>> consumers are telling you that things are ok in the labor market. >> the hot, tight labor market is going to be an issue for the outlook. >> it is not easy for the fed and markets by loosening financial conditions make it more challenging. >> financial conditions have a next ordinary run of tightening through october of last year, that is impacting the economy now. >> we are seeing their earnings go up but not as fast as we would like to see. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa

abramowicz. jonathan: the hangover after the monza report, good morning, for our advances worldwide alongside tom keene and lisa abramowicz, i jonathan ferro. equity futures down .9%, to your yield, starting friday morning, four point 09%. it went through 440 earlier. tom: it is not a boring monday. you got massive inversion, the two tens spread. up to -80 basis points moments ago. the whitest statement on spread, three months to 30 year is buttressed right down to 30 year inversion. jonathan: we went from soft landing to hard landing, no landing. it is beginning to look more like a no landing scenario. under that scenario, the economy does not slow down, upside risk to inflation returns and maybe

they volatile price action of 2022 comes with it. lisa: if you do get a resilient economy like we seem to be getting, what is to stop the fed from going further? that is what you are seeing on the front end and perhaps that is driving volatility in stocks. jonathan: chairman powell talked about the disinflationary report starting, as the friday jobs report challenge that or supported? lisa: challenges it. you're seeing the strength and people are talking about seasonality. but the strength they are added services going the most since 20 20, the momentum underpinning the economy is strong. tom: i liked what they said a jp morgan, everybody is data dependent and they take the gdp number for q.

-- jonathan: a big bounce. a major bounce in fact. if you look at the economic data, had it tug-of-war between 50 pmi's and the labor market data, we've been trying to work out how does that reconcile? do you see the labor market breakdown toward where the pmi's are or does it start to bounce back? friday you have a hint of where this may be going. it's lisa: we have a recension services sector and that was driven home on friday. anyway you cut it, jay powell does not have to walk this back. it is being walked back by the data. jonathan: the balloon getting five down on saturday. i live shot. tom: i was talking to my driver, -- jonathan: it was freezing. tom: yeah, i was talking to my

driver and he thought it was a party balloon. i said there are three buses of metal. he said why didn't they shoot it down? they think it is around the world in 80 days. no. jonathan: our guests will join us in 20 minutes time. we're down .9 on the s&p 500, yields bouncing back. up 10 basis points, short of 4.40. tom: the 10 year in from the 30 year long ago, the two-year is sort of the easy way to watch the ebbs and flows of this as you try to have the confidence to stay in the bull market. jonathan: the continued --one .65. lisa: jay powell having to walk

back what he did last week with a dovish readout when it comes to markets, perhaps not because the data is doing it for him. tuesday we get president biden giving the state of the union address, not necessarily the same week as last week. it is a hangover. but we get a slew of earnings as well. activision, blizzard, pinterest, chipotle. tamari -- tomorrow, uber, pepsi, paypal. these results have been disappointed, not good on a whole. in some ways it is the least positive in terms of upside surprises going back to 2008. about half of the s&p has reported earnings, about 7.7% year to date. the nasdaq has seen its best start to the year going back to 2001. it is also kind of light on the data side but it feels like initial jobless claims are going to take on more weight on thursday because of what we saw

on friday. the university of michigan sentiment survey, went to research to see inflation expectations over the next year increase again? it is very correlated to gasoline prices. they are starting to edge upward. does this challenge the linear disinflationary narrative that seemed to take its hold and markets? jonathan: how will you respond about inflation expectations? tom: it has value to look over the next five to 10 years over the major sweat of any central bank, are we unanchored and do we have credibility? i'm more interested in february 14, valentine's day u.s. inflation. february 20 third, japanese inflation. jonathan: there we go. a member that, tom. --remember that, tom. you got 70 seconds to deliver your match review. go.

tom: the big guy from men city is -- man city is impossible. jonathan: it worked out. tom: i thought they were playing ac milan. jonathan: they lost last night. tom: guy johnson emailed me sunday nsaids we talked about six nations rugby and italy -- jonathan: we don't win rugby games. we came very close. did you watch this, or have you been speaking to the floor manager? tom: it is like lucy and peanuts when they kick the ball over the field goal. but nice job. he blew me away. jonathan: they don't wear pants

and helmets. there harder. they're tougher. tom: in soccer they stopped again for 15 minutes. thank you, guy johnson. jonathan: joining us is the head of u.s. equity of capital markets, jobs report on monday, it follows into monday, equities lower. what did that change for you if anything? >> as one data point, there was a view that emerged over the weekend over friday trading that the fed may have to state higher for longer. we may not get the cuts. i think we are closer to the end of the hiking cycle and we will get the pause. and it underscores the idea that this economy is very resilient. there could have been labor hoarding. i think there are things that could explain that number. we see this time and time again, evidence that the labor market is tight and we are seeing some

indications that wage growth is slowing. that is probably enough to help inflation come down. i'm not overreacting to the friday report. the broader thesis is still intact for now. tom: -- reported showing that down her --not a zombie roll up, but are we seeing a roll up in the small mid-cap space because money finally call something? lori: it is a potential catalyst going forward in the small and mid-cap space in particular. it is higher than it used to be. we also know that the price we are going to pay for skirting the recession, a growth scare, whatever they're calling this, is going to be the economic growth is subpar for percentage terms. and the companies that have cash sitting on their balance sheets,

very good structures in terms of debt profiles, it will go out and bag some growth. when you look at small relative to large, it makes sense. it is something we have to watch, and it argues against the deeply bearish narrative markets. lisa: you talked about the narrative, no landing. as a positive for equity valuations, higher rates for longer, companies having to justify in a higher regime? lori: if we are going back to the 70's, it will slaughter multiples. two we have a model for fed funds and the 10 year yield. we do have cuts baked in, we have the 10 year treasury -- inflation moderating.

it's let's say i take the fed number up and leave it there so don't make any cuts and keep it higher for longer, i'm so looking at a 20 plus pe multiple on a trailing basis on this year's earnings. it hurts a little but not as much as people think if you go do that. jonathan: let's go to the rest of the world. china has gone to unavoidable and it has swung back to something in between the last 48 hours. many to invest this year. lori: i think investors came into 2023 wanting to do something new. and that includes the china reopening thesis. we think about things i could push --a more legitimate downside catalyst to say that

earnings need to come down a little more. the china issue is challenging and it got people very excited coming into this year. jonathan: it's wonderful to catch up, lori calvasina there. the response from china over the week, it is expressing dissatisfaction in protests, and international practice. tom: a dramatically moving story this monday morning. jonathan: maybe they will do something about export controls again. also on this market, joining us at 7:00 a.m. eastern time. ♪ lisa: keeping you up-to-date with news from around the world, with the first word, i'm lisa

mateo. some of the most powerful earthquakes in decades in the middle east killing more than 1000 people in turkey and syria. first measured seven point seven and ripped across the border between two countries and the second quake hit the southeastern part of turkey and measured 7.5. it halted crude oil flows to a crucial turkish terminal. recovering with the u.s. believes it is spy equipment from the chinese balloon shut down off of south carolina. they're trying to find equipment capable of taking detailed photographs along with other --seeing if the technology came from the u.s. or allies. workers will walk out in the u.k. in record numbers, which will put pressure on the part minister to resolve pay disputes. nurses and nebulous workers are striking today and they will take action on tuesday.

nissan and renault have agreed on a deal to reshape their alliance, renault will cut the holdings to 15% and nissan will invest in the electric vehicle business, using long scale --it will eliminate more than 6600 jobs, about 5% of the global workforce, facing plummeting demand for personal computers. 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 lisa mateo and this is bloomberg. ♪ ♪

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>> i order the pentagon to shoot it down on wednesday as soon as possible. they decided without doing damage to anyone on the ground. they decided the best time to do that was when it got over water and within our 12 mile limit. they successfully took it down. jonathan: the president of the united states, what a weekend, the balloon being shot down. the response from china equally interesting.

saying china will resolutely safeguard the concern. --can you make sense of this quote? lisa: there was a lot of analysis of the weekend about xi jinping trying to tow the line, not caving to the u.s. and not escalated some of the tensions, this is basically a statement that gives you the sense of what is going on. jonathan: we are told by the government, it was a surveillance balloon that traverse across the united states. tom: it is three city buses of metal underneath the balloon and maybe this is substance for the next bond movie. no doubt cast in the next bond movie, annmarie hordern, our bloomberg washington correspondent. want to talk about one of the political things, there was the belief capable of doing this in

relatively shallow water and they are going to look to see if cisco or motorola, i don't mean to pick on those companies but they are going to look for u.s. parts on there. how does that play in the white marble of capitol hill? annmarie: if there was any u.s. technology that was used in this spy balloon, the company under a serious microscope, over the biden administration --the trump administration was looking at ways they could hit that on china, in terms of getting their hands on sensitive u.s. technology. we had those export controls that were introduced in october. the biden administration on top of that were able to get the netherlands and japan on board and now they're going to be pushed to do even more. we just don't know yet what was on the balloon.

