>> we've been looking for not a technical recession but a significant enough slowdown. >> the underlying fundamentals are still pretty good. >> the next newsline battle is going to be between earnings and inflation. >> over all we are looking at an economy losing momentum faster than what we anticipated. >> this is bloomberg surveillance with tom, jonathan ferro and lisa abramowicz. jonathan: good morning. this is bloomberg surveillance on tv and radio. i am jonathan ferro with matt.

we have to start with this fx market. tom: fx is really front and center. bitcoin is not a currency, just to keep matt in order. fx is a litmus paper of the system. maybe three times in every decade it really matters. i'm going to go back to deutsche bank, the day of the putin invasion of ukraine, he said strong dollar will break the system. are we there yet? jonathan: look at the consequences already. the trade balance in germany turning negative. you throw in the bundesbank, to the ecb and the executive board. tom: there is no question about it. i'm going to partition it right now. is em fx and then you've got the actual fx euro-dollar, the rest of it, but you've got the

triangulation of the different pairs and that is what we will focus on in the jobs report. jonathan: michael feroli on friday, downgrading his outlook for economic growth off the back of a soggy soft week in manufacturing numbers. matt: and it looks like in the u.s., we are already in a recession, at least technically because we had a contraction in the first quarter and the atlanta fed gdp survey shows the contraction of 2.1% for the second quarter. unless the print beats that in 23 days from now, the u.s. already has two back-to-back quarters of recession. jonathan: morgan stanley publishing this morning, saying the risk of growth slowing more than expected has increased. tom: it is, but expect the unexpected and it is not announced but you get the tariffs from china, the gloom, you can walk through it over the

weekend. a huge amount of gloom this weekend and it'll be nice to talk to a more constructive tone later. jonathan: did you notice what was on top of miller's desk this morning? he came in on the bike, not the truck. can you tell us how much money you saved? matt: filling up the truck costs $150. filling up the bike costs more like $20. jonathan: matt miller, looking forward to this for the next few hours. let's whip through this price action. the nasdaq, -6/10 of 1%. the front end of the curve up six basis points. tom, that is the story right now. tom: technically we are not there. the real yield speaks volumes. we have seen a shift in the

inflation in just the 10 year yield. that is something that i think has been under viewed this week. i'm going to go to fx. jonathan: did we catch you being an optimist? ben, what are you looking for? ben: that is the shoe that has not dropped yet. we had a big drawdown in valuations. earnings have been rocksolid. and if earnings can continue to hold then we sort of dodged that bullet and set ourselves up for a stronger second half. if earnings cracked, that is the ingredient for potanother leg d. expectations will be falling,

companies have been pretty good so far and holding onto that topline growth and managing to pass through the cost to you and i and keeping their margins pretty close -- tom: lousy real gdp growth, but i still have a pretty good inflation level, which i believe is a good animal spirit in nominal gdp. is that a script for the second half? ben: it is all about inflation. we are pretty close to peak inflation. if we get relief, i think this recession freight train which has been picking up speed, takes a step back and gives room for valuations to rise, which are now 20 year averages, and some of this relief of earnings expectations a little bit, at least in terms of the market, that is a sort of bullish narrative, but we do have next

week, big inflation numbers and the start of cuter earnings -- q2 earnings. matt: -- was on the program last week saying analysts are in crazy town right now and the need to bring their estimates down, and that michael burry tweeted last week, we have done the valuation compression, next up is margins. what do you expect? are we looking at a 50% drop in earnings the way we did in the great financial crisis, or is this just going to be 20? ben: 20 is your average and i think it is going to be less than average. there is nothing inevitable about this recession. risks are rising with corporate's in good shape, technical points well taken. it is not going to be global. we saw the china pmi right this morning. it is not going to be big. this is a typical fed driven recession. we will not have the 2008

multipliers, like over levered housing and banks which gave us a 45% earnings drawdown. and again, the s&p 500 is the cream of the crop. these are the people with the big balance sheets and global operations. if anybody can handle a mild slowdown or recession,. it is them. tom: you are -- recession, it is them. tom: you are the king of staying strong during the gloom. what is the laidler gloom meter looking like right now? ben: we've been here for six months and nothing has worked. we just closed our first quarter, the first half of the second quarter and literally nothing has worked. i think people are very depressed and that is one of the ingredients for this potentially

