>> inflation. it has been clear by the fed that is their target. >> they are likely gone too far. >> my view is that the fed thinks u.s. might not be in a recession, might be on the cost of a recession. >> not be looking at the recession of the early 1980's. >> this is "bloomberg surveillance." jonathan: good morning. this is bloomberg surveillance.

futures down by .3% on the s&p. we have to begin with heartbreaking news out of japan. tom: i can see the prime minister as we speak, shattered off my feet. we will go to -- and a moment. i'm hoping to speak with robert feldman of morgan stanley. this is a tragic loss for the domestic people of japan. my first message this morning, this is not about that acclaimed phrase, abenomics. this is a fan -- family that spans japan from a recovery out of world war ii. jonathan: japan's prime minister singh this earlier, it is about -- a barbaric act that took place during an election, it is forgivable. tom: when you look at what he accomplished, it goes to domestic politics, his grandfather was a class a war

criminal of the united states of america, became prime minister of japan in the 1950's. the grandson followed on to amend and soften the harsh, militaristic rhetoric of the altar right of japan. he prayed ash paid that price this morning. jonathan: you caught up with -- this morning. kailey: the idea that abenomics is going to live on. you see the continuation of these economic policies in japan. policy in japan still easy, still trying to stimulate an economy that has struggled with the idea of deflation and stagnation. abe, during his time as prime minister, that was one of his primary goals. jonathan: we want to stay on top of the latest news. if you are just waking up and looking for price action, i will whip through that. futures negative point 3% on the

s&p 500. on the nasdaq 100, down .4%. story of the week so far is four days of gains on the s&p 500. we had a fourth yesterday, the longest running streak since march. yields in at 297.50. all of that going into payrolls a few hours away. kailey: before we can get there, we are going to hear from another central banker in europe, christine lagarde will be speaking at the french davos at 7:55 a.m. eastern time. i'm interested in what she has to say about the july meeting, 20 five basis points the case she wants to make? what does she have to say about a euro at its weakest level since 2002? we find ourselves on parity watch with euro-dollar trading at 124. 268,000 payrolls added in the

month of june is what we are expecting to see, and an unemployment rate of 3.6%, wage growth that 5.6% on a year on year. the question is going to be, is there anything in these numbers that alters the case for the fed? the focus is on inflation, less on the labor market. is that the message will here post jobs at 11:00 a.m. eastern time from john williams, who will be speaking after we heard from waller and bullard yesterday, making the case for another 75 basis point move, playing down the risk for recession? jonathan: talking about the potential for a soft landing, as well. looking ahead to this payrolls print, andrew hallman hearth have led the way to a hawkish fed. this is what they have to say, 290 fate -- 290k k -- priced back here, a confident pace of that hikes into 2023.

tom: many others. do we have a strong economy, as chairman powell talked about? my phrase is, go beneath the headline data. maybe this is the job report where the headline data matters. jonathan: starting to see pockets of weakness. elsewhere, perhaps, we have that week ism last week. looking at the component of it, looking at the employment component that within that data point, they talked about a supply-side story, not so much about demand. are we stiff in a supplies constrained economy? tom: i think there is going to be a lot of activity over the weekend. i know you are sliding into the weekend already after returning from washington. many others are not. they are going to work through the weekend to recalibrate off of this jobs report. it is a calibration of the supply shock, and the demand

mystery. jonathan: what do you make of the bond market move? sat at 3% again, is a curve in version out there? tom: i'm going to steal a phrase from --, the ambiguity isn't easy. the ambiguity on the bloomberg screen is extraordinary. dollar strength is being a resilient feature this week. jonathan: looking forward to that jobs print. we begin with a top story out of tokyo, japan. we catch up with chief asia economics correspondent. let's begin with the sad news out of japan, the death of the former japanese prime minister, shinzo abe. what happened? >> it is completely shocking news. it has been described as one of