we should wait to pass any judgment, companies and technology. jonathan: is he still going to go? annmarie: at some point there's this debate happening in washington, busy go even sooner to make sure he delivers a much harsher, aggressive message to china, and this trip, it is not going to be deliverables --this is after speaker pelosi's trip to taiwan and it came on the heels of xi jinping and bided in november, and most recently secretary yellen and the one in switzerland. but now if blinken were to return, remember there has not been a secretary of state that has been to beijing since october of 2018 with that frosty visit with former secretary of state, many are saying he needs

to deliver a different message to beijing. lisa: we were just hearing from lori calvasina and talking about the risk of china reopening that seems to be taking over stocks. the pushback, the cold water, but will try to push back a little, diminishing the economic situation between china and the u.s.. annmarie: potentially. the trade data in 2022 is on the brink of cracking records. when you look at the business done between the united states and china, you would not realize it is a frosty relationship happening and boiling at the top. the big challenge the biden administration has --addressing the spy balloon. republicans are saying it should

have been shut down the moment it entered the u.s. airspace. that it should not have these four days. tom: besides listening to the beyonce catalog -- what is the schedule? annmarie: congrats to beyonce. tomorrow is that state of the union. he's going to claim victory come out whether it is the economy off those stellar jobs report on friday, the chinese spy balloon. we are expecting the president to announce his campaign for 2024. all of the members of the his cabinet are going all over the country. the president is going to a number of states and they are going to push their legislative

victories and agenda. jonathan: do you think they will be on that section in the labor market? annmarie: i would be surprised if he does not talk about the jobs numbers in the first five minutes of his speech tomorrow. jonathan: taking place tomorrow evening on bloomberg. let's think about the timeline and the history of all of this. the president said he was briefed about the balloon on wednesday. we are being informed it is not the first time this has happened and it happened under the previous president. so blinken was still going to china only until it became public knowledge there was a surveillance balloon hanging over the united states for america. to think about the language used from the chinese government and washington, d.c., is this just for public consumption, theater?

does it change the trajectory of policy when they knew these things were going on and they were still going to beijing? and the only reason they did not go is because we found out about it in the last couple of days. lisa: we will see on both sides. the u.s. and china, this is the main question over the weekend, how much is the theater of it going to dictate the contours for a relationship that potentially is fraught because xi jinping is trying to send a message to his people and president biden is sending a message to his people and both sides are splintering, they want further relations at least on a zeitgeist level. but on a business level they are getting closer and closer so this is the conundrum for a lot of people. tom: the messaging is crazy this weekend. the monday morning is messaging. i love these phrases, a maligned reset. tom: you want to talk us through that? tom: no, it is such a so

barbara. it is way more complicated than the straight up reset to 15%. and the other, from deutsche bank, tactical layoffs. jonathan: i'm sure they feel super tactical. lisa: it'slisa: a grade. these are people's lives. we are seeing layoffs that were not executed during the pandemic era are coming back in full force. in deciphering the return to normal versus some serious cut back that is indicative of a changed economic cycle, difficult to know. jonathan: 5% of the global workforce, they are everywhere. company after company, in that industry group. tom: it is a pc thing. i noticed apple was a little light on that, apple saved the day. it is the ebb and flow out of the pandemic. let's buy pc's, everyone is work from home, that is over. lisa: there's a little more from

this trend. dell is going back to the workforce it had in 2017. this is we ate -- this is pre-pandemic. we talked about this in terms of what kind of --is it pandemic or pre-pandemic as well? jonathan: five hundred 17 thousand, summoning people doubting a number. tom: i'm still reading it, and number of hours worked, number of bodies working that seems to be with the adults are looking at. lisa: it was wrong, though. jonathan: equity futures down 9%, coming up, our next guest. from axa investment managers.

i screwed up. mhm.

i got us t-mobile home internet. now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house. i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck.

jonathan: a rough end to last week, a tough start to this week. equity futures negative on the s&p, we are down by .9%. on the nasdaq 100 we are up --down 2%. position is normalizing. we think it might end up lacking. they are advised to use the current strength in order to reduce exposure. they are not bullish. tom: they are channeling mike wilson. there's a lot going on.

jonathan: bear in mind where we start of the year, we started the year in and around 4.40. drops to as low as 0.3%, friday we were at four .09 and we jumped aggressively higher back to 4.3930 and off the back of a really really strong payroll report, upending the expectations of what they might do. and as lisa pointed out, tomorrow. tom: it was -80 basis points --batik build versus the 30 year bond. can we get framed on the equity market? the drawdown is bowtie talk from the peak. the s&p 500, this is important,

-14%. the dow jones industrial average has a lesser.--lesser drawdown. -7% with correction. maybe john is a partition of profit-making. jonathan: the nasdaq 100 up about 15%. she went through them. massive gains. we were talking about one tag on the euro-dollar now 1.07, one .0 759. it was not just the fed -- 1.0 5709. president lagarde of the ecb was suggesting maybe --saying the following, the communication last week, faster than what the market reaction would suggest. the u.s. payroll rightly put a damper on the market enthusiasm. tom: i simple as that, looking

at three central banks. the last talk standing. jonathan: -- tom: after the summation of last week, has hawk disappeared? >> i think they are still there but they're probably a bit less worried the -- then a few months ago because they thought they could see in the u.s. case that what they were doing is working in the sense that gradually you could see the economy coming down, the monetary tightening working its way through this. even if you are a hawk, it makes you more comfortable on the pace of tightening. this is exactly what they told us last week.

we would continue to hike. that message was a bit lost. but they could see positive elements in inflationary pressure which makes it possible -- it has now been hit. tom: the sequence of events began with your french and they reported a better than good economy. do we underestimate european country to country gdp? giles: i would have been prudent on the coming two quarters because 2022, a thousand -- a slightly positive surprise. good gas supply did not complete

the dry out so germany did not have to go into top-down rationing. but germany -.2, spain -- we are just at the flow -- the flotation line. if you get into the first two quarters in 2023, you can expect some from the 2023 opening. but they are working through the economy as said earlier. they noticed it was sharply negative in europe, new flows of credit to the household sector drying up in europe. we may get some good news on the external side of the economy, the demand might begin to be really in their come up by the fact that we are -- as far as

monetary policy is concerned. in the market forgets about this, it is not going to be painless to -- lisa: it is hard to imagine we could go from negative to positive. let's talk about external factors, particularly rising u.s.-china tensions. what if the u.s. turns to europe and says you need to get harsher with china at a time when the reopening has been a tailwind for the european economy? giles: in terms of immediate impact on the european economy i don't think it is that. i don't think it messes that amount. it is less pressure from the u.s. because it will continue to be a rebound in european exports to china, mechanically because of the way a demand was moving there, it was more an immediate

issue and more when it comes to supply lines and investment. you can see the mood is changing in china, there was a sense a year or two years ago that the u.s. was obsessed with china, it would not start to balance. in the last two years and is starting to creep up the idea that you may want to not be awfully reliant on china for the supply lines in the developing markets in the future. it is not as central as what it has become in the u.s. but you can see the mood moving. lisa: how much of the gates we have seen and the surprise has stemmed from china, the germany ties and the need for investment

and purchase supply lines? >> i think we will see it more into the first quarter of 20 23. useful for me was really a story of a weighted catastrophe which did not materialize. all we talked a few months ago we were worried that we would get into a said it stopped in energy supplies especially in germany because we had a hard time finding -- thanks to the german jobs, and the fact that u.s. has amassed faster than expected, we have not had the sudden stop and this has allowed the german economy not to fall into significant recession. it is really the main driver as of now. china that would come later. tom: today we have the picking

up of the pieces of what i'm going to editorialize has been a less than successful venture. they are always compared to vwo, up seven or 8%. up one or 2% as well, help me the confidence that french manufacturing can move forward. >> inference it plays a smaller role than in germany. the speed of this has abated over the last few years in france and we still have flagship companies which hold their own.

the older one --an old french carmaker, and chrysler in the u.s.. through that lens, you can see that, the manufacturing, the french growth model for the last 20 or 30 years has been based on ad services and i don't think it is going to change anytime soon. jonathan: to build on some of this introduce a different topic, state subsidies, how do you think the french and germans are going to respond to this to push the agenda? giles: it comes down to the reaction to the ira and as long as we are focused on this, i

think we kind of lose the big picture. what we need is the joint financial investment, the way we did during the pandemic and neutralizing the european funding for a schedule across europe. i thought we would have roughly the same thing in reaction to the war in ukraine and for now to see -- we have not seen anything tangible on that front. this is the missing link. if we continue to lose these rules in europe, it will allow more policy from france, germany and others, but it should rely in a joint effort. jonathan: let's see, the tension

between europe and the united states is the story for the last couple of months. the big story for europe, they are focused on turkey. we had two earthquakes, the first a seven .7 magnitude earthquake striking before dawn. it has killed nearly 4000 people in --one thousand people in turkey and almost 250 in syria. a second earthquake hit later on. tom: and 33 aftershocks, one of the moments ago, smaller, 4.9. in the aftershocks as people in the near freezing weather sit outside because there is nowhere else to say. jonathan: the turkish president says we have been shaken by the strongest disaster in a century. we will bring you updates about every 30 minutes or so. lisa: keeping you up-to-date with news from around the world with the first word, i've lisa mateo. the search for survivors does

continue after more earthquakes hit the middle east, leaving more than 1300 people in turkey and syria dead. nations have offered to help, the first was a 7.7 magnitude earthquake, on the border of the countries and the most powerful to hit turkey in nearly a century. this stopped crude oil flows. american lawmakers demanded to know if the --carrying from the u.s. allies. divers are trying to salvage what the government believes is spy acquitted from a balloon, expected to be called up in the coming days. american consumers will suffer if the u.s. defaults on its debt. a default would cause a spike in borrowing costs that would squeeze average americans. a standoff between president biden and house republicans over raising the debt ceiling.

carlyle group has a new ceo. bloomberg has learned the private equity giant has chosen former goldman sachs copresident harvey schwartz. the announcement could come as soon as this week. carlisle has been grappling with management turnover over the last two years. prepaying one point one billion dollars in loans, and an event to have the stock selloff in the third week. there has --they have denied these claims. 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 lisa mateo. this is bloomberg. this is bloomberg. ♪