better second half, if we get some relief on inflation. corporate's can hold strong and make us -- i don't think corporate's are completely immune here, but i don't think we are set up for an earnings collapse. the sentiment is terrible. those are your four ingredients. jonathan: on the earnings front, can you walk us through where you are less constructive? what would you avoid? ben: i think right now, we want to be in the market. the risks are high. i want to be pretty defensive. consumer staples, utilities, the earnings risk is a lot lower. anything that is sensitive to the economy has been taken out of the woodshed and destroyed. that is why the risks remain high. jonathan: the one market that is

up is energy. there is this tension between the story matt is talking about, recession and what is happening in the energy market, and whether those stories can coexist through this year. do you think they can? ben: i do. maybe not at this price but we are in a time of a high for longer energy -- rates are half what they were last time. the biggest demand of oil in the world is recovering, which is china. i think it is a glass half-full story at this point. jonathan: ben laidler, of etoro, thank you. the fact that we have seen this stuff in the energy sector, for that industry with the commodity, with china, locked down over the last two years. that is amazing. tom: the global backdrop is what it is, 3% gdp and we may even

see that mark down, given the tale of china recovering, and those important political meetings of the year. this is the first day of the kick off of second half after the three-day holiday. this is where the colonies won the war. that was a celebration. jonathan: can i claim something? growing up in the u.k., you really don't care about this. i'm very happy to wish my friends in america a happy fourth. you seem to be much or concerned about how we might feel about it, we don't really care. matt: i get it. it's the same as when michigan loses to ohio state for 10 years in a row. we rub it in their faces. they don't care because they are in academic school. they have all of their surveys and indexes to fall back on. we only have football. jonathan: so upsetting. tom: i can barely keep up this weekend, between the focus on

what kind of hot dogs to eat and the scandal with ketchup and mustard. full disclosure folks -- the stresses out there were substantial, but i couldn't relax because it was the biggest weekend. what is rinaldo going to do? jonathan: these reports are while right now. did you see the tweets from the president over the weekend? my message the company's running gas stations. this at a time of war and -- jeff bezos had his own thoughts on this. we will touch on that in just a moment. futures -4/10 of 1%.

where is bramwell? tom: i think she is at yorktown, watching the battle monuments. jonathan: she'll be back next week. this is bloomberg. ♪ ritika: keeping you up-to-date around the world with the first word, i am ritika gupta. in highland park, illinois, a 22-year-old man is being held in custody. police believe the attacker opened fire from the rooftop of a building near the parade route. china and the u.s. have discussed trump era tariffs president biden is looking to ease. the lifting of tariffs and sanctions is an area of concern. there are reports the president may announce a rollback on some tariffs on hundreds of billions

of dollars worth of chinese goods. that would help lower the cost of everyday merchandise. the new leader of hong kong is signaling a cautious approach toward the coronavirus. he says they want to balance traveling convenience with limiting the spread of covid. he also warned that people in hong kong should only be allowed to go about normal activities when it is known they are not infected. citigroup warns that oil could collapse to six he five dollars a barrel by the end of the year. analysts say could slumped to $45 by the middle of 2023 if a recession hits. that is based on -- by the opec-plus cartel, and a decline in oil investments. scandinavian airlines have filed for bankruptcy protection to deal with their debt for the second time in two years. -- raise additional equity.

