>> if anything the fed hikes more than what you have price to the market. >> given the fact that volatility is so hot and liquidity is so low, we are

cautious. >> a level of demand destruction is actually coming through and accelerating. >> the consumer is on somewhat more fragile putting. we are seeing cracks emerge in their spending patterns. >> this is bloomberg surveillance. tom: good morning, everyone. i holiday shortened week. here we are with the job stay on friday. matt miller is in for bramo. foreign-exchange is the litmus paper of the global system. jonathan: a break of 1.20 on cable. dollar strength. fueling that is the energy move we are seeing in europe, shaping the view that we see recession there, risk sentiment on the back of downgrades. tom: there is a story here,

norway angle, but the real angle is uncertainty. jonathan: we have downgraded the outlook in the united states, whether it is goldman sachs, morgan stanley, they have all done that. earnings is next. that will be the next big driver for many people. tom: piper has their own soap opera on netflix, but what a difference of opinion we have. jonathan: some are more constructive than others. morgan stanley has different views on this. tom: matt miller, let's use your expertise on germany today. they are not worried about earnings expectations, they are worried about paying the gas bill.

matt: prices continue to exponentially rise. i think they are also worried about selling their stuff. even with a weaker euro, and we had a 1.02 handle today, we saw a sales coming down in france, portending a bigger drop across europe. they cannot get the chips they need. tom: what does this mean for christine lagarde? what does this mean for her? her degrees of freedom are much less than the federal reserve. jonathan: she has not had to deal with a whole lot of it but she may have to now. the bundesbank pushing back against building this fragmentation, whatever that looks like. that will be a thorn in their side as they put this together. how do you tighten financial conditions but not too much?

what is too much in italy compared to germany? tom: i will start the data check. the bloomberg dollar index is doing a little bit better than the major trading dxy. 1.06 is really something. yen has not played. jonathan: you have to go all the way back to 2002. 1.0290. four straight sessions off the back of weak data. starting to see the front end left. the difference between twos and tens, a single basis point. the inversion that some of you are looking for, mark cabana is looking for a 4 handle on fed funds.

he thinks the economy is strong enough for the fed to be able to contain inflation. the pushback we have had on that call, massive. people are saying, take it to 4. does that do anything about energy or food prices? as you have said, you have got to eat. that is not a joke. things are expensive but there are some things you have to carry on buying. tom: matt miller with the word of the day, fungibility. over a decade ago, sam stovall did what was hard to do, he followed on from his historic father and wrote the seven rules of wall street. it did rather well. sam stovall of all, what is the rule of wall street this morning sam: good morning.

i guess the rule is you don't fight the fed. i think the fed has to remain aggressive because this is now the sixth time since world war ii we have had the year on year change in cpi about 6.5%. every prior time we slipped into both a bear market and recession. i think there are still concerns ahead. jonathan: help me with the earnings picture as we kick things off next week with j.p. morgan. to what extent is the barlow? others have said we have not even started cutting our estimates on that front. sam: my father used to say that you can rarely injure yourself by falling out of a basement window, but i don't think the expectations are that low. they have come down from march of this year, we expected to see the s&p post a 6.3% rise.

profit margins, which were expected to be down 4.1%, expected to be off 5.3 percent with more sectors joining the negative side. i still think there is more downward revisions to be experienced. matt: we are talking about netflix today. piper sandler reducing their call from a neutral to a by. the analyst estimates are still for 2.83, so they expect a 60% gain between now and the second quarter of 2023. one will analysts bring their revisions down? sam: in many ways, once they hear from management in this coming reporting period, not only will we see earnings come in weaker than anticipated for this quarter, but they will be forced to reduce their estimates.

in many ways, prices lead fundamentals. right now, fundamentals are holding firm. they will look down soon and realize they don't have the support they were expecting. matt: can i ask you a trivial question? that your time at the stern school of business, learning portfolio construction for the cfp, the term draw down to me always meant peak to trough. and you have to fully recover before you can measure a drawdown. it seems it is the word of the quarter. everyone is using it to replace "losses." doesn't a draw that have to be measured after a full recovery? sam: just as we decide whether we are in a pullback, bear market, whether it is garden-variety or a mega meltdown. you have to wait for corrections and pullbacks. we have to get back to break even before we can say that was

what we were in. for bear markets, we need to see that 20% advance off of the prior lows. you are right, a lot of this is done in the rearview mirror. may be the term draw down implies that you did not actually turn a paper loss into an actual loss, so they are doing a little refining on the terminology. jonathan: awesome to get your view. sam stovall of cfra. remember the netflix numbers, a lot of that was an industry view. we were not talking about weakness in the economy. those two weaknesses from netflix. 20 of of january, stock down 20% off of earnings. . go again. just goes to show you how much work we have done in some parts of this equity market already. matt: the concern on netflix is