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think after what we have seen this week with jim and powell's announcements and the data --chairman powell's announcements and the data in on the planet, it is off the table for q1 and q2. jonathan: he is not wrong, the former economic advisor under president trump, the view now is that you push it out or taken off the table. raising the question, i'm not is a space case but the man over parliaments. tom: i don't want to pick on him and all he has done, but i wish all of these people citing recession calls would at least cite the economist that they are getting the belief from. jonathan: let's go over economic data. the bears have two big players in their camp. data services pmi, sub 50. they had hours for climbing and

not climbing. then all of a sudden they have this aggressive bounce back in the nonfunctioning --nonmanufacturing guy. the idea about the snapback. they did not decline. there is some pushback. the data speaking for itself. lisa: the data seems to support the ongoing momentum in the economy which raises the question, does this mean the fed has stated go number one, and how sustainable is it given the layoffs we have seen and perhaps the margins and the tech space? jonathan: --they are still struggling to draw conclusions. if we set an appointment will drop the lowest since the 60's, and i said we will guess the wage growth after a number like that, would you have said maybe

it wooden pick up? that is the difficulty people are having in the coming information. tom: clearly everyone is now massive data-dependent. i go to fiber a 14 and the inflation number. i would suggest, this is something they do not have to worry about, if you have 1% economic growth, one point 5% which is optimistic given a lot of views, what part of america feels like they are in a recession even if it is not a fancy recession? jonathan: it will be interesting. tom: this will be with david driven sign. -- david rubenstein. looking forward to that. of course with all of his equipment -- commitment to bloomberg, he was chairman of the federal reserve system. now, we will join us, moving on to other broader affairs.

but i have to go to one of her younger academic years of traipsing around here. you have not been in the earthquake region directly above damascus, directly above lebanon in the northeast corner of the mediterranean, but you have been northeast of there as well. it is pretty remote. >> it is not a super populated area but i would not describe it as remote either. these are populated areas and we have seen that from the jet -- death toll that is climbing as we speak. at least 1300 people killed. the closest city to where the epicenter was is one of the centers where many syrian refugees were fleeing for a number of years during the years of the crisis. these are areas where many people who face extreme hardship and forced displacement and our

gathering this devastating crisis as well. tom: we have seen the leveling of aleppo. how does that tension, the more in syria and various parties, how does that obstruct workplace --earthquake relief efforts? julie: anytime you have an unstable government and governing system, and a place like aleppo where there's been hold out and resistance taking back over for obvious reasons, it is difficult to coordinate any kind of relief. it is one reason we have seen a group called the white helmets, which got a lot of press during the syrian conflict, they were the first to the scene. in terms of rebuilding, it is going to be tough in places like that that are beset with many challenges even when there are not natural disasters. lisa: we will keep giving updates as we get updates about

the situation where people are dying. there is a question in the movie but with the relationship between the u.s. and china is on the heels of the balloon that got shot down, the surveillance balloon, maybe the weather balloon, that is what china is claiming. what did you make of the chinese response? julie: i don't think it was a shock to anyone following u.s. and china that there is espionage going back and forth on both ways. so the fact that there are these surveillance tools themselves was not the main story is much it was the brazenness of having it so visible. it is unclear how intentional that was, was that intentional across the chinese government, was a part of the chinese government or was this a mess up on somebody's part? it was interesting that china's response initially did seem to be a crisis damage control. it was not just sitting back with the popcorn and watching to

see how the u.s. responded to this. it did seem alarm that this was happening and playing out as it was. we have seen some of the usual rhetoric that the u.s. is blowing this out of proportion, this was a -- unnecessary to down the balloon. but the initial reaction said it all, something did not go right here and it put china on the back foot and they defensive more than the u.s.. lisa: we have been talking about the mood among the populations of the u.s. and china has had interns of the effect on president biden and xi jinping in china. how much are people looking for xi jinping to take a hard stance against the u.s.? julie: there's always been that book. but at the same time, china is coming down after an unsteady period, trying to re-stabilize the economy and coordinating in the -- that means coordinating

with the u.s.. the visit that got canceled, open to medication, people are seeing let's stabilize things and get things back to normal. when you see a crisis like this, we can send things into unpredictable directions. that is not something that those that are worried about the stability want to say. there are some support for that but don't want things going off the rails either. jonathan: a great writer over the weekend, david sheppard, about the f-22 raptor fighter, they indicated this was the first air to air killed by their check. what do you think the chinese learn from how the u.s. responded to this? julie: obviously there will be watching of that. i do think it is important that the u.s. is learning from the technology they will get from this as well. that was part of the ministrations calculation. we have known from before that

china has been able to learn from aircraft, there was one of the reverse technologies that was seen as a win for china in the u.s. is trying to see if they can do the same thing without unpacking these intelligence apparatuses that they have hands-on. but both sides are always watching the other to see what are they using, how are they using it and what can we learn from it to adapt our own systems? jonathan: thank you, julie from ucl. this may be the highest altitude air to air killed ever, if we want to call this, some people might push back. tom: [laughter] jonathan: flying at about 58,000 feet. tom: we were 34,000 feet when we are flying fancy. it is a lot more altitude up there. my problem is i hear too many people pontificating who have zero knowledge at all. about any of this. jonathan: no insight at all.

it is the gift that keeps on giving, though. according to the latest report, china had the weather service. lisa: maybe in terms of the fall for this. tom: i am so glad you mentioned tony, follow him over the weeks and months. he is definitive in defense reporting for integrity. to have him on our team. jonathan: we will catch up with annmarie hordern and 10 minutes time. the two year yield is higher, about 440, almost unchanged on the year and the nasdaq is up about 15% year to date. futures are negative, we are down about .8% on the s&p and a whole lot more on the nasdaq. 's -- next, michael of morgan

stanley, looking forward to that as we carried out to chairman powell speaking tomorrow. -- count you down to chairman powell speaking tomorrow. ♪

>> consumers are telling you things are ok in the labor market. >> the hot, tight labor market is still going to be a issue for the inflation outlook and the fed outlook. >> markets may make it more challenging. >> financial conditions had a extraordinary round of tightening through october of last year. that is impacting the economy now. >> the economy is slow.

we are seeing earnings cut. it is not happening as fast as we would like to see them. >> this is bloomberg surveillance with tom keene, jonathan ferro and abramowitz. jonathan: good morning to you all. this is bloomberg surveillance with tom keene and lisa abramowicz. headline this morning without a doubt, the move in the bond market to year yield 4.40 on the two year yield after seemingly at one point last week threatening to break back into the threes. a turnaround on payrolls. tom: a round trip, but the speed of the round-trip. you see it with a renewed inversion. the first thing i looked at this morning, i took it to the t-bill three-month to 30 year bond. that is down to 30 year historic inversion. jonathan: the equity market has

it piling on. pushing back against the rally, we have seen so far today. lisa: we are taking a bite out of the rally we saw earlier this year, maybe more like a nibble. the bears saying if you look at earnings, they have not been good. people are talking about resilience, you have not seen them in terms of profits versus low expectations. at what point are they justified if people are seeing real strength that is going to support these companies? that is the issue. jonathan: does chairman powell have to recalibrate the message tomorrow? lisa: i think the jobs report did it for him. i think he will enjoy there is more volatility. are they basically relinquishing their control mechanism over markets and saying, you guys figure it out? jonathan: we mentioned it in the last hour. we have gone from soft landing, hard landing, soft landing and

now, no landing. we've got michael kushner from morgan stanley to join us in a moment. tom, the prospect you may do not get both rolling over. perhaps you reintroduce upside inflation risk. tom: -- at j.p. morgan took the fourth quarter up to a 3.1%. i did not see the readjustment. alexander at morgan stanley was here friday with a cautious view on first-quarter economic growth. that is a sudden deceleration. jonathan: the reports on fed funds, they are looking at reports. steve is going to join us in 45 minutes looking for reports, maybe in march. tom: i think it is open to debate. my answer is, they are data-dependent. i need to get to valentine's day. jonathan: that has been your answer for a while. we will talk about waiting to get to valentine's day. lisa: [laughter] jonathan: plans this year?

tom: arnaud -- anything from arnaud? jonathan: equity futures down by -- yields higher by seven basis points. 10 year 3.59. euro-dollar 1.069. big turnaround. we have been talking about maybe breaking down through four on a two-year, now back at four. tom: 30,000 feet below the balloon or whatever. let's fly naturally. guess what, it is simple. unemployment rate back to the age of aquarius. ♪ the age of aquarius ♪ ♪ 1969. michael kushner is looking at me. jonathan: a little bit before my time. have you ever heard of that song?

lisa: of course i have. i grew up with that music. [laughter] it is meta-, at least let's talk about this week. you came out and said this is going to be a big week. this week is not going to be that big. i think it is fair to say, let's call it what it is. last week was a massive week. this week is a digestive week. jay powell helping tomorrow with his speech at the economic club of washington. with david rubenstein, currently of carlisle. president biden is giving that state of the union address. curious to see if he announces his run this week. earnings continue, about half of s&p companies reported earnings this week. chipotle, royal caribbean, uber and lyft. what do we see in terms of spending going forward? going through the data we have this week, it is a massive data dump. thursday, we get initial jobless claims.

i feel that takes on new importance based on what we saw friday. we get the university of michigan sentiment survey, which you put stock in. the year ahead outlook for inflation. how much do they keep going down? jonathan: i asked tom how he would respond if they called, he took that so seriously. they have never called. lisa: [laughter] they have never called tom, either. tom: who are the people who get called? jonathan: i have always wondered. do they get a range and say, you are looking tens to 20, 1 to 20, pick a number? this is a story we will pick on later. over in europe, deeply distressing and upsetting. two earthquakes hitting turkey today. the first was a 7.7 magnitude earthquake striking just before dawn. the second was a magnitude that reached 7.5. we have heard from the turkish leader, he said "we have been shaken by this disaster tom, you can weigh in on the shocks in a

moment. the death toll in turkey surpassing 1000. tom: julie normand said this is a populated area. the images are inaccurate. there were terrible earthquakes, there was a earthquake in the 18th century in lisbon where basically portugal was flat and lisbon were flat. crete had two horrific earthquakes. cyprus, i am off on that. in turkey, i believe it is 1939 to get to the equivalency. jonathan: we will try to get you another update in about 10 minutes. every 13 minutes, we will bring you an update on this story. joining us in studio at morgan stanley investment, michael, let's talk about that number from friday. we have gone from soft landing, hard landing, soft landing and now a conversation about a so-called no landing.