those days that will live in the japanese community and long time. the details are scarce. he was attacked by somebody and died by the gunshot wound he received. he pioneered the policy and economics, huge government spending, huge central-bank support and has credit for at least reviving the japanese stock market and sting growth before the pandemic came along. on the global stage, he put japan back on the global stage. he was seen as the -- a foreign policy hot. he tried to amend ties to china while boosting spending on japan's military, -- restrict spending on japan's military. this will not understate the

shock for japan's domestic politics and japan's people, and the global stage. tom: i am seeing on my feet in the bloomberg headquarters in new york, mr. kishida finishing his remarks in tokyo. all of the ark of the political dynasty of the abe family goes back to 1945 in an arch debate in japan about how to reassert any form of military presence. abe had the courage to hold off the altar nationalists. did he pay for this morning? enda: he tried to strike a balance in his policy, defense and foreign policy. like you mentioned, on the one hand, he had a deal with calls at home to bolster japan's hawkish policy to give the ministry a bigger role. he was also credited with mending relations with china.

those relations with china have come a long way until the hong kong issue. then, the pandemic. a lot of what abe was trying to do was focused on the global stage, leaving the economy on a mixed legacy. the big takeaway for abe will be hawkish policy on the global stage. he was especially vocal about china's role, japan's role. he did strike a balancing act. there are different factions in japan, he led a determined faction. i think his legacy will be one that --. kailey: his assassination comes days before the election is to take place on sunday. prime minister kishida saying that he has instructed the cabinet to ensure free and fair

elections. they will take security precautions for the election. how could his death today influence the results of those votes on sunday? enda: the first point is that the government is going to go ahead with the election. this has been an attack on democracy for japan, and especially shocking given the low level of gun violence in that country. that is a powerful signal the government is sending, they will go ahead with the results. it is difficult to know how it would permeate in terms of having people vote. security on the grounds for abe and this disaster. looking at the initial takeaways of his legacy today, a lot of people are focusing on the positives. the positives in terms of what he tried to achieve for the economy. he tried to get women back in the workforce.

on the global stage, he bolstered japan's side and did big trade deals. tried and holstered the military standard on the global stage. at this stage, japan is reeling from the loss of what is clearly a political giant for the country. jonathan: the word i have heard several times this morning was hope. it was hope, hope this time around that could break out of several decades of stagnation. tom: the polarity here is, he was clear that he was scarred forever by the imprisonment of his grandfather. this is a guy that was strident that japan had to reengage militarily. at the same time, this is a guy that had the courage to address liberality in japanese society, and a party that was hugely conservative. jonathan: a special thanks to

enda on the latest. the team in asia did a fantastic job on letting us realize how rare this is. in all of japan in 2021, a gun related incidents. tom: over the years, six former japanese prime minister's assassinated. jonathan: waking up to the sad news that former japanese prime minister shinzo abe has died. ritika: former japanese prime minister abe has died after been shot after a campaign event. it is stunning news in a environment where guns are rare. the suspect was arrested. he was japan's longest-serving prime minister and was best known for his shock era p called aben -- shock therapy called abe nomics. boris johnson announcing he

plans to resign. the conservative party wants to speed up the process to choose his successor by the end of the summer. the european central bank's third major climate stress test hitting a $71 billion, that adds up credit and market losses from increasing natural disasters and sweeping changes across industries. we spoke with ecb vice chair. >> what we have seen is a disorderly scenario, it is more risky for banks than if there were to be a orderly scenario. this comes as a stress test that we are -- today. this is a learning exercise, a pioneering exercise. it came out of the broader financial sector macro sector, the ecb did last year. ritika: the ecb found 60% of --

do not have a climate stress test. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

