to lower demand, and for that you need a recession. jonathan: that is the problem for the politicians and the central bankers alike. the energy markets parking a big problem for these policymakers right now. a bigger problem for this ecb. what a challenge they've got, to raise interest rates and cap what is happening in the bond market. italian 10 year yields getting back to 3.93%. way off the lows. tom: you've got to watch those select group of bonds. i get it that italian is front and center because of the size and may the proceeds of draghi, but this is a day to really look at bond price in europe.

coming off the fed meeting and our coverage this afternoon, frankly, each question within the press conference. jonathan: lisa, i would love a final word on what we are seeing taking place this morning. lisa: people are not believing exactly what the ecb is saying. there was an expectation for something bigger than what was delivered. that is the move from the italian barn mark -- italian bond market, as well as the arrow. -- as well as the euro. jonathan: that is the turnaround off the back of this ecb statement. euro-dollar looks a little something like this, positive 0.2%. it was much higher on the currency pair earlier, one point 0436 percent. equities up 0.8% on this fed decision day. more coverage still to come with lara rhame of fs investments. from new york city, heard on radio, seen on bloomberg tv, this is bloomberg. ♪ e your audit system?

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jonathan: to give you an idea of the scale of this, we have retail sales out any second now.

let's get you some of the economic data. michael: good, retail sales dropped from the census bureau but the empire manufacturing number is out and it rises -1.2%. it's a little bit better but not great news about manufacturing. import prices have come up by 6/10 in the forecast was for a one .1% rise. that's a little bit of good news on the inflation front. the advanced number of retail sales is down 3/10 and the forecast was up 1/10. the numbers are not particular good on retail sales stuff this is not adjusted for inflation. automobiles are up half a percent and retail control which is the number that economists

watch that goes into gdp has no change at all. it was up half a percent in the month of april which is a revision by have a percent lower from the original 1% so what we are seeing is a pullback in retail sales, people not buying as much. motor vehicles are down 3.5% and furniture is down 9/10 of 1%. that's inflation-adjusted so it doesn't look like consumers pulled back in the month of may. jonathan: when will this federal reserve be confronted with worst economic data than this and how will they response? michael: that's the question.

the 400 basis point question is how soon does the economy cool off and what are the signs? a certain sign is people pulling back because inflation but when do we see demands destruction? is this a sign that its starting? we will have to see and we will find out this afternoon about whether the fed needs to move. tom: you will be in that press conference. retail sales combined with the revisions, is it enough to shift the 50 475 debate? michael: hi doubt it, the fed is focused on inflation rather than growth and growth is strong enough and they've made that case over and over again. this is one month data for the cpi report didn't worry them and the university of michigan numbers suggest inflation expectations are rising and

that's probably the overhang for all of it. lisa: let's say the slowing in consumer spending persist for a number of months. does this make the fed job easier or harder? michael: it probably makes the fed's job a little bit easier if accompanied by a drop in inflation. if it leads to lower prices, than the fed has the opportunity to back off a little bit and maybe they go back to their plan of not necessarily pausing but recalibrating how much they do each month. that puts a lot of the bonus on the jackson hole appearance. at this point, the fed will fight inflation and we are still over 8% on the cpi headline. that gets into people's heads and they have to do something about that stop jonathan: we will catch up a little bit later this morning. thank you. the headline inflation for the

month of may in the previous revision was not great, think about this, where inflation was and the fact that the data is not inflation-adjusted. tom: that's key. i really wait for the revision and i cannot convey this enough, you look at the screen it lit up like a candle there on the screen as people responded. jonathan: that's weak economic data. tom: we are watching the euro again with a weaker euro at 104 point 31 in the last two hours. eight perfect time to speak to laura rahm. today's phrase is crisis in europe is in search of a crisis, what is the inflation crisis to look like? >> i think the crisis tool is