you have reached some level of saturation already as they switch over to more of an advertising some ordered model. remember how well we did during the lockdown. there was nothing else to do. it has been suggested that if we have a deep enough recession and we all lose our jobs, we will do nothing else but watching netflix at home. jonathan: i remember when the economy was smashed and my dad cut the cord on sky. think about how many subscriptions you have to choose, with the flexibility to make that cut. it is not just about making the cup to sky sport or the satellite package, you have individual choices. you can start to see some of that emerging. tom: matt miller talked about fungibility, which means substitution, but it is not funny. a middle-class clobbered by

inflation are going to make choices that will go over to entertainment. they will go see the new top gun. i know you have seen it five times. but they will make choices here. on the revolution of stream income it is simple, they will go down to three in the house. jonathan: on sunday, i actually watched it for the first time. what an upside surprise. what an awesome movie. matt, i was so impressed. matt: you know my problem with it. where is charlie? the whole point of the first top gun, he is going to lead, but he comes back for the love of his life, kelly mcgill us, and i don't even mention her. penny benjamin was the only one left. jonathan: there was some weakness in that story plot. they had a generation of fighter jets that they didn't have. the enemies had a superior jet,

and i could not get my hands around that. why did they choose the f-18? matt: they chose the f-22 because the actors but not able to pilot the jet. the f-35, they made up some reason for why they couldn't use it. jonathan: you know more about this more than i do. tom: just to indicate the planet that we are not on, i have not seen either movie. jonathan: you have not seen the original? tom: no. over the weekend, ms. keene said let's watch grace kelly. she wanted a bag. jonathan: cheaper for you to watch top gun? tom: grace kelly killed it with william holden. jonathan: that is what you did over the weekend. leg lower on this equity market.

this is bloomberg. ritika: keeping you up to date with news from around the world, i'm ritika gupta. the man was arrested after a brief chase. police believe the attacker open fire from a rooftop. china and the u.s. have discussed tariffs that resident biden is looking to ease. the vice premier told janet yellen that the lifting of tariffs is an area of concern. there are reports that the president may announce a rollback of some tariffs on hundreds of billions dollars of chinese goods which would lower the cost of everyday merchandise. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg.

>> we don't think it is highly likely that they go to 4%. we think that will be too much of a catalyst to the economy. right now the market is correct with a 3.35 peak, easing in the second half. we still think the fed will do 75 in july. jonathan:.

morning -- good morning. bramo is back next week. future down by 1% on the s&p. on the nasdaq, down 1.3. a lot of talk about the euro-dollar. 1.02 handle. we have some problems with gas. yields are lower again for a fifth straight session, down almost a basis point. 2.8729. jonathan golub at credit suisse was at 4900 on the essen the. he goes down to 4300. he is reiterating his outlook on earnings, still constructive. the target is being adjusted lower. it is not about recessionary concerns. tom: we will see a lot of that in the second half of the year.

i would suggest everyone needs to recalibrate this friday. jonathan: you mentioned last week the downgrades and here they are. tom: are they going to recalibrate a get off of a job support? jonathan: if you need to recalibrate again, it will be off the back of the earnings. tom: or off of your pink slip as you go out the door. jonathan: that is not funny. tom: jim bianco joins us this morning. he has a button on his lapel. that was from another time and place, the red button, white letters, gerald ford. greenspan said this will never

work. they said no immediate miracles. turn the button upside down. when is the miracle that joe biden needs to fix inflation? jim: inflation is the issue. the debate right now in the marketplace is slowing growth and high inflation. the market wants to center on the idea that growth is slowing, so we have to cut our idea on how aggressive the fed will be, lower interest rates because the economy is slowing. i don't think that matter so much. that priority now with inflation is to bring it down. if the economy wants to weaken, it weakens. as long as prices stay up, you'll see an aggressive fed, higher interest rates, and an inverted curve. to this friday's payroll report, i've been watching, if we get 325 jobs, good news is bad news.