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>> we've got a good chance at a

soft landing going forward. there are always risks. or, a shot we cannot even think about that will hit us. that could happen. we are always cognizant of risk. i think the base case is for a soft landing at this point. jonathan: that was james bullard going into potentially another fed meeting at the end of this month with a 75 basis point rate hike. good morning. counting you down to payrolls friday, two hours away. futures negative .1% on the s&p. we are on parity watch on euro-dollar, a break of 101 earlier in the session. 101.32. i was looking at the chart on the dollar index, heavy weighting the euro has in that index. it is up almost 10% ahead of q1. tom: what is important is how

lonely the euro is this morning. i look at other currency pairs and triangulation's, this is distinctly a euro store. jonathan: two problems, the witness and growth, and if you ask anyone this morning what is going to happen to the euro on the economy, it is hard to find anyone constructive about the path ahead. tom: fragmentation sitting on the runway at a national airport. fragmentation. jonathan: is that what you are calling it? i hear the ecb has a name, they are fragmentation. tom: do they have a policy at? jonathan: they have a policy, -- that is the question tom. tom: we are continuing to follow events in japan. right now, at this moment of american job economies, chief investment strategist and chief economist, city global wealth. what do your troops think widening of this job report? i cannot frame it.

to me, it is massively ambiguous. am i right? >> it is a transition period. you talk about people, how could the economy we can win employment is strong? if you look at -- payrolls, the lead time it has given us before recessions on average since world war ii is zero months. literally, it is a coincident indicator. take a look at the components of the impacts of leading economic indicators. he will not find it in there. tom: your claim that it is synthesizing the markets into equities. help our viewers today. arnon -- payrolls adjusted? what is a soft, nonfarm payrolls number. is it sub 200,000? is it sub 300,000? steven: we were below 200,000 already, i would consider that soft, i would consider that on the way to a convincing slowdown. again, where we are where there

is a lot of production need, catch up in the economy, regardless of what happened to firsthand gdp gains, we have had consumer spending in the first half of the year after downward revisions looks to be a 1.5% pace. do you need 300,000 to 400,000 jobs per month when core demand in the economy is decelerating? this is before the effects of 300 basis point highs and mortgage rates over 12 months, before the forthcoming tightening of monetary policy might have been. we look into 2023, financial markets are supposed to be telling us where the economy is going, not where they are now. it looks like it is going to be a weaker period for employment, and could be considered weaker in 2023. jonathan: what do you make of this rally and the german ecb index? the selloff in energy over the last month or so? how do you know when something is the real deal or not? steven: we have been in this

period were we have been focused on interest rate risk, the booming, simple conditions, higher inflation. rate risk has been driving markets. we have to transition and say, we've got rate risk more than price. we have to take a look at the transition to credit risk. think about the equity market. some of the underperformance of cyclicals, perhaps commodities more subject to international events. industrial cyclicals, companies that take a lot of credit risk and the consumer might not be there for them, they are starting to underperform some. maybe some of the tech companies that have bond like balance sheets, and probably can whether any kind of bump in the economy over a year or two, they are starting to look like they are transitioning to a period with more stability. it is early for that, but i think it is definitely the path we are on. transitioning from rate risk to

credit risk. kailey: what about awnings risk? steven: it won't necessarily be the quarter we finished, but where we are going ahead. if we can avoid a self reinforcing downturn, you have to remember that we had 47% earnings growth last year. profits are high in the u.s. market. if you have a slowdown, it is going to take something out, even if the economy is in a recession. if you think about the probability-weighted scenarios, it looks like we are going to have a earnings drop next year. i do not think that is going to be reflected so much in the second quarter epf, it is going to be a quarter -- surprises. the look backwards is not really that relevant. the one thing i will not worry about it is downwards earnings estimate revisions. the numbers are not plausible. we know stock prices predict downwards earnings estimates. jonathan: great to catch up, as always.