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>> we are working right now very actively to diversify our gas supply. clearly the risk is there. we see russia cutting gas to other countries. it is something we need to take seriously. jonathan: that is the european commissioner for economy and trade. welcome back from a long weekend.

matt miller, i'm jonathan ferro. euro-dollar briefly at 1.02. you have to go back to 2002 to see the currency this week. it has been a long while. tom: first thing i did when i came in, turkey's idiosyncratic but there is partitions and effects analysis that we've got to look at and i'm not going to mince words. deutsche bank, the day of the ukraine invasion, absolutely nailed this and said it is not plaza cord levels but it is a strong dollar. jonathan: the front and center yields off by -- the difference between twos and tens across the treasury curve, one single basis point, just one single basis point. tom: i would say there was a shift in the curve up. i'm lifting my hands, for those

of you on radio. this week, you are getting some of the squishy dynamics where you have to -- head towards inversion. jonathan: yields down last week. now into tuesday. we have to keep building on this. new components of the dreadful contractionary territory. we haven't mentioned payrolls this friday. tom: payrolls will be incredibly important, and then the month of july with earnings as well. international relations on washington and all that we see in europe and china. maria tadeo, after an eventful set of travels in social and today, i want to talk about the diversion of the weekend, the thunderous reality that the russians are winning the war. both sides grinding and then there is this story or that story but essentially they are winning the war. mr. putin is winning the war but

the backstory in moscow is he is arresting everyone in sight. his he winning the war? -- is he winning the war? maria: he was on camera and he spoke with the head of the russian army, congratulating them for making -- going to continue special operations and focus on -- if he is successful, that means the invasion and occupation of the donbass will be completed and that is the goal. what ukrainians fear, and there has been a -- where there is a reconstruction conference going on, they fear that once he completes the invasion of donbass, is going to turn to further inroads of ukraine. when it comes to the arrests we are seeing play out in russia, russian citizens, this is just vladimir putin doing what he said he would do for months ago when he approved legislation saying if you don't support the

war, you are not russian or patriotic and therefore you have to be taken out of the picture. that. . is essentially what he said for many russians, -- that is essentially what he said. from any russians, when they watch tv, they don't hear about the war, they don't hear about the arrests, they hear that their boys are making good progress in a very good operation. tom: we lost sight of this with tragic shootings in the u.s. and domestic politics in the rest of it. joe mathieu, what is the next step on ukraine for the white house and our president? joe: maria got to this in her interview. something we talked about over the last week or so, the idea of using hundreds of billions of dollars frozen from sanctions, russian money to pay for not just the war effort but the eventual rebuilding of ukraine. i spoke with daniel friede, the former ambassador to poland and he says this is the point we have to be focusing on. it is not going to come easily

but there is an issue here where the money is going to come from, as we get closer to the midterm elections. the prospect of war fatigue, it is something this white house knows about, even after -- just days after, the words of the nato summit were for as long as it takes. we are talking about indefinite support and likely billions of dollars for it. either that money is going to come from russia or it is going to have to be a much more concerted focus on keeping people trained on this, keeping americans involved as we go into a potential recession, why we should be handing all of this money over to another country. matt: and our record on indefinite support isn't that great, if you look at what we have done in afghanistan. we said we will support them as long as it takes as well, and then we pulled out, in a pretty messed up way. joe: i don't know that we can compare the two. in terms of duration, this is going to be an issue and

something that the white house is already feeling. senator rand paul was talking about this months ago, and the idea of keeping republicans and democrats on the same page ahead of november when it comes to indefinite military support for ukraine may be easier said than done. jonathan: are they on the same page when it comes to tariff removal? i'm fascinated to see how this will play out. joe: there is new urgency following this meeting with janet yellen and the vice premier of china. the parties do not agree on this. progressives want to see the tariffs stay, and republicans are mixed on it. the fact is there is an argument inside the administration. the u.s. trade representative doubts the impact of removing the tariffs while also losing leverage, some of the only leverage washington has over beijing. the peterson institute and barclays both say that between 2/10 and three tens of a percentage point drop in u.s. prices in u.s. inflation is what we would accomplish. the question becomes the balance

between loss of leverage and lowering prices. jonathan: joe mathieu of bloomberg alongside maria tadeo. i thought it was interesting that maybe they pulled back some tariffs on chinese goods but double down when it comes to technology. you've got to find some balance. this is so important. at the same time you are accusing the chinese coming's party of genocide, the same time that is happening, d.c. is on the same page with the stuff and you will go forward and potentially remove tariffs. we talked about how awkward that is. matt: it is awkward, and not the only awkward situation we face. the president is likely to go to saudi arabia and meet with the pariah leader, nbs and ask him to raise oil production, not that they can do very much, rather than going down to texas and assuring u.s. producers that they have his support. in terms of tariffs, this is a