that just means the fed can go 75 and talk about another 75 right after that for the september meeting. tom: the hallmark of your work, you look at the glide path. if i suggest a glide path that is not linear, there has to be a kink somewhere around 5%. what is the strategy now versus 5% where they have to know get down to the 2%? jim: if they were to get to 5%, you would see the fed readjust. but the bloomberg estimate is another 1%. that means, through june, we will already have 5% inflation done for the year. last year we had 4.3 last summer. we could see an 8 andalon

inflation well into the fall. if we see that -- and chairman powell has made this abundantly clear -- he is not backing off if we don't see the inflation numbers come down. matt: he cannot afford to now. they have to go 75 on july 27. if they don't, and inflation pop tire, they risk looking like arthur burns. jim: exactly. they have set that in stone, which is why it's difficult for the market to come around to the idea that slowing growth will matter. gdp is out the next day, july 28. the atlanta fed number, -2.1, it has never beaten by 2.1. you would have to expect they good 75 basis points, and the next day we would get a second consecutive negative gdp print. we have never had two negative

gdp prints that were not in a recession. this could be difficult for the fed. matt: this is a point that bears repeating. i picked dominant -- picked up on it by following you on twitter. the atlanta fed gdp forecast is for a contraction of 2.1% in the second quarter, after we know the 1.6% contraction in q1. it is terribly unlikely they are wrong, at least in terms of up or down. jim: they could be wrong, but are they wrong by more than 2.1%? they have never been that wrong this close to the meeting. there is always a first time for something, but history says we will probably print a second negative gdp number the day after the fed hikes 75 basis points. jonathan: and they will have to

hike again, and that maybe again. jim bianco. we are getting some interesting calls on the south side. nomura. jordan rochester did not share this with us. tom: legally, he cannot do that. he has to sell to his clients before jonathan ferro. jonathan: today's move lower in euro-dollar is just a warning sign as to what may materialize. we have an even higher conviction that euro-dollar will reach parity toward 98 in august, and maybe even lower. jonathan: how do you have a higher conviction on a war in ukraine, with all the seriousness of that, and at some point they must address strong dollar. 98 euro. that is .98.

jonathan: within that is a call for gas prices. this is where fx teams are getting uncomfortable. they have to make that call to make a call on euro-dollar. matt: i just want to point out, we talk about the euro at the lowest since 2002. that is when it really started. you can talk about 1985, 2001, but we did not trade our deutschmark's four euros until about 2002. jonathan: from new york city, good morning. heard on radio, seen on tv. this is bloomberg surveillance. and it's easier than ever to■ get your projects done right.

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jonathan: looking ahead to payrolls friday. good morning. bramo will be back next week. futures are down more than 1% on the s&p. just obsession lows on the s&p. we have talked about the fx market breaking down on the euro side. 1.0296.

some interesting calls out there. nomura looking for .98 in august. treasuries firmer, yields lower. it is the core government bond rally. germany, down 12 basis points. 10 on the 10 year. tom: a lot of this has happened in the last hour of the different headlines. the equity market is down, but not down to where it was july 1. the vix has not come out. over 30 would catch my attention. jonathan: jonathan golub is pretty constructive on the back half of the year. he says 4300 is the base case. 4900 previously. this is not recessionary

concerns for the team at credit suisse. tom: the cost to capital, nominal and real, and that's a great place to start with john ryding of brean capital. the question right now, businesses, to they think in the nominal space, is everyone a slave to the inflation-adjusted analysis? john: if you think about it, we have not had these inflation problems since the 1970's, 1980's. many businesses are not used to handling an inflationary environment. money illusion exists with consumers and businesses, as well. if you start with the policy rate, with the inflation rate at 8.6%, you are looking at a

policy rate that is extremely negative in real terms. all the anxiety about the fed raising interest rates, it has to be looked at in the context of that inflation rate. the idea that we have had this bear market in equities but it has been a multiple adjustment to a higher nominal yield. tom: i think of you and michael darted out with your work on the fed years ago. so many people have not lived this. what i'm hearing from relative optimists, we will adjust as yields move higher. we will adjust as they bring up interest rates. do you have that optimism that we will adjust along the way? john: there will be adjustment along the way.

two negative quarters of gdp do not make a recession. recession is inevitable, but i don't think it is imminent. i don't think companies experienced a negative gdp in the first quarter. if you look at the income side of the accounts, gdp expanded by 1.8%. if you look at business and household surveys, people are negative about the economy because they are trying to handle disinflation problem, but they are relatively positive about their own financial prospects. small businesses are relatively positive about their own outlook. there is a disconnect because people are trying to adjust to the inflation problem and they have not experienced it. contrary to what the fed has tried to do, households do not like inflation, businesses do not like inflation. matt: ever since lloyd blankfein