cpi next week on the 13th. on the 14th, you hear from jp morning -- morgan. does anyone have visibility about what this year might bring? tom: i would link these together. i'm going to be honest. the inflation report next week is arguably more important. the inflation report folds into the earnings reality, and that guidance about, what do they do at the revenue line? jonathan: the survey of bloomberg, 8.8 percent on headline year-over-year is the current estimate. when we get more, we will give you a better picture. that is where things stand at the moment. tom: we go double digits in spain, we are doing this every day. we are been numbed by it as a statistical exercise. our people listening and watching, are living for percent

inflation. or, 12% inflation, whatever it may be. jonathan: this came from bank of america. for the lower income cohort who earn lower than $50,000 a year, gas prices rose to almost 10% of total weekly spend. that number is going to be higher. tom: united nations doing great work on this, from hydrocarbons to food. in southeast asia, percent of income on rice. jonathan: futures unchanged on the s&p 500. on nasdaq, down .2%. we are on parity watch on euro-dollar. euro-dollar, 101.37. from new york on this payrolls friday, this is bloomberg. ♪

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jonathan: live from your city, it is payroll friday. we have a rally on the s&p 500, for straight days of gains. that equals the longest winning streak of the year so far. last time was in march. the s&p up by 0.05%. that is going into the jobs

report later. the nasdaq is up almost 5% on the week so far. that shift into tech is something they've picked up on it. how much do you want to get behind that move? that's the question we have to ask. tom: is there a real bid to the market? is it short recovery? if you're short, you've got to buy shares. jonathan: it's that bear market rally people think it is. yields are creeping higher through the week. north of 3% right now, coming in down a basis point. citibank is looking for enough of a number, around 290 for them. they could go another 75 basis points. this conversation is still going on with the ecb who has not made the move yet.

this is wet -- what euro-dollar looks like. euro-dollar broke 101. we are on parity watch. this is more than a 10% move. tom: it's the way it broke, the weaker euro down near. we are watching that carefully. on radio and television, we welcome you. the assassination of the former prime minister of japan, we monitor that story of a shocked japan. joining us with some great acuity is bloomberg economics, she had the courage to go below payrolls off the prior 390,000. we go deeper right now. i want to talk about the pandemic. we were focused on bars. i was focused on bars and restaurants. help us now with the mix, the

movements within our economy. >> that's going to be important to watch apart from the overall headline number. what is happening beneath, we will be watching the diffusion index, which shows how broad-based gains are. that is important. people can still find jobs, even if they get laid off from the industries that are experiencing some effects from interest rates. tom: the great shift is supposed to be goods enthusiasm over to services enthusiasm. what will we learn about that hope? >> we will learn that americans are still enthusiastic about going on vacation. this is the industry. tom: can you help me here? you just got back from some fun trip to disneyland. pick it up.

you are tanned and rested. jonathan: we talked yesterday about getting away from the headline numbers and try to discuss the disparity. when we have market participants saying the consumer is strong in america, what do you see away from the headlines? >> services spending is still growing. it is growing in real terms. this is the key focus for me to watch. durable goods, spending is going down it. we saw a decline in may. what is key to me is whether we see a rotation from goods spending and anecdotally i do see that. if that continues, we will continue to see services hiring it. that will drive the economy going forward. seeing the employment numbers

are below pre-pandemic levels in andrea's -- industries such as health care, those still have a chance to grow further. kailey: i'm wondering what this means for the federal deserve, specifically when it comes to the decision in july. i was talking to pimco earlier. they don't think the jobs report makes much difference. >> i would agree with that. it will factor into the decision in july. what is really important is what happens to the cpi numbers next week and what happens to sentiment and inflation. all of these things will factor in. as long as we have positive job growth, healthy economy, decelerating wages, that's not going to make much change at the end of july. kailey: all you need is positive jobs growth, even if it is sub

200,000? >> sub 100 would be problematic. kailey: given that the fed is focused on inflation, they are focused on wages. are we out of the concern in which we see a wage price spiral? has that been pushed to the side? >> i think so. things i look at our the rate at which people switch jobs. this is a leading indicator. it leads growth in wages by a few months. we have seen that rate going down. that means people can demand less of a pay rise -- raise. those who stay in their current job cannot really ask for much more as well. tom: this is something we enjoyed flunking, the arch plug-in is always the includes the has him -- enthusiasm to hire?