where are you on that topic? michael: we have been optimistic on the economy. it goes to the strength of the labor market. cuts in reduction in consumer spaces -- spending were voluntary. you do not buy a house but you could if prices were lower. you were not constrained because unemployment is not going up. jobs are plentiful for the economy as a whole. overall, there is no reason to believe that any slowdown could not be addressed quickly if policy eased or inflation came down. goods prices came down here and i think we are seeing this schizophrenic relationship between goods price and inflation falling rapidly because the pandemic. the service sector depending on labor markets are quite vibrant. tom: you remember when money costs something, about 17 years or whatever of a free lunch? we are back to gravity in this system. i love your phrase, shying away

from bonds. we are afraid to clip the coupon. if that is true, which coupon needs clipping this morning? michael: first of all, i think the market is forward-looking, but got to forward-looking. i was looking through things likely to happen this year. powell said it, we've got a forecast that is different. the fed is looking better than short-term in market optimism, back at 2% inflation, everything is ok. fed rate cut 100 basis points, maybe postpone your decision to buying a house down the road. tom: which coupon right now does morgan stanley say they need to clip? michael: maturity? tom: maturity, credit quality, lisa abramowicz's world? michael: 10 year bonds over three quarters percent and treasury buying smooth -- bonds. inflation will come down. lisa: a lot of people are

talking about the pause, including morgan stanley. ellen settler, the economic data will deteriorate rapidly. what will make you change your mind and start to see issues in the bond space, in the rates space, sibley because people are not pricing in enough? michael: it comes down to inflation. when things turned to october, volatility peaked. i think a lot of us the last couple of months, this drop in volatility, take risk whatever it may be. in currency markets, bond markets, equity markets. with a strong view that inflation is on the way down, the fed funds peak is in. all peaks are in. volatility risks are down. what happened last week with the employment report and in the service sector, i didn't realize how ism services fell so sharply. i do not know why it was so low. reassess how fast the economy is

going to get to the point where the fed will cut rates. i think that is being postponed in the future, even the peak rate we saw adjustments in at the end of last week. lisa: what is the risk the fed is going to pause and have to restart rate hikes in the year? michael: higher than it was. i thought a reasonable scenario meeting to any 5%, 30% chance of the fed didn't get to the point they had to cut rates until the end of this year. we will find a year, things never get that week. inflation bottoms that too high a level and the fed, ok, we are pausing the rate cuts for now and maybe rates go back again in 2024. it is not incredible to believe that might happen. jonathan: friday, we priced in a higher terminal rate, higher interest rate hikes, all of the above. going through economic data, unappointed dropping to four percent and wages not accelerating, is there not something in that that says maybe we do not have to go that

far? what are your thoughts? michael: that is a good question. right now, i think some of it has to reallocation workers across where the industry distribution, higher income, tech workers losing their jobs. the service sector, hourly workers, manufacturing jobs, accelerating. i do not know if you have been to a restaurant lately in new york city. i was in london last week, same thing. you cannot get a reservation at a restaurant. i think it is not anecdotal evidence, but indicative there is a lot of money to be spent on things like that. tom: mcdonald's 3rd avenue, there is usually a seat open. michael: employment is still well below its peak. jonathan: it has been a massive focus on the demand story. we will talk more about the supply-side response. this was great. equity futures right now the s&p negative by .2%

equities take a dive and yields climb. ♪ lisa: keeping you up-to-date with news from around the world. some of the most powerful earthquakes in decades hit the middle east today, killing more than 1300 people in turkey and syria. first quake measured 7.7 and ripped across the border between the two countries. the second hit the southeastern part of turkey and measured 7.5. the quakes force halted crew oil flows to a turkish terminal. divers have been sent to recover what the u.s. believes is spy equipment from that chinese balloon shot down off of south carolina. bloomberg has learned the government expects to find equipment capable of taking detailed photographs along with other sensors. lawmakers are to manning to know if any technology came from the u.s. or its allies. former treasury secretary lawrence summers said a soft

landing for the u.s. economy is looking more likely. summers told cnn that the fed may find it difficult to get back to its inflation target. he said inflation indicators remain unimaginably high. carlyle group has a new ceo. the private equity giant has chosen former goldman sachs copresident harvey schwartz. he will replace interim ceo bill conway who will remain as cochairman of the board. care -- carlisle has grappled with management turnover the last few years. 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 lisa mateo. this is bloomberg. ♪ the first time your sales reached 100k was also the first time you hit this note... ( screams in joy) save 20% with the lowest transaction fees and keep more of what you make. with a partner that always puts you first. godaddy. tools and support for every small business first.

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>> it is not acceptable that china sent this object into our airspace. i do not know all the ins and outs about what this balloon was doing or its capabilities. i know the president gave the order to have this handled, the military gauged the different risks and benefits and approaches, made the decision stated and brought this thing down without incident. jonathan: that was u.s. transportation secretary pete you to judge speaking to cnn over the weekend. cnn says -- to prove china is right, they found their weather service had over the weekend. tk, these headlines keep rolling

in. getting more ridiculous. tom: i've got to admit, it is on to go to fiction. -- odd to go to fiction. 2034, about unexpected things happening. this is not like the drama of made for movie military, yet, this is unexpected. that scares adults in the military -- and the military. jonathan: china really expressing "strong business faction -- strong dissatisfaction and protest." -- is just for public consumption, theater and how much will lead to a change. tom: they are going to hung the metal, three city buses. they will do an autopsy on it.

there will be stronger disagreement or displeasure, whatever. what we know is the republicans will sit on their hands tomorrow night. annmarie joins us about the displeasure in the republicans at the state of the union. she is our bloomberg state of the union correspondent this morning. when that guy walks in the room and says what he says, annmarie, it is america. it is a moment for america. how will this president be greeted by the senate this congress? annmarie: he will be greeted with mixed results, given the divided congress. the president is going to tout a huge number when he hits that podium tomorrow evening. it has to be the jobs report friday, lowest on implement rate since 1969. this is something he wants to hammer home. also, we were talking about the chinese surveillance balloon. i imagine the president will make the case since he has been pressured a lot by republicans

on the way he decided to deal with the surveillance balloon. he will make his case on why he went with the timeline and decisions he made. rewrites are common. remember last year, the president gave his state of the union six days after putin invaded ukraine. there was a lot of reworking and late nights in the west wing. i imagine that is going on and a lot of that went on this weekend at camp david. tom: will he speak to the polarity of the country, or will he reach out to moderate republicans? annmarie: i think the president will do what he has been doing, pointing out there is a rebellious side of what he dubs the maga's of the party. he will likely look to those 20 who held up the speaker vote, those who are going to try to divide the country more in his words. then, i think he will work for a way to try to work with

republicans. this is a president who wants to tout the fact he was able to work with congressional republicans to get the chips act done, the bipartisanship done. i think the president needs to make a case to the american people, not just because he is going to be announcing eminently a wendy 24-bit next couple of weeks. this morning, a post-abc poll says 62% of americans think biden has accomplished "not very much or little to nothing" during his presidency. jonathan: he is not a popular leader. even with own his own --within his own party, there is a question of if he should make a run in 2024. will we get a subtle reference to 2024? annmarie: i think we will. the president will be giving his address on the heels of the dnc to give the green light for south carolina to start the primaries. new hampshire has a state law that says they must go first.

they are not backing down. if president biden, the one who pitched this idea, is able to get this done, this means he is for sure the candidate for 2024. we heard ron klain made the reference yet again, not if, but when you run for president, he wants to be on his side. biden is preparing to make that announcement. it is likely to come in march or april. lisa: domestic concerns for him, but also internationally. joe was talking earlier about the battle of perceptions from both the u.s. and china. where is president biden going to sit on this, how much will that be part of the state of the union when it comes to addressing what kind of tact the u.s. will take with businesses and doing business in china? annmarie: what you have seen from the biden administration is a similar approach in the trump administration. trumpcare era tariffs they were debating, -- trump era tariffs they were debating of lifting

are still intact. this administration is after -- going to countries and businesses trying to move individuals to look at near shoring. they are trying to get business on board. this is what they are going to likely discuss. i imagine the president will likely include in his state of the union. the balloon issue and espionage issue will be a mirror into a larger issue that many republicans are talking about. senator mitt romney took twitter almost immediately saying, you see this mess and balloon in the sky which literally, you could see if you were in montana or south carolina. what, what about the millions of what he calls spy devices in individuals pockets? i say that, i am talking about tiktok. the president has to address that. jonathan: you read my mind about the tweet. senator mitt romney, millions of chinese tiktok balloons on our phones.