told me to get my house in order, i've been concerned about this. i wonder if a weaker currency is better or worse in terms of inflation. how is germany experiencing this in real time? the euro going down to 1.02. the inflation picture had rolled over there. can it pop back up? john: we have to remember, when it comes to using currencies to judge inflation, it is a relative judgment about the federal reserve versus the ecb. it is quite clear the federal reserve is much more aggressive, planning to be more aggressive in hiking rates, than the ecb. the u.s. has had a strengthening dollar. it is suffering just as bad an inflation problem as has been experienced and core europe. certain parts of europe, latvia,

for example, inflation north of 16%. spain, 10%. those are way above the 2% rate that the ecb -- they have one objective, not a dual mandate. tom: as futures deteriorate, what is so important, mohamed el-erian and john ryding are on the same page, there is some urgency here. jonathan: some data we have seen recently. the ism down to 53. new orders in contraction territory. part of the reason why we see what we are seeing on the screen. yields are lower for a fifth session. 2's, down to 2.82.

we are starting to see that inversion again off the back of weak economic data and the fed determined to hiking. where is this going in the ultimate economic data? where are you seeing pockets of weakness that we should focus on? john: a working hypothesis i have when it comes to looking at those manufacturing numbers, like the ism that you referred to, in the midst of supply chain difficulties, which are only easing slightly, companies may have over ordered in order to get some inventory to meet the demands of their customers. with that comes a cycle adjustment where you have over ordered. you have cut back because you are starting to see improvement in your supply chains. it is not really final demand

that is the problem here. in the first quarter, take that gdp contraction at face value. that was coming off of an inventory adjustment in the fourth quarter. demand was relatively strong, 2% in real terms. in nominal terms, much faster. my greater concern is the impact to inflation eating into purchasing power, than it is this adjustment of the manufacturing sector, which is possibly an adjustment to overwatering to get through supply chains. jonathan: if that is your base case, how does that shape your fed call? john: i think it is clear the fed has signaled they want to get a positive, inflation-adjusted fed funds rate. next year, the fed has until the and of 2023, assessment of the median fund rate, against a

backdrop of a 2.6% inflation forecast. it is extremely unlikely that inflation, this year expected to run 5.25%, will slow so much. let's say inflation runs at 3.5% next year, which is more likely. then you are looking at a fed funds rate that make it to 4.5%. is that a mistake? it may be, but remember, what if the fed makes a mistake? i say the mistake was already made last year when the fed continued to ease into a rising inflation problem. now they have to correct the problem. they don't have a model of inflation that works. they want to see a compelling reduction in inflation. that probably means they will over tighten the fed funds rate, and that is where you get the recession problem. tom: john ryding, let's cut to

the chase. jonathan ferro and i will be in washington this week, speaking with adam posen, who suggest that 3% is the new 2%. where is the new 2%? john: the new 2% should be sub 2%. the work on what consumers believe about inflation, they believe inflation is bad. posen and others may talk about a faster inflation rate, but the faster inflation rate is what is killing this economy to the extent we are being hurt right now. that's a problem. households do not like inflation because it erodes their finances. they see down the road some action to be taken to rate inflation pressures in.

for more than two decades, relatively stable 2% inflation rate. can we keep a stable 3% rate? history suggests not. jonathan: they don't talk about flexible inflation target anymore. what do you make of that? john: in september 2020, when the fed introduced we are going to average 2% inflation, they really contributed to getting inflation out of the bag. it wasn't just the average inflation targeting, it was the backward looking. we have to hit 2%, maximum employment. before they even began lifting off on rates. if you are talking about averaging 2%, it becomes a real problem given how high inflation has been. the fed has put in an escape clause.

we are a long way away from that number right now. jonathan: what a clinic from john ryding of brean capital. tom: markets are really something. to get to friday is not a small matter. jonathan: bramo is with us next week. tom: she sent me an emails saying they don't call it feta cheese in crete. i cannot pronounce it. jonathan: peter cheer joins us in the next hour. this is bloomberg. ritika: keeping you up to date with news from around the world, i'm 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.

he opened fire from a rooftop near the parade route. six were killed, dozens more wounded. president biden noted the holiday by saying the u.s. has made great strides but has also taken steps backward. he says americans are worried about divisions in the country, describe the economy as growing but not without pain. an indication of supply chain pressures. a sharp drop in transportation costs which underscores the slowdown into the economy. scandinavian airline sas has filed for bankruptcy protection to deal with its debt burden. the carrier has been in talks with its creditors to convert 1.9 billion dollars in outstanding debt and hybrid shares into notes as they try to raise additional equity.

global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg.