>> companies are worried about wages now. they are looking at interest rates. tom: this is key, do they raise prices? >> they do. that's how we get inflation. the fat point, what we see his interest rates rising. we see demand slowing. a lot of people are talking about recession. companies are getting worried about wage increases. they may not go there. they may not raise prices after that. tom: ok. thank you. we greatly appreciate that. we are running green on the screen right now. how does this fold into the market? i have trouble figuring out where we are in this report? am i right? it's not all doom and gloom. it's in between. jonathan: a lot of people are

hinting that the next move. tom: i think it's inflation next week. jonathan: it's because the labor market data will remain robust and they can remain committed to bringing down inflation. the issue i think we all have with that is if you concentrate on inflation and assume the labor market will be ok, ultimately it won't be and that will be too late. i think that's the worry a lot of people have looking forward, when we asked the question what will be the thing that makes them pause, it will be the thing that will be the nail in the coffin of the economy and the cycle. >> depending on what happens to the labor market, you don't watch what's happening to payroll. you look at things like jobless claims, things like people who work part-time time for economic reasons. you look at these things very

carefully ahead of time. ultimately, if things are going to start slow down, the fed will back off. this is what we are going to see? kailey: what rate is that? >> what is really interesting and the latest summary of economic projections is several participants penciled in the unemployment rate about 0.5 percentage points higher than we currently are. that is telling us implicitly that they are thinking may be a hard landing is there. that is an interesting one. when we see an increase in the employment rate of 0.5%, we should be worried. jonathan: looking ahead to payrolls coming out at 8:30 p.m.

eastern time, if you're just tuning in, we woke up to the sad news out of tokyo. the former japanese prime minister has died. the longest serving prime minister we shot while campaigning in japan. the current prime minister said it campaigning will continue. a key figure in the effort of shinzo abe was the governor. the governor had a couple of headlines. he would like to convey condolences. he achieved many results toward ending deflation. he paid tribute to his dedication to the economy. we were meant to the three arrows in 2012. the governor is a key part of that second arrow. tom: from treasury over to the

central bank duties, this is something very important. the watch at the ft have a book called bending adversity. the arch theme of the book was our cliche of japan on its back due to deflation and disinflation. he said that wasn't true under shinzo abe. there was point industry, buoyant public services with their own debates. we underestimate japan it. japan is an generational shock. jonathan: without a doubt about it. we will share headlines with you. we are looking ahead at the market, focused on payrolls friday. we are looking at something close to 260,000. equity futures are unchanged. in the grand scheme of things

this year, that's not a big move. yields are 298. there very much on parity watch. we have a little bit of euro weakness in dollar strength out there. from new york, this is bloomberg. ♪ >> keeping you up-to-date, the former prime minister has been shot and killed while speaking at a campaign rally. the attack shocked the country where political violence and guns are rare. according to a broadcaster, he intended to kill shinzo abe because he was frustrated with him. he was the longest serving prime minister in japanese history. the conservative party once to speed up boris johnson's exit. he would be a caretaker leader for three months while

conservatives pick a new leader. they are drawing up plans to draw his -- choose a successor by the end of the summer. joe biden could roll back on chinese goods. it's been a weapon against inflation. the former president has found guilty in the blood testing started. the verdict came after his ex-girlfriend was convicted of defrauding investors in the company. they could get 20 years in prison. a stunning recovery in china, the electric carmaker had a record number of deliveries after the lifting of covid restrictions. tesla delivered 79,000 vehicles last month, a100 45% increase in may. global news 24 hours a day on

air and on bloomberg twitter take -- quicktake. this is bloomberg. ♪

>> i am in support of doing another 75 basis point hike in july, probably 50 in september and after that we can debate whether to go back onto the 25's. inflation doesn't seem to be coming down. jonathan: the federal reserve committed to doing more. from york city, morning. futures are down 0.05%. lease it will take a week off and there is so much to talk

about. the yield is unchanged on the 10 year. we are very much on parity watch. tom: i heard that you and i, we did mention crete cvs. jonathan: she is looking at some of the banks over in europe. this is justin from bank of america, -- just in from bank of america. that last point is something we need to build on it through the show. is this the real deal? tom: this is the way it works. if you have recession slowdown it, they become more valuable. that's one of the normal dynamics with bank of america. we will celebrate surviving july 4 weekend with the rest of america and the global economy. the airline business is booming.