trying to reclaim some credibility. we talked about being behind the curve and central banks have to try to assert control and on all markets. if the frustration with some of the arrogant and flat-out financial conditions but they want to try to calm the markets and say they are on top of managing inflation and policy and that is what has been so difficult and that's why we are seeing this around the globe. lisa: is 55 basis points enough to get the job done? >> i think it's a step in the right direction. for the fed, giving the impression that they are on it and they are data dependent and they have suffered from the idea they will wait several meetings to see how things flush out,

there is a proactivity there. i think as we get data that is starting to roll over in several categories, there are possibilities that they will have two really tighten into the face of weakening demand and i think that will not help them at all. 2 it's sort of the lisa: opposite of what michael mckee was saying. it may help the fed with cooling in the economic data but it indicates that perhaps the next meeting, they will be looking at inflation trends that are more in their favor. what is your push to that narrative? >> the issue is that fed rate hikes take a long time to impact the economy. when you think about demand destruction, it has shifted to now coming not from auto prices but coming from rent, areas in the economy are much more

sticky. for that reason, you need to get housing roll over but housing prices to moderate more. these are changes that don't happen overnight and are changes that come with wider implications for growth. we already got houses under pressure and we've already seen households be impacted by inflation negatively so demands depression is already here. tom: if we get a 75 beat move, three quarters a percentage point move, does the 30 year mortgage go up three quarters of a percentage point? >> it has actually gone up more than the long and has. i think we continue to see mortgage rates go higher and we have already seen the housing market cool down. what we really are talking about

is the connection between the economy, the labor market and the fact that the fed has micromanaging demand. they are a broad source, not a scalpel. this is the tip of the iceberg when you look at demand cooling and i think demand is not really cooling because of fed rate hikes. you look at the rate hikes they are making, that will impact the economy in several areas so they are really tightening aggressively into an economy that's already slowing. tom: what about the confused rhetoric of the central bank? we have covered confusion in the ecb today like we have never seen. will we be as confused? >> i don't think so because i don't think they will change their statements very much. in the press conference, jay

powell will continue to sound optimistic about the fed's up stability to create a soft landing and i think he wants to strike a serious tone. it will be interesting to see if we get another month of an upside surprise to inflation, what it means for the july meeting most of these are things how sensitive month to is. the real peace we are waiting for is to have the market respond and that is make or break. how aggressive will that be in the market is not expecting to raise the rates to 4% by the end of 2023. jonathan: thank you very much. i will catch up with two of the best in the next hour morgan

stanley wealth management and jp morgan asset management. we will do that on the next hour in bloomberg tv. tom: it's absolutely extraordinary. i cannot say enough how absolutely unique today is. no other way to put it. jonathan: an unexpected central bank meeting this morning. lisa: hiking into weakness is the theme across the board whether we talk about stagflation and what the fed does with that. the ecb is moving so quickly that is getting harder for economists to get their hands around what affect it will have a monthly data. tom: paul we are left with is price including yield. right now, i've got a modest and fragile projection on the euro

at 104.32. the ramifications of that is incalculable. jonathan: we will guide you through the fed decision later this afternoon at 130 p.m. eastern time. we will have a bloomberg surveillance fed special and later, this is bloomberg. ♪ ritika: keeping you up-to-date with news from around the world, this is first word u.s. democrats are said to be considering new energy legislation. democrats and the white house want to curb u.s. energy costs. we look at the strategy in perspective the asset manager for one of the world's largest private owned management firms.

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>> people have been calling this the peak of inflation but we don't think you can call a peak until the peak is over. we will start calling those peaks when we see that the market confirms that they are going down. tom: this conversation got a real buzz yesterday. she is with alpha simplex and this had to do with trend-based

trading. it was a clinic on trying to find peaks and troughs in a market. we will begin with a clinical chart and joining us is pretty --kriti group that -- - gupta. kriti: as we talk about higher volatility, you have to talk about liquidity and that brings me to the chart of the day, it measures the traders ability to trade without affecting the price in the line has gone higher over the last few months going back to levels last seen in march of 2020. the market was not functioning then, this is something banks are actively talking about and morgan stanley says look at it the in short-term treasuries are flashing warning signals at 2020.