really interesting story because i expected it to be a lift to risk assets this morning. we have seen big drops in europe and futures in the interesting point is at the tariffs will go both ways. jonathan: i promised the jeff bezos's to the president. inflation is far too important for the white house to continue making statement like this. it is either misdirection or a deep misunderstanding of basic market dynamic -- basic market dynamics. tom: price theory 101. jonathan: we would love to catch up with jeff whenever he is free. from new york, this is bloomberg. ♪

jonathan: the u.s. and china pulling back on tariffs not enough. negative half of 1% on the s&p. losses last week, we add to them this tuesday morning. yields lower last week, a little higher today but picture this, --

a lot of this is about weak data, a feed of week data. all through most of last week with the potential to do that again this week going into payrolls friday. a turnaround, a big turnaround in the fx market. euro-dollar, very briefly with a 1.02 handle. tk, you have to go all the way back to 2002 to see these kinds of levels on euro-dollar and you can take your pick this morning. i would say look to the bundesbank, looking at the ecb emergency policy but for europe right now, this is very vicious. it starts to become a bit of a spiral. what breaks that vicious cycle? tom: the spiral as part of it and i fold on the e.m. which we will not talk about but i think the e.m. angle bears a lot of study, a la stanley fisher back

in 1988. this is the chief economist at axon investment managers. he is a student of the european economic experiment. this is the interview of the day on the collapse of so many certitudes in europe. i want to cut to the chase when i look at trade-weighted euro and i get it is weaker and it really hasn't technically broke down, but we are getting there quickly. the stereotype that a weak euro benefits german exports, is that from another time and place or is it still true that germany will be benefited by a weak euro? [inaudible] the strength of the currency or the absence of strength. what makes the strength of german exports is the quality of

-- they have been less sensitive then italian or french exports. we are in a specific situation right now because the reason why is the trade balance in germany is generating -- degenerating so fast because of what they have to pay the rest of the world to get their energy. we have a very specific situation which has not much to do with where the currency goes. tom: gilles on slows, you and i have studied from another time and place. they gentleman over at the german bank is very concerned about strong dollar. are we getting to a point where strong dollar is actually an international relations issue, where it is removed from economics? gilles: we are still in a situation where if you look at where interest rates are right now, it makes sense that we have

a strong fiscal dollar. they started heidi -- they started hiking rates, the ecb talking about if they will do it in july. the potential for them to go pretty deep into restriction territory is quite high where is the ecb is talking about -- so that we have strengthen the dollar at the moment should not come as a surprise. is it a political issue? i think increasingly, governments are more relaxed than the used to be, at least on the european side, when it comes to the strength of the currency, especially in the situations we are in right now. i would not be surprised if it were to run so high in the public debate, at least on this side of policy in europe. jonathan: we talked about the trade surplus being very

supportive for the currency. that story has changed. to what extent has this become a different story with a weaker currency, one that is very hard to break? i want to understand your thoughts in real time. gilles: the fx market that is driven more by growth and interest rates, rather than any concerns over the payments in general, because i know it is unusual to see germany in a trade deficit but it is due to this very specific situation. it is not suggestive of proper deterioration, to continue to

build products which the rest of the world wants to buy. it would be prudent -- current weakness in the euro is the result of the balance a statement -- if you take the five to 10 year trend, maybe germany will have a tough time transitioning from its current model. add the current juncture, and the need is real. matt: what do you expect, gilles , from fed? it seems like they are locked into 75 basis points in july, otherwise they will lose credibility. we had ed hyman on, and he was talking about personal consumption and spending. both of those data points missed the estimate and it is key to have the consumer keep spending

to hold this economy up. gilles: -- failed to deliver on his forward guidance. it is probably this kind of moment when the fed would be rethinking its trajectory. a lot of reasons why they should be more prudent. i can tell you, like many economists in europe, what we would tell the fed to do. don't go to 75. what is happening in the u.s. is we have the standardized enforces starting to finally emerge. we've been waiting for spending to be hit by the erosion in purchasing power. it seems to be finally