she owns the high ground and joins us this morning. i want to look into earnings. with all of this chaos and the airlines full, are they bringing anything down to make what we call airline profit? >> yes. we think most of the airlines will be profitable. a couple of them will report losses. in our earnings preview which we published yesterday, we think there are positive surprises ahead it, even with the flight cancellations they experienced memorial day weekend and over father's day weekend. the delays last weekend were smaller than the number of delays we saw. the airlines are cutting capacity, which has the effect given the demand is still very strong. it has the effect of raising ticket prices.

they are recovering 70% of the cost of fuel. as we go through the year, we are getting more concerned with wage inflation. the contract that united pilots may vote on provided for a 15% increase. american offered a 17% increase. we see significant raise inflation. -- wage inflation. that will not abate it. -- abade. jonathan: that's what i want to talk about. the price tolerance just seems to be unlimited. is it there in the back half of this year? >> i don't think it will be frankly. we are worried about that because consumers, you talk about it on the show, consumers

have a lot of pressure. they've got higher prices when they fill up their card to get to work. they have cooling their home going up, heating their home is going to go up. a lot of people really wanted to travel this summer, they have a traveled for a couple of years. they just want to get out and about. through the year, after people start returning to the office again, it is so much more crowded in the city than it was three months ago. i think we are going to see pressure on traffic growth as we head into the holiday season. kailey: how does an airline make decisions? i think about the retailers who struggled to get supply. now they have too much inventory. will airlines try to get more pilots and flight attendants, it

soon as they get all of that the demand is gone and they are overstaffed? >> we worry about that. the pilot issue is going to be with us for another two years. i am not so worried about them. i'm not worried about the footage. focus on the capacity. during the pandemic, the industry retired 800 planes. those are never coming back. there are delivery delays on the aircraft. i was reading an article that the manufacturers can't get enough engines. the engine manufacturers are having trouble keeping up with supply. as you reported last week, you saw that the airlines cut capacity for the summer months. that will likely continue. that is their big weapon, keeping a lid on how much capacity can go up.

we published yesterday the number of employees. we are back to 2019 levels, they are just in the wrong places. everybody went -- think about pre-pandemic, everybody was going to chicago, new york, san francisco. now everybody is going to leisure destinations. you see that shift. people are misplaced. jonathan: she hasn't had a vacation yet. tom: the fed is front loading. jonathan: he went to paris earlier in the year. tom, you can't just flip the switch. there's not a button. you sit there and say we will have some of that and it arrives tomorrow. it takes a long time. tom: with the pandemic, we

underestimate the logistics and processes. what does it take to get a rusty pilot back in the air question. -- air? jonathan: what would it take to get a new pilot up in the air? how long does that take? tom: it involves competition. british airlines is coming to terms in the last couple of hours. jonathan: to engineer the company to have the right capacity at the right time in the future, it's a tremendously difficult thing to do. throughout many industries as well. retailers, look at them. they are looking at capacity they should've had last year and it's in the wrong place this year. tom: jamie dimon is eloquent about this in his annual letter, talking about the hard work of doing the process of business. it's like what we have to do

with the staff at bloomberg surveillance. with the team that we have, the interns we have, it's really hard work to process at all. the only thing i can do is say food helps the troops. i did notice inflation, they are pricing then 840 54 hot dog. -- 845 four hot dog. we should do an interview at ben's chili bowl. jonathan: i will reach out to the team to make that happen. from new york, this is bloomberg. ♪

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that is their target. >> they are likely going to far. >> that is really going to cost the economy. >> the fed right not be in recession. >> we are not looking at the volcker recession.