this is very much a part of what people are talking about and today is day one of qt, the idea that 15 billion dollars of maturing treasuries are not getting reinvested and what happens when that increases more and more. tom: thank you so much. this comes to the heart of the matter which is the trust of the short term paper. lisa: kriti you never step on my toes and highlight important points in liquidity is one of the main concerns a lot of block traders have. ira, how poor is liquidity in the biggest, most liquid market and completely safe and they are trading like it going? >> i would argue it's not trading like bitcoin but in

terms of liquidity, is the worst liquidity we have had since the global financial crisis. we knew something like this was likely to happen primarily because banks don't have the ability and dealer don't have the ability to intermediate the market the way they used to . the size of the market is growing in the dealer balance sheets of not been able to expand so financing trades in the way the plumbing works has not grown and has gotten worse because of some of the regulations that plays into it to make banks safe and sabbath you're now making their ability to do intermediate market less possible. lisa: on a conceptual basis, guinea -- can you give us a sense of what happens when the system gets gummed up and the trading stops? >> what it means is that it used to be a bank or a hedge fund was

able to buy a bond and finance that via the purchase agreement market. that is what the libor market is made up of. it's $1 trillion per day step the problem is that trillion dollars has been at the same level as been for the last 20 years in the market has gone from a couple trillion dollars in the treasury market upwards of $20 trillion. so it's gone up 10 times so when a dealer buys a bond, they have to finance it somehow and if they can't, then the bid offers widen and that's what you see in the it index or they have to find another person on the buy side to take it from them and that means they have to move price. that's one of the big reasons you are seeing the size moves you are getting but i'm not surprised at the level but how quickly we are getting to these

levels and that's where the liquidity situation is showing itself. tom: a most unusual day, this emergency european central bank meeting and the observation is europe is different, europe has bonds, many more bonds in a relative basis. how do you expect bond prices to react and respond in europe as they go in search of a new crisis tool? >> when we get the periphery spreads down, in europe, they don't mind yields in general going up but it's liquidity magnitude and the spread for some of the sovereign counties that will take precedence and that's the reason the ecb felt it necessary to have this emergency meeting today. it's also not a major surprise given the liquidity situation. you see the fragility of something like what is happening

in the system. you still don't have a single fiscal structure so one of the advantages the united states has and and and other large sovereign bond markets is we have a very homogenous government fiscal system in general. i think it will be more difficult especially in times of stress when markets are falling for those peripheral countries not to have the integrated system at the core. tom: we have people arguing about who will take the loss? who takes the loss when bond prices go down? >> everyone does and the taxpayer ultimately does in the united states because you have to pay higher yields to finance deficits and refinance some of the maturities coming up and that's especially true now because today is qt day, the first day we have maturities,

treasury securities that cannot be reinvested so you have more people, more investors that need to buy that paper moving forward. there was an auction last week. nonetheless, you will see liquidity issues as time goes on and everyone pays the price. the economy in general pays the price but we are already paying the price. when you look at what the market is pricing for june cpi and july cpi, it's 9% the next two months. that's something that central banks in the fed in particular really want to get in front of. tom: thank you so much. that goes to the real zillion see of oil, brent crude is at $120. the idea of a pullback in hydrocarbons just simply hasn't

happened. lisa: 35 minutes to the opening bell in new york city and we are seeing a further lift on some of the strength we saw in the rebound or trying to have a bit of a dance ahead of the open. this is significant because people are viewing this market is possibly a ray of hope for the fed that there is a cooling in the economy that will allow them to not move as fast and whether that's borne out and whether they do that, that will be interesting. tom: the euro right now, there is only one word, plunging dramatically weaker. what an eventful, historic day. our fed coverage is this afternoon. ♪

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jonathan: from new york city this morning. this is the countdown to the open. ♪ >> everything you need to get set to the start of u.s. trading. this is bloomberg, the open with jonathan arrow most -- jonathan ferro. ♪