let's shut them all down. lisa: given the fact tiktok is a chinese based company and could potentially collect data on the u.s. also, a different version of tiktok available in the u.s. to the one that is allowed in china. the one in the u.s. has fewer controls over it then the one in the united states. will they take action? how popular will this be with younger voters at a time when a lot of politicians are using different outlets to get their message across? jonathan: using tiktok to reach him at the same time. lisa: doing tiktok dances. jonathan: isn't it more educational and the mainland for young people who use tiktok in china? lisa: i am not a expert in this. there are bigger guardrails when you do not have the same, attention deficit disorder scrolling through nonstop for entertainment. there are certain filters that are more educational. jonathan: are we going to change that? tom: i looked at it for an hour a few days ago to say, should i

be on tiktok? i can tell you what i observed there was not educational. jonathan: what was your conclusion? tom: searching words, searching names, going bramo. ferro, see what came up. lisa: me doing the macarena? [laughter] tom: i do not know what to make of it. all i can say is, i am petrified of the time wasted on social. we were so lucky we did not have this. jonathan: here is a question for you. if tiktok was american, could get access to chinese markets? lisa: absolutely not. jonathan: right, so why are we having this conversation? lisa: at this point, do you put the genie back in the bottle? can you? does it bleed into censorship and freedom of speech? does it become more controversial than it could be after more people become, lack

of a better word, addicted? jonathan: youtube and meta would like to put the genie back in the bottle. lisa: i would argue they would do well if tiktok got banned. tom: you guys get the love notes. i get the hate mail. i have been suggesting people try and put bloomberg surveillance back in the bottle. jonathan: you think it should go back in the bottle? tom: i said, this bottle has got the shape. that bottle has that shape. lisa: one of those ships assembled in the bottle. tom: it has a certain shape. jonathan: you take it out of the tube, cannot put it back in. lisa: are you drawing an analogy to this show and toothpaste back in the tube? jonathan: it is what it is. lisa: happy monday. [laughter]

jonathan: five weeks of gains on the nasdaq 100, at -- up every single week this year and has to confront turbulence. equity futures down .9%. mike wilson of morgan staying -- stanley saying it might take longer for the market to price up. the fact the bed and fed policy has restricted in the context of a earnings recession, we remain convicted in our thesis. we are negative down the russell by about .8%. in the bond market, twos,

tencent 30 to look like this. two-year through 4.40 this morning. got as low as -- here we are off the back of a blowout payrolls report. fed chair last wednesday said the disinflationary process had started. a layer in nft this, fed chair jay powell referred to disinflation some 11 times. he pointed the word did not come out in lagarde's news conference or baileys rest conference. tom: this is a lariam, he is right about the fed focused on disinflation. there was a dearth of it as we try to declare victory to bailey. lagarde, i am not sure what she was doing. jonathan: she said the inflation story was becoming more balanced. euro-dollar has taken a dive ever since back of on friday. payrolls engineering dollar

strength. euro-dollar looking at 110. lisa: perhaps menem lagarde did not mention this inflation, but the readthrough to markets would seem as though she had. it seems as though people were reading the same message regardless of the different emphasis. this week, we are focused on earnings. we are about to reach the halfway mark with respect to s&p earnings. i wanted to point out names ahead of the uber and lyft earnings we get later this week. tesla shares up this morning after saying they are going to raise the cost of their model why long-range vehicle by $1500. the reason i think this is interesting, there was a race to the bottom, the narrative last week for some of these electric vehicle manufacturers perhaps that is shifting. uber shares ahead of earnings on wednesday rising, they said they

were going to sell a stake they had in a rusty and taxi are sharing joint venture. people are looking at consolidation of market share. we saw lyft greatly underperform uber last year. those share lower by 2.2%. i'm curious, do we see this in terms of the dualities when you've got two major players, do you see more concentration of business in one as the economy perhaps does not soften materially, but changes and normalizes in a new monetary regime? jonathan: we have to study the viability of some of these businesses that cropped up to zero interest rates. joe howell said, the bubble of the last 10 years was not built on the foundation of low interest rates. that story has changed the last couple of years. tom: it will be studied for 10, 20, 30 years as the amazon dynamic and what that did to

regional economies where you pop through 12, 13, 15, 17 dollars. someone told me the new $17 is $23 million an hour. jonathan: they added one million employees during the pandemic. one company. tom: at some point, we will talk about renault. nissan has a fascinating story. -- joins us with a nuanced note. how did your view changed the market view after 517,000 plus 54,000 revisions? how did the labor of the united states economy adjust your view? >> i thought it was strong. friday's numbers told you it was strong. it was one of those reports that looks like a statistical aberration. it is stronger course the board, a weird time of year. you have the 2022 adjustments to run into.

probably, we are still creating about 200,000 jobs a month. the labor metrics look ok. friday's number particularly in the household survey, you discovered a missing -- a bunch of missing jobs jay powell had been talking about, which is not shocking. tom: the market field-of-view is more long view. we are now back to where money costs something. speak to people who have never enjoyed -- speak to how we are back to now where money costs something, how does my life change? michael: the question is, are you operating in a business which can generate enough cash flow? i think for a lot of the economy , it is still ok. i do not think what we would call the old economy has been devastated by interest rates. i think the problem is much more and people who have been

creative with financial engineering attached to a business. there, which is a lot of pe vc portion of the economy, there i think 5% is going to matter. i think we will be at or around 5%. for a while. in fact, we will be at or around 5% until things start to fall apart. jonathan: this talk of going abroad only a year or so ago, china was totally on investable. the start 2023, i am told it is totally on investable. does it change how we want to be invested in the china story? michael: i think there is two big issues. one, the chinese have switched from really a very bad covid policy to a more actual covid policy. monetarily, they have gone from tight toluse. that is positive. it has been true since 2018. sort of a geopolitical

aggravation of investing in china. [laughter] it is not a lot of fun. we found that out in russia last year where everything we had there, which wasn't much, was wiped over the weekend. i do not china itself is that attractive for those reasons. that whole region is now much more attractive. i think markets surrounding china are investable, i think the japanese as a byproduct of yield curve control have also involuntarily switched from a very loose to a very loose monetary policy. i think asia and the portions of the u.s. market will feed into that are suddenly doing better. jonathan: does this extend to europe, to london, to the ftse? michael: a ftse made a all-time record high. tom: i missed that. what about the dow? michael: it has been struggling since 1999, 2000.

it does for the london market and the german economy, which is still tied into that. for a portion of global, economically sensitive equities, the news has gotten better. lisa: how do you decipher the signal from the noise, particularly short covering some of the volatility we saw last week? michael: i think it is really hard. my phone did not stop ringing thursday and friday last week from people trying to work out what on earth is going on. some of the technicians i respect think they have seen enough to call this a new bull market. i do not. i think the change in monetary policy last year still matters. i think we might be in this really weird situation where an index like the s&p will wait, might have finished its fair market last year. the index may follow for headline index, dominated by large cap tech, is still in a bear market. lisa: i went to build on that

and give this color that thursday short covering was the largest over 15th according to goldman-s trading desk, to give you a sense of how violent it was in historical perspective. big tech, you do not think it can recover from here even with job cuts. is that what you are saying? michael: i do not think the nasdaq 100 will make a new high in 2023. lisa: why? michael: i think it was grotesquely overvalued when it did make its all-time high. i think the 10 year bull markets where they end take a long time to get to a new high. tom: you studied commodities cycles. you mentioned some optimism, pacific rim china. is that enough to get oil above a $100 rent? is that something more probable than people would think? michael: i think it has a better chance of being $160 or $180 today. tom: i am deciding, do i need

two barrels in my living room like lisa had? michael: i do not think it is crazy. the weakness in crude oil prices since last summer was caused partly because of what was going on in china. it was also caused by massive releases from the strategic petroleum reserve. in 2023, we are not going to see that happen again. jonathan: they cannot repeat the act, that is for sure. michael: no, they can't. jonathan: how can they? tom: this is important, to have a conversation with michael is important because it is broader, international view to borrow from 60,000 feet and synthesized down to where you have to have geo financial bets. to hear him say they are pacific rim, i go back to what j.p. morgan said in their 100 page brent crude study a year ago. you can say, they were wrong or maybe they were just early. all of a sudden, does our world

fall apart with $110 brent crude? jonathan: can you be both? tom: that defines my career. jonathan: [laughter] last year, the ftse up .9%. tom: really? was that in sterling or pounds? jonathan: nexus in sterling, take the mix and think about the fact the ftse is both up by staples. financials to some extent and energy. you take the likes of energy -- tom: it is less computer-y. jonathan: 12% on the index. s&p is something like 4%. looking at the time energy has had the last couple of years, it makes sense. to this day, i think -- that j.p. morgan is one of them. you can be less than constructive on the s&p because it is dominated by big cap tech -- the large caps on the tilt,

the composition is different. tom: on a monday to interpret that, bramo and i want to let you know it is a ferro correction, the ftse is not the dow jones industrial average. lisa: [laughter] tom: the ftse 100 is not the american index. i do not think that is said enough. jonathan: of course not. it just doesn't have microsoft, amazon, meta, google, apple. all that good stuff. steve england is going to catch up with us. looking for reports from the federal reserve in march. how does that payrolls report change that? futures down -.6%. ♪ lisa: keeping you up-to-date with news from around the world with the first word. the search continues for survivors after more earthquakes hit the middle east, leaving now more than 1005 hundred people in

turkey and syria debt. 45 nations have offered help and rescue efforts. the first 7.7 magnitude quake struck along the border of the two countries and was the most powerful to hit turkey nearly a century. it put a stop to crude oil close to a key x port terminal. the second hit the southeastern port of turkey. american lawmakers demanding to know if that chinese balloon shot down off the coast of south carolina was carrying technology from the u.s. or its allies. divers are trying to salvage what the government leaves spy equipment from the balloon. it is expected to be hauled up in the coming days. the head of the international monetary fund warns american consumers would suffer if the u.s. defaults on its debt. -- told cbs a fault would cause a spike in borrowing costs that would squeeze average americans. there is a stand up between president biden and house republicans over raising the debt ceiling. no and nissan have agreed on a

landmark deal to reshape their alliance. renault woke cut there some from -- to 15%. nissan will invest in renault's electric vehicle business the agreement saying easing long standing tensions between the automakers. the on-site has broken the record for the most grammy award wins ever. she picked up four more awards on sunday, giving her 32. beyoncé came up short in the top categories. harry styles, lizzo and bonnie raitt split the three biggest prizes. global news powered by more than 100 -- global news powered by more than 2,700 journalists and analysts in more than 120 countries. ♪ the first time you made a sale online was also the first time you heard of a town named... dinosaur? we just got an order from a dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. godaddy. tools and support for every small business first.