>> i think the risks of a 2022 recession are significantly higher than i would have judged six or nine weeks ago. tom: lawrence summers, former president of harvard, secretary of treasury, there on the gaming of recession. lawrence summers absolutely nailed the dog transitoryness aware we are. matt: in fact there has been a debate on transitory again, i think.

we have seen inflation rolling over in some places. if you look at the chart of fuel, food, especially metals, it has come down, but that may be a head fake. consensus now is that numbers can still go higher. tom: we will have to see. china, terrace, kriti gupta. kriti: as we talk about that inflation that may or may not be coming down, we can talk about what the biden administration can do to ease some of the tariffs. the amount of tariffs, a percentage on a global trade-weighted basis on chinese goods in particular. we are looking at a percentage of 19.3%. it is a story of the trade war we have seen over the last two or three years. 19.3%. if i were to grab these on u.s. tariffs, it would be about 20%.

is this the solution to using import prices? i have to keep it short and sweet. tom: very short and sweet, and very nuanced. the tariff story deserves a little more analysis that may be what we are seeing. he has been pushed aside by news flow recently, but he has been great. barry ritholtz, does a lot for us, also runs real money at rate holds management. i love your essay on getting over it. tell me about the quality of that needs to be. barry: it has to be databased. you have to understand what makes the circumstances unique compared to previous scenarios. first, let's get this out of the

way. two consecutive quarters of negative gdp is not the definition of recession. has not been since the post rate depression era. if you don't have a broad economic environment, if you are an emerging autonomy, you could use it as a shorthand, but there have been all sorts of different changes that have been going on in the present economy. it just seems foolish to apply old, discarded rules to a new scenario and say suddenly this is a recession, when most of the data does not support that. matt: that's exactly what gary shilling told me when i asked him about this on saturday. but the mbdr does not tell us off at times that we are in a recession until we are out of the recession. that is pretty useless.

barry: well, what are you using their declaration for? you are not using it as a basis for making investment decisions. when we look at past recessions, we see a decrease in economic activity, primarily in employment and wages. that is the biggest driver. go back to january through june. unemployment went from over 4% down to 3.6%. we have never been in a recession with declining unemployment. i don't want to say it will never happen in the future, but it makes it much more challenging when you look at the economic data. what we are really seeing in negative gdp is not so much a decrease in economic activity as we are seeing a massive surge in

inflation. gdp data is real, not nominal. if it tips into negative territory, it is partially due to inventory buildup but also inflation. tom: quickly, what do i do if i'm in cash? tough market, futures are negative. what is the process to get back into the market if i'm in cash? barry: the data shows two to three times you are better making a lump sum payment then doing dollar cost averaging over time. people have a hard time emotionally making that one-time investment. two ways to approach this. you could break this up into 520% lumps, and every other month putting that money to work. or you could do it on a percentage basis. down 20%, putting money into the market. but pre decide and execute.

don't rely on yourself to do that. emotionally, most people become paralyzed. in this sea of red, it is difficult to say that me for good money at bad. matt: it's a great point. i was watching you last week, and you said something like, if your mindset, your most important variable when it comes to investing. barry ritholtz, great to have you on. i always read your blog at the big picture. of course, a bloomberg contributor, as well. the point is, it's always better to jump straight into the pool rather than put your toe and and slowly get deeper, but it is terrifying. tom: it is terrifying. everything against the human condition. barry's math is correct.

we did some work on this last week. it is widely asymmetric. it is so hard to get back into the market. futures -46. do you want to go long this morning? matt: i don't have the courage -- you have a phrase for this. i never have the courage to be invested. i just hand it off to somebody else. but there are braver people than i, and they may be in the mood to go longer, especially with futures done more than 1% after the drops we have seen. the question is will the second half be even worse? tom: matt miller and tom keene. as we wrap up an event the lower. -- in the last hour. we were very successful in

avoiding bitcoin, 19,400. bitcoin got through the long weekend. matt: bitcoin traditionally does much better when the markets are not open. if you always buy at the market close and sell at the open, or if you only buy at the weekend and sell before the monday starts, you do better. tom: dxy is a huge story today. 1.04. stronger u.s. dollar. the euro, stunning. stay with us on radio and television through this eventful tuesday. this is bloomberg. ♪

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jonathan: live from new york city this morning, good morning, good morning. this tuesday, session lows until the opening bell. countdown to the open starts right now. ♪ >> everything you need to get set for the start of u.s. trading. this is bloomberg: the open with jonathan ferro. ♪ jonathan: live from new york city, we begin with a big issue, the downgrades piling up. >> we are looking at an economy moving momentum -- >> look what's happened to the

real econo.