happening. a lot of the collaboration, plenty of hawkish collaboration at the fed was based on the fact that so far, we have failed to see these self stabilizing forces at play. if they are working now, there is a great case to be made. it is not about breaking credibility, it is about being pragmatic about the state of the economy and what you want to achieve to deliver on your purpose, which is to tighten inflation. if inflation is contained on its own, because people start spending or spending less, having -- you would have less to do in terms of tightening. it is a healthy debate to have. jonathan: great to catch up as always, gilles moec of axa investments. tk, what did mark twain say?

history does not repeat itself, but it often rhymes. tom: scandinavian airlines, i don't have the details in front of me but we are getting very striking. -- very strikey. a lot of article saying it is not like the 1970's. i get that. nevertheless, they tend to be disruptive and i wonder how that holds across e.m.. i'm noticing in indonesia, the rupee out to new weakness. i think the linkage -- we are euro focused but the -- jonathan: it is norway too.

matt, as you know, the dependency on russia has been a big deal. that will shift towards norway to some aspect. what we are seeing is norway strikes with the potential to cause even more pain in the energy market. this goes back energy and this relationship with the euro. this is more than problematic. matt: and in norway, seeing strikes like this is more concerning than the u.k., where striking is a national pastime. the interesting part -- the interesting comparison to the 1970's and the push back against it, a lot of it has to do with metrics. you talk to neil grossman or bill dudley, and they will tell you we measure inflation differently now and if we did at the same, we might see teen 70's style inflation right now in the 20 20's. jonathan: do you think we grow up and they tell us how to strike? matt: i lived there a few years and there was a tube strike every couple of weeks. jonathan: if you lived in london

for a long time, you only knew london by the underground map. everyone would come up to the surface and they would have no clue how to get home when there is a tube strike. did you see that take place? matt: i typically road my ducati to work after i realized there was no way to rely on the tube, but other people had problems. jonathan: trying to navigate our way back from east london to west london without the tube, and getting lost. tom: that is a great story. all i got this morning was a morning tang. jonathan: tang with vitamin c. that's a real thing. matt: the astronauts drink it. jonathan: that is what people take it for now? tom: the colonies. the weekend was about when the

colonies won the war in 1781. jonathan: that is what it was about. i just thought it was an extra day off. tom: i'm sure you did. jonathan: futures down half of 1%. this is bloomberg. ♪ ritika: keeping you up-to-date with news from around the world, i am ritika gupta. a 22-year-old man is being held in the deadly shooting at a fourth of july parade in highland park, illinois. he was arrested following a brief police chase. authorities say he opened fire from the rooftop of a building near the parade route. six people were killed, dozens more wounded. president biden marked the fourth holiday by noting the u.s. has made great strides but has also taken a few steps backwards. at a white house event, the white -- the president said americans are worried about the division in the country and he described the economy as growing but not -- turkey has renewed its threat to keep sweden and finland out of nato.

the prime minister said he will not ratify alliances if they don't fill their promises to extradite terror suspects. the turkish parliament will eventually vote on sweden and finland's nato applications. the u.k. will force owners of apps such as social media and search engines to -- if they don't, they face fines as much as 10% of annual sales. bloomberg has learned that -- as emerging as the front runner to buy -- the business could be valued around $20 billion in any deal. 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 am ritika gupta. this is bloomberg. ♪

>> i think the method was crystal clear from this week's remark by central bankers. they are worried about inflation getting entrenched. rightly so. i think the notion that the fed will blink early, based on credit issues is not likely to happen. jonathan: absolutely brilliant on friday, on what is happening with credit. spreads are wider. that is the story for equities down a half a percent. on euro-dollar, 1.03.