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to its goal, which is to rein in inflation pressures from a market. powell said it wednesday, a labor market that is still too hot. what we are getting wrong and where the confusion is that is a tremendous this torsion in the economy --distortion in the economy from covid. jonathan: that was jeff rosenberg, have we fully understood the post-pandemic realities of this labor market? tremendously difficult. the word he used after friday, confusing for many people. futures on the s&p and nasdaq negative. trying to recover. yields higher by seven basis points. 3.59. how high on euro-dollar, euro-dollar staring down 1.10. the high on the year on a single currency was 110. tom: a little move.

the vix backs up and is not backup as much as i thought. i thought it would have a 20 feeling. 19 43 right now on the vix with the spx down .6%. not all that much of a move, even while we did see stronger dollar. jonathan: a great line in a larry and's piece in the financial times today. about whether chairman powell who is scheduled to speak tomorrow would " correct the markets understanding of what they heard and saw." will we get some kind of walked back tomorrow from the fed chair? lisa: does he have to walk anything back if the market is basically doing anything for him with the payrolls report? why not? jonathan:? tom: we are data-dependent. what is interesting about this, the probability and interpretation of it. stephen englander is out of yale university with a story, it is

standard chartered bank or foreign-exchange is important. stephen, i went all bayesian the other day. we are not when you go there. i flunked bayesian probability three times in a row. you say suddenly, we are conditional. i think this deserves explanation. tell me what the conditionality of all of central banks is right now. how do we switch from unconditional to a conditional analysis of the fed? stephen: i think the big shift the fed chair powell made wednesday was in going from a view that the fed had to raise rates in pretty much all circumstances, and downplay the possibility that they would not be pushing them up. basically saying, we have a target for where real rates have to go and we have to get there. wednesday, he said the market is too optimistic.

we have to raise rates further, but we will see whose forecast is right. the conditionality is the conditionality on the way things turned out. i kind of agree with lisa. he does not have to walk much back. he will probably say, looks like our forecast was better than the markets forecast. tom: within that market is in ex post. any conditional or probability analysis, you try to get out front or you act later. our we still as ex post as we believe we are? steven: i think he feels they have the luxury of being ex post at this stage because real interest rates based on forward-looking break evens are above 2% or higher. i think there is a consensus within the fed that is reasonably restrictive, maybe not perfectly restrictive but also may too much. i think now, he can let the data guide them on how much further

they have to go. jonathan: let's talk about that dollar smile. two extremes, the dollar can strengthen whether the u.s. is great or terrible. are we going to flip back to one from the other? steven: it is funny because on a recent trip to europe, both clients were more concerned the economy would slow to quickly. that we might be on one end of the smile. the fear is we are on the other end without having -- in between. i think this is one of the big uncertainties in the market right now. if it turns out the labor market is tighter than expected, accompanied by more inflation pressures than expected, there is a good chance we will be on the risk off dollar positive end of the smile. for my read of the data, i think

the inflation data looks primed to come down. i think the earnings numbers were not terrible the last six months, the earnings were .3 or .4, which is probably consistent with 3% to 3.5% inflation in the u.s., not where they want to be but below where inflation is treading now. i think there is a possibility that if we do not see a pickup in inflation, even if the fed feels it has to hike more then what the market is projecting, that it could be consistent with a fair amount of at least risk neutral if not risk positive -- they are not -- they would not be tightening to drag the economy down. they would be tightening to put a little pension on the reins to prevent them from overheating. lisa: we have been talking about positioning and what we saw last week in respect to the short squeeze thursday that was historic in its scope.

how heavily are people positioned toward the euro at this point, given our guests seem to say they prefer europe or international over the u.s. and could make that rally of the dollar perhaps more significant? steven: i think they are less position now than they were at 8:29 on friday. i think the numbers were so striking that the -- those who had profits were trying to protect them and stop losses were getting run. look, i think the markets are trading right now on a risk off basis. i think the markets are going to wait to see what the cpi is telling them with inflation and then decide whether it is a growth surprise or an inflation surprise before really figuring out how much of the remaining positions have to be unwound. lisa: do you think it is a heads

we win, tails you lose an arrow for the dollar? -- scenario for the dollar? either way, a strengthening or softening could potentially strengthen the currency then we -- here. steven: it is possible. you have to consider there is a lot of positives for the currencies, both as market valuations are low by historical standards, most potent -- peak and em currencies are weak. if you are looking at europe, this is the first time in six or seven years that are positive interest rates. there are going to be portfolio adjustments, even if it is not a massive by europe view. i think conditions are favorable on a number of bases, which may mean we do not go as far as had been expected in dollar weakness. that is a risk, but it may not mean that trade is complete

reversed. jonathan: great to catch up. appreciate it. great work the last couple of weeks. that note after chairman powell wednesday going from unconditional hawkishness to conditional hawkishness. got the conditions for that hawkishness on friday, the blowout jobs report. equity futures deeply negative this morning. trying to buy some weakness, recovering a little bit. down by .6% on the s&p. that is happening even as the move in yields is not fading at the front end, still higher by 10 to 11 basis points. tom: last week was exhausting. it is quiet after the storm. we are waiting to go want to february 14 grade some other data along that ways. we have done a great job on earnings, we have not focused on the dax. the set has focused on the rest of the world. tim, canton ohio -- canton, ohio. they make something as prosaic as all bearings. they are as industrial as they

get. do you want to make 12.9% per year for 20 years? that is a good return. it is not apple, maybe is not -- pick a stop. jonathan: meta. amazon. tom: boring, ball bearings, canton, ohio. 18,000 bodies. 12.9% per year or two decades. -- at citigroup says that pricing was a surprise. a shot. they can price -- they can raise prices and away with it. nobody reports on this. the financial media -- jonathan: because it is a $6 billion name. that is why. tom: i get it. apple, apple, apple. meta, meta, meta. we should do more tesla. we should do more timken. jonathan: the coverage has boiled down to five or six names. the dominance of the index level and the conversation has shifted away from what may be used to be

on. i am with you. futures down .6% on the s&p. from new york, this is bloomberg. ♪

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>> the market expects inflation to come in quickly to the target. >> this inflation fight is not

over yet. >> the fed is hyper focused on inflation, but particularly the inflationary. element coming from the labor market. >> to get to 2 -->> >> there is risk that employment will stay strong. tom: good morning. after the jobs report, a quiet monday. not the bond market moves and where we calibrate that with a wonderful guest in a moment. it is a monday with curve inversion. jonathan: she thinks the fed has more work to do. unemployment at 3.4%. it was not just the labor market report. a manufacturing survey had a

massive bounce back into expansionary territory, the biggest bounce since 2020. a lot of people since friday are throwing your hands up in the air. tom: i would say the reading over the weekend, a reaffirmation of negative on the equity markets. ben always says there is a fear of missing out on everything across the spectrum, maybe the preponderance i read was a pushing against mr. labeler. jonathan: one on twitter had a wonderful line, it is not about valuations and fundamentals but positioning and what was said this morning is position is normalizing and the question is whether we will get a fundamental confirmation. ultimately they say use the strength to reduce exposure.

that comes from jp morgan. tom: mind says look at the tea leaves. how did bonds move friday, not so much stress but corporate's? how did they adjust to the revisions? lisa: spread tightening. it just double down because strengthening the economy reduces the chances of a company going under, which is the reason why the bears may have reaffirmed with valuations but reaffirmed bearish to a lesser negative and we heard that from david coston at goldman sachs. tom: soto a jumble of the week. tomorrow, clarity. your thoughts on the estate of the onion? lisa: people will be only

looking for the 2020 announcement for the race. tom: he is not going to do that, right? lisa: i am also curious about departures from his cabinet after the state of the union and that is what people have been waiting for. tom: i will go to 80 basis points, negative eight 0.000. jonathan: futures much lower. -.6% on the s&p. this mentioned spreads. high-yield spreads at 200 basis points tighter than last year. the dollar is 10% off of its peak. the chairman of the federal circuit is saying natural conditions haven't changed that much since the last meeting. lisa has made the point that this market has responded to the

incoming information and is adapting to it. some people may be looking for validation from the fed chair. tom: interesting voices, michael shula, the global field. we will take another view, tom tzitzouris joins us right now from strategas securities . i love your note saying have the courage to look out. you are walking beyond 2023 and looking at what 2024 looks like. tom: looking at 2023, looking at a recession happening where the fed is not bringing inflation down to the target but rate cuts hit later this year or more like early next year. once you see the fed cutting

rates early next year when inflation is bottoming out, you are talking about yields off to the races again the second half of next year. we are looking out and we are seeing a double-dip session is most likely what we will see over the next two years because there will have to be serious damage done to the labor market. jonathan: that is like the post crisis conversation. before we get to the second recession, can we talk about the first? we just had payrolls of 517,000. what recession? tom: this looks a lot like third quarter of 1999, 6% gdp and it was having businesses hoarding inventory head of y2k. the fed was tightening and the

market was saying the fed is getting close to being done and then allison in 2000, it was down fast. today, businesses are hoarding labor. that is not sustainable. you see labor productivity negative and that is not a good thing. other things we are looking at is lower income cohorts are spending well beyond their means . credit card is growing and is at a halt time -- all-time high. middle income and higher income cohorts dipping into savings at an astounding rate. that is probably more sustainable because they have a good cushion. we are seeing a shallow recession because the consumer is wobbling. like we saw in 2000 with inventories, you get the cascade effect but it should be fairly shallow because we think that by the time this happens bad will

pivot toward cuts in 2024. lisa: what is the fed response to a shallow recession? is it rate cuts if inflation hasn't been killed off? tom: i think they will hem and haw for as long as they can but pivot toward rate cuts but not this year. the bond market as of friday was pricing in cuts as soon as possible or november of this year. the market this morning is pushing cuts further out. the fed is going to have to wobble itself towards cuts and pivot toward cuts sometime next year. lisa: if it is just a shallow recession, given the ongoing rally people have played into? tom: no in the investment grade and high-yield. we have corporate spreads around 115 to 120. even shallow, you are talking to 180 to 200.

look at how much earnings contract and a shallow recession, it is 50% or 20%, so nothing seems to line up with the shallow dip in earnings and output we are expecting. there has to be some risk-asset pain. jonathan: do you expect anything from the fed chair to be different? tom: he is saying they don't know where they will terminate the funds rate, but we are confident we will hold it there for a while. we don't know what a while is but it is probably through the remainder of this year. beyond that, he is data appended. we all hate that phrase, but we need to see the jobs numbers and how quickly inflation is coming down and all of it comes down to one important data point that you are hearing people talk a lot about today, labor force productivity. if that somehow rises and participation rate rises, then it is a game changer but i don't

see that happening. jonathan: is there anything about the data that makes you think, i don't know what is happening? tom: that is a head scratcher. what we can broadly say is at 18 to 25-year-olds are to some extent boycotting the labor market. we don't know why they are doing that we can suspect and give anecdotal reasons. we can have cynical reasons why it, but they are boycotting this market and when they join the market, they are not putting their best efforts forward, soleil were first productivity is negative. -- so we are seeing their labor force activity is negative. consistent with a shallow recession, modest means contraction.

say the s&p, let's do $200 a for earnings this year with a 17.5 multiple, 3500 and if the fed posits and pivots sooner than expected, they've you get a -- get back down. we are still bearish. tom: i love to hear bond guys talk with these. jonathan: i love it that that they don't go to work and when they get to work they don't give their best. lisa: it is going to be an interesting time. i wonder what is going on. you think it is social media? jonathan: no idea. don't know. back to the labor market of friday to see on employment at 3.4%, payrolls growth of 517,000. if he left the wage number link and said yes what, i don't think

you would have come up with the wage number. lisa: lower wage jobs getting created than higher wage, but why are we seeing the pressure? is it ok to see a robust job growth for a federal reserve that is looking at inflation? jonathan: which is why i said when the fed chair says the disinflationary process has started, does the payrolls were on friday contradict that or support it? interesting to see how the fed chair talks about this. lisa: i don't think we know. it is on clarity -- un-clarity. coming up, isaac boltansky, and the president of the united states and the address to the country tomorrow. lisa: from news around the world with the first word, i'm lisa

mateo. some of the most powerful earthquakes in decades hit the middle east, killing within 1500 people in turkey and syria. it measured 7.7 and ripped across the border of the countries. the second hit the southeastern part of turkey and measured 7.5. it is halting crude oil flows to a turkish terminal. divers have been sent to recover with the u.s. believes is spy equipment from the chinese balloon shot of of south carolina. they expect to find equipment and photographs and sensors. it lawmakers demanding to know if any of the technology came from the u.s. or its allies. in france, more strikes and protests planned by unions opposed to emmanuel macron's proposal. it will start debating measures including increasing the retirement age from 62 to 64.

a new ceo for carlisle, harvey schwartz will take over for the cofounder bill conway who became interim ceo when lee resigned after a power struggle. dell is the latest tech company to announce job cuts, it will reduce 6650 jobs, 5% of its job force. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm liz a matteo. this is bloomberg. ♪ three nights, esg... the broker will take your bonds. -diversification, futures, options. fiduciary. leverage. [whispering] -frothy markets. psst. virtual real estate is a lock. ♪ cold hard cash ♪ j.p. morgan wealth management knows the world is

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>> i can assure you that if we fly a balloon or china they will shoot it down and sooner than we did. this is not a coincidence that it went over sensitive military sites and leading before antony blinken's visit. the message is that the united states is a once great superpower that is hollowed out and in decline. jonathan: marco rubio of florida speaking on abc. equities on the s&p 500 negative by .6%.

off session lows taking a bite out of the losses, the low session we were down 1%. the action on the two-year, up 10 basis points, just short of 3.40. it is 4.39 on a two-year. a real change. at one point we were having a conversation about rigging into the threes on the front end of the curve and moving in that direction. tom: and the equity market it is intuitive but in bonds it takes some work. when you have this move, it is yield up, price down. there are a lot of people not even trading but holding and they are like, am i having any fun here? and i am not sure. jonathan: less fun after friday

and that continues this morning. lisa: the person it has been more fun is people who had deposits at banks economical into t-bills and make 4.2% and you are seeing more people do that. jonathan: i will share a quote with the audience, the combination upside base case substantial downside risk if the economy dips makes challenging for investors, especially relative to the alternatives. lisa brings up an interpretive that will give you 4%. tom: we talked about that this morning. bill gross in the mailroom at the pacific investment management company with scissors in his hand. and you clipped the coupons

which i have done. jonathan: this is why we talked about gilts. tom: is that what it is, a certificate is gilt. isaac boltansky is ready to hang up on us now. he is from btig, llc. does your world matter given the gridlock we will see on display tomorrow night? isaac: i think tomorrow is a big show and we are always interested in what the president has to say because he does provides a little insight into what they will do. but there isn't much that will happen on capitol hill. i think tomorrow night will be more about what it means for the administrative state and how

2024 is setting up and maybe given the events of the past couple of days, how congress will tackle the china question. tom: where is the equivalent bipartisan to the bipartisan angst over china? domestically, where is the bipartisan? isaac: i think there are two things that are unifying and animating ndc one is china hawkish this and the other is big tech bashing. when i think about big tech bashing, you have the far left and far right and everyone in between with concerns regarding the growth and expansiveness of the big tech companies. the problem is, what is our response? both ends of the ideological spectrum have a disdain of big tech for different reasons. lisa: you put the two together and you get tiktok and how much of a groundswell do we get trying to blend tiktok in the

united states? isaac: at the beginning of this story, there were some divisions over how to address tiktok but you are starting to see those dissipate. i am focused on top democrats in the senate. you are starting to see those concerns which were about the slippery slope of banning free speech starting to change and pushing a new bill and you have seen comments from senator bennett. the risk is real and there is a viable scenario where tiktok is big. i think the ceo coming to capitol hill to testify is one of those rare moments where congressional hearing matters. that will ultimately have great bearing on how d.c., whether it is congress or the review that is ongoing to tackle that question. lisa: is there really the

political will in washington, d.c. to diminish business opportunities of american companies looking to go over to china and doubling down on that for the sake of national security? isaac: this is why it is always difficult to say that the bilateral relationship is going to end between china and the u.s. we are too entwined. each one of these issues represents its own set of complicated matters, but also part of the broader whole. we talk about tiktok and what can be done, you have domestic concerns about those making money or the fact that a quarter of those folks between 18 and 29 if there news primarily from the app. those concerns are real and more broadly, you have seen this bipartisanship over china hawkish news lead to a focus on the flows of data and technology

. that is where we are seeing enough from thinking to see action. tom: you are ohio wesleyan and understand the fabric of the midwest like few we talked to. is it an east coast phenomenon? i things better out there than we perceive? isaac: all politics are local and the divisiveness is reflected -- reflective of a broader divide in the country. we see that we watch the state of the union tomorrow night and the various different responses, oath from the republican party -- both from the republican and democrat parties. it does not mean it is nearly as bearish as we often are inclined to suggest. jonathan: thank you. what do you make of the spectacle? should it continue?

tom: the state of the union? absolutely. i can't member who it is but a designated cabinet member has to sit at the holiday inn and have a beverage of their choice. there is a drama to it. jonathan: has speaker pelosi written up the speech? tom: this is the turmoil of the last four or five years and everybody has a political angle here, there is pageantry to it that is the modern american political experience. was it changed? yes. lisa: they used to be a leader and bringing the country together and sending a united message of what the country wanted to do and maybe you would disagree, but that was the thought, what is the message from the person who is in charge

and now it is increasingly a place to highlight the divisions. tom: i relate take issue with this. i grew up feeling the visceral admiration and hatred for fdr that was there from grandparents and people like them. cocktail hour started on cape cod at 4:30, five days a week. but i remember the visceral hatred and affection for fdr, no different than what we see no. jonathan: matt brill, james athey and jape hello c and lisa falconio, all coming up. this is bloomberg. ♪ absolutely. they've invested over $2 billion in tech.

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tom: we welcome you on a monday. after a jobs report, it is supposed to be slow but it is not. interesting movement in the bond market. equity markets give back but a little bit of movement on the vix. futures come in at -27. dolph futures negative. -80 basis points is the inversion, to year yield is .8 percentage points higher than

the 10 year yield. lisa: another way to put this is that basically how much damage has to be done or how much does the fed have to raise rates to bring inflation back down within the 2% range and that spread suggests that. if you are making so much more money to put your money in cash than longer-term instruments, it tells you that people are willing to park their cash under the mattress over a long-term slowing growth rather than take risks. that is a significant indication. tom: been my careful look, there is stuff coming out but now we have a real leap to get out to february 14 and the inflationary report. lisa: you really like february 14. is it just the inflation, nothing else? tom: a move on the jbt.

fe -- on the gdp. ferro goes out and comes back with roses. lisa: it was significant. tom: got a thank you note for that. sarah hewin is one of the most interesting people. she is out of cambridge, one of the toughest admits in the world. she is with standard chartered. what was your first completely overwhelming date like at the university of cambridge? the heritage of that program is stunning. what was it like your first day in the classroom? sarah: it was fantastic but i was amazed at how many men there were and i had been at a school

where it was equal. it was very much a male subject at that time. things have changed. tom: you have been a real leader on that with your coverage on europe and the western hemisphere at standard chartered. what is your theme taking standard chartered into covering and how will it affect the sarah hewin world? sarah: it is hopeful. we are looking for growth of 5.8% this year in china and that is above consensus but we are confident we will see spending. if we look back at what happened in the u.s. and europe in the immediate aftermath of the first pandemic wave, caused by government spending, particularly in the u.s., there was a huge surge in consumer spending in the first 12 months

after that first pandemic wave. 15% in europe. i think we will see large increases in spending that will drive the chinese economy forward. in terms of what it means for are part of the world, it is great for exporters. it has been a difficult year trade wise and there are opportunities in china. the question is, what happens to inflation? there are concerns we could see commodity prices picking up again. our own view is what we will see in china will not drive commodity prices substantially higher. it will not be construction lead or investment led it is consumer led and ugly consumer services led. lisa: people are looking at resilient labor markets helped out by some of the demand from china but very much domestically driven, both in europe as well as the u.s. how much dissidents is there

between the strong labor markets we see and the disinflationary push people are feeling perhaps as a linear nature? sarah: i think there is a lot of dissidents because if you look at the u.s. and the u.k., strong labor markets everywhere and certainly here in europe, there are real concerns about what that means for wages. we are seeing wages rise rapidly the u.k.. in the euro area, there are no signs yet of wages becoming out of control, some concern with the unemployment rate as low as it is that it is only a matter of time before you see wages catching up. that does question what happens to inflation, particularly the

services part of inflation. we know it is a concern for the fed and chair powell has talked about the imbalances in the labor market potentially being a driver. there is this dissidence between headline inflation and core inflation in the u.s. and less so in europe. the real strength we are seeing on the employment side. lisa: what was the big take away from the labor market report in the u.s. that a lot of people thought it was a head scratchers simply because of its strength? sarah: to be fair, there was little to suggest the labor market is weak in those data. have had some signs earlier that labs were rising rapidly and we know that a lot of the jobs

being created are part-time. that said, the employment was strong and even if you account for seasonal adjustments and population increase, it is difficult to pick a hole in that data. tom: this was the zeitgeist over the weekend. how did so many people get this wrong? have you thought about it over the weekend? it was a shock, wasn't it? sarah: it was, and i think we have had some signs of the economy weakening, so clearly the second half of last year gdp growth was strong, but if you look at the spending data, they were weak or october, november, december. the surveys showing activity sluggish and until we have the services survey, that looked to be the case across the board. and it was a double whammy from

the payrolls report and the services completely reversing the weak number we had previously. a lot of head scratching over where is the economy going? lisa: do you agree that we can get a note landing given how strong the data has been? sarah: i question the strength of the data, to be honest. i think we need to see the next couple of months without being too data dependent. there is a lot of question over exactly what is happening to the labor market and uncertainly this degree of strength can persist and we know there can be huge differences in the data onto month. so let's see what happens over the month or so before deciding before there is a new landing site. tom: thank you so much.

rarely does his entourage let us near him, michael mckee after the jobs number. i have one question, and this came up and i will give credit. the number of bodies and number of hours worked, when you combine them together, it speaks to a wonderfully productive america, doesn't it? michael: an america with more money to spend going forward which is causing the re-think for the outlook. tom: what did you learn about the re-think? michael: i think people are saying jay powell might be right that we will see a stronger economy then perhaps people thought, which means inflation will be stickier.

they have a model that suggests if you will have more in people employed you will have inflation and it will be harder to drive wage pressures out of the economy. that is not what the eci said last week but with the latest market think is. tom: senator warren is working and more people working longer hours and we should be angst ridden. lisa: that raises about -- questions about the union membership and power when there is a shortage of labor. the mystery of people who are not participating. was that laid bare in the research or the conversations you had over the weekend on why certain people are not coming back to the workforce? michael: we do not know the entire story but a certain story or perhaps the majority is explained by the fact that the baby boomers are retiring, except for tom and me, and taking advantage of the fact that any of them had to work from home and might as well have

just quit, so they did. it is a process that was already underway. we are starting to see prime age people come back to work and prime age women come back to work, which suggests that one of the problems we had was daycare in who had covid and those problems are easy and kids are back in school so it is easier for people to get back to work, and we are seeing a small rise in participation. lisa: i remember when one person would get covid in the class and everyone was sent home for a week and now you literally get messages every day that kids have covid induced monitor things. tom: and oh when i go home, i'm exhausted. michael mckee, think he is off until february 14, valentine's

day, when we get the inflation report. lisa: he is not off. michael: is going to washington tomorrow to see jay powell. tom: tomorrow, the state of the union, before that we had the state of the powell. lisa: the state of the powell might be more interesting than the state of the union, in terms of what he plans to emphasize. whether he decides to walk back or what he emphasize, he doesn't need to walk back. tom: ladies and gentlemen, the chairman of the federal reserve. stay with us. ♪ lisa: with the first blurred -- first word, i'm lisa mateo. search for survivors after earthquakes in turkey and syria.

the first was a 7.7 magnitude quake struck along the border of the two countries and the most powerful to hit turkey in a century. the kremlin said vladimir putin is offering help to both turkey and syria. american lawmakers demanding to know if the chinese balloon that was shot down over the coast -- coast of south carolina was carrying technology from the u.s.. divers are trying to salvage what they believe is spy equipment from the balloon and expected to be hauled up in the couple of days -- next couple of days. it is one that american consumers would suffer if they default on their debt. it would cause a spike in borrowing costs and would squeeze americans. there is a standoff between president biden and house republicans over raising the debt ceiling. renault and nissan will reshape

alliance. the agreement is aimed at easing long-standing tensions between the two automakers. in franch, the rothschild family plans to take their bank private come in a.d. -- in a deal rumored at $4 billion. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> i think the job market is likely to remain hot. the fed is not likely to revert

to large rate increases but more gradual but probably into the fives and may have to hold it for longer than market participants think. the fed has been signaling it. tom: a very good conversation. the word today is resilient monday. chair yellen is over at stephanopoulos at abc talking about a resilient america. lisa: more than resilient if you look at the letters -- numbers from friday. but markets have retraced some of the losses earlier in the day. tom: gina martin adams joins us now, chief equity strategist at bloomberg intelligence. you are getting in the amount of data at 40% or 50%, how

resilient our revenues in earnings for american companies? gina: not great, honestly. we continue to see evidence that it more than a year ago on adjusted basis. we will continue argan and whether the economy is in a recession, it is clear that the earnings cycle pete and is experiencing a downdraft -- we will continue to argue whether the economy is in a recession and it is clear the earnings cycle peaked and is in a downdraft. the market itself has shown signs of bottoming since october lows. looking at the earnings stream, it is all about inflation. revenue is still throwing year-over-year, in particular thanks to the energy sector where we are getting energy

growth, high oil prices and energy prices at large. it is about inflation impacting margins. tom: just on one transaction reported by bloomberg and it is reported that danna her medical -- danaher medical maybe having a transaction we have talked about this before, with all of this going on, is it going to be a premium of well-run companies as well as a rollup of the nonprofitable zombie companies? gina: this is interesting and the characteristic of a january was a certain rush into nonprofitable companies. we saw in the small-cap index,

stocks outperforming profitable stocks by the widest margins in u.s. history for the month. the market dynamic has worked in favor of the unprofitable companies. i think it is risk tolerance at the start of the year but frankly those companies will struggle to perform well in an environment where inflation remains somewhat steady. i think this is part of the bigger conversation. when you have economic growth somewhat resilient and inflation somewhat sticky, the margin pressure on those companies is extraordinary. that was the case throughout most of 2022. i think it will remain a problem for 2023. though january would say something different. when we look at the outlook, we see inflation remaining much higher or longer than many people are willing to acknowledge. the results of that is you want

to look for profitable companies or companies with margin growth potential and a sticky inflation environment. i think it will be a longer term trend but january would have suggested otherwise. lisa: what is the take away as to why people favor to a great degree nonprofitable companies? gina: the bond market keeps town the equity market are going to fall into a recession and that the fed is going to ease policy. the equity market is saying great, earnings are weak but if the fed will ease policy, we will go into a cyclical turn on the count of the policy easing. is that going to be the case? the bond market has been caught of guard by fed policy, so the equity market could get caught in a trap signaled by what they think of the outlook. also, it is very characteristic

for the nonprofitable companies to lead. did you see junk rallies? they don't necessarily continue over the duration, but nonetheless they do tend to characterize those majors. we would view october as a significant bottom and certainly the capitalists confirm that the market is starting to rotate into a new cycle. it is not going to go in a straight line, without a doubt, but nonetheless, if you combine those with the cycle qs from the earnings -- cues and you see will likely be the next recovery. lisa: is there session -- section that has an ability to adapt to a higher inflationary environment than others? gina: usually the sectors that perform better where you have

the cyclical inflection point but generally have higher inflation are likely to be the industrials companies, maybe materials companies, energy companies, financials even. in past cycles where you focus on the disinflationary backdrop, he think about tech and consumer discretionary. i would argue those will not show the resilience they typically do because of the inflationary shift. you have to consider your strategy you might be at a cyclical turning point but within a secular inflation regime shift, if you are at that cycle turning point you want to get more aggressive toward cyclicals. you had to be conscious of the inflationary landscape which is frankly different than it has been for 20 years. tom: what is the bloomberg intelligence math and share buybacks and share buyback trend? gina: buybacks slowed

precipitously throughout 2020 two and companies are generally turning toward dividends. you mentioned m&a is relatively strong in pockets. but dividend growth started taking a share in 2022 which makes sense in an environment where inflation is higher. the broader portfolio strategy will think about dividends as an opportunity. that said, those classic both sectors are very reliance on share buyback to allow for eps resilience to emerge, so they continue to spend on share buyback. health care, likewise, very buyback sensitive. we see some resilience there but the bigger trend is when you think about capital deployment, who are the capital spenders for the long-term? who is spending money now and thinking they are going to get a turn on investment because that is a critical signal on growth

prospects? and who is paying out dividends? you have to think about total return to stocks and dividends are part of that. tom: gina martin adams of bloomberg intelligence there with us. it is huge source and i still from it every day. lisa: is interesting the idea of nonprofitable companies doing better the biggest margin in decades then profitable ones and january just shows what an anomaly in some ways january was relative to the previous 12 months. tom: i am blind to this. if it is not making profit, why am i looking at it? lisa: to your point about the zombie rollup, there and $40 billion of m&a transitions over the weekend after the slowest start in decades for mergers and

acquisitions. it is interesting. tom: that is rumored but not confirmed, right? lisa: that i believe cap -- i believe that is announced, billion dollar bid for life storage. to your point of companies acquiring one another, maybe there is enough stability and optimism to get these transactions going again. tom: i think scale is everything and when you have disinflation and you know revenues are coming down, it is be for percent and then it loomed to 8% revenue, -- bloomed to a percent revenue, there is a question. tom: futures negative and deep into preparation for the state of the union.

william cohen 12 noon. this is bloomberg. ♪

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