-- two reasons, risk sentiment, natural gas the other and concluding we now think the probability of euro-dollar falling to parity is around 80%. unless not gas manages a strong reversal to the downside, it is difficult to see pressure abating for now. tom: give me the chart if you can, the eu chart on nat gas. this is very different than what we see in america, it is real simple out of the netherlands. critically above the moving average, i use for the february spike. jonathan: unreal, and that is where the pain is. tom: the calendar, you are running algebraic equations and you have to put the calendar into it. somebody who is good at this, she was absolutely brilliant the last time she was on with us,

and open question with all that is going on. what is the significant paragraph in the note you will write this week? what is the thing that you are really studying right now? >> two things i would say. first and foremost is around recession, i think while there are a lot of fears around exactly how the recession will pan out and what it means for oil demand, for us, the conical thing to highlight is that asia -- and you and i have talked about this a lot -- china's reopening, i do think a mild recession is priced in. nobody is talking about what if demand holds up, what could prices do? we are looking into that and of course on the supply side, we got a strike going on in norway, and we've got some seasonal pressure coming through as well.

tom: are the elasticities of gas the same as oil? is it like brent crude? amrita: i would say on the industrial side, let's start with the consumer side, with the consumer side, absolutely not. natural gas is electricity which means you are going to require it, particularly for home heating during the winter, whereas arguably you could drive less, unless you have to drive to work. from a consumer standpoint, natural gas is even more in elastic than oil. if you look at germany, the netherlands, they are dialing down a lot of gas consumption, simply because gas prices are so high. our models already building in some significant demand in

europe because of high gas price -- demand instruction in europe because of high gas prices and given what happened in the u.s. with lower energy. if chinese -- picks up in the winter, risks like you guys were talking about is absolutely to the upside when it comes to prices in europe. matt: tom, i will see your elasticity and raise you fungibility. why aren't natural gas prices as fungible as oil? we see such a huge difference in the price here versus the price in the netherlands. why aren't they as interchangeable? amrita: great question. the simple reason is oil has always been a global commodity. remember when the u.s. used to not be able to export crude? we had wti trading at $20.

that is when it wasn't as fungible. now with exports allowed, the price will dictate flows. whereas gas is slowly getting there. it has been in regional markets and even right now, the u.s. does not export as much gas as it could at these current prices. and of course you have the outages at ports. that is the difference. gas has always been a more localized market. matt: i want to ask about the competing calls on oil this morning, amrita. citi, saying $65, which makes sense if we have a deep global recession. on the other hand, jp morgan says it could go as high as 380 dollars, which is an eye grabbing headline but what the tosha can ava put behind that, she says this is -- she says

given moscow's robust fiscal position, they can afford to weaponize oil and pull 5 million barrels a day off of the global market. do you think that is realistic? amrita: we don't think that is likely because so far, we still see russia acting as a rational player in the market, both for oil and gas. it doesn't mean that energy does not get weaponized. more so for gas than oil, we could see that but definitely not the base case. in oath cases, i would highlight these are very eye grabbing numbers. it makes the media headlines. i would argue even in a deep recession, i don't see oil prices going below $80 or $90 because of years of investment. look at the u.s. the dallas fed survey only talked about labor shortages and

equipment shortages. nobody is actually able to raise production very much. that is on the one side. if russia were to cut 5 million barrels, given how tight the market is, you could literally pick a number. $380? it could be $400 something. jonathan: could the global economy tolerate it? amrita: absolutely not. the only reaction has to be a very deep recession and oil demand has to collapse, to even balance this market. jonathan: amrita sen, thank you, from energy aspects. once you go above $200, most of these guys in this market, these analysts do not expect the economy to tolerate that for very long at all. matt: the economy could not tolerate it but the market be able -- may be able to do it.

jonathan: i agree with you. matt: the price action, if you see real tinkering with the supply, then the price action, the sky is the limit. jonathan: looking at payrolls this friday. they are expected to slow down. well above long-term trade growth and clearly above recession. tom: that is the game we will have into friday. we don't have an adp report, right? jonathan: we have to wait on that. you are not disappointed? from new york, this is bloomberg. ♪

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>> we have been looking for a significant enough slow into next year. >> theilpretty good. >> the news headline battles in between earnings and inflation. >> we are looking at an economy losing momentum faster than what we anticipated. >> this is "bloomberg surveillance." jonathan: