>> cash on the sidelines. >> you are looking at an environment when the fed needs to be tied up. >> balance the amount and see what they have done so far. >> we think the economy will flow from here. >> i think it cannot come down. announcer: this is "bloomberg surveillance." >> marginal losses yesterday. this is just about positive from this morning. >> i think you owe him an apology. >> i do.

i thought they were not very interesting. i do want to offer an apology. >> let us restart the show. for our audience, this is "bloomberg surveillance." i am jonathan ferro. i have to say there was a piece with the financial times. he turned around and he said a counted. this inflation was mentioned 11 times in that news conference. i think a lot of people went to control-f and disinflation is not mentioned anywhere in the minutes. tom: the overlay or you will get with gdp is that it is all about inflation and the overlay. this is an economy that refuses to slow. i wonder how people are

adjusting their q1. they want the economy to slow but it is not happening. jonathan: they are saying that the fed, no one over there wants to continue the hike. because the data has been so resilient. lisa: they could not massage the numbers enough to make it hawkish. for, they were so dovish that they were left with something more people were left with some hawkishness. what can they do with the feeling that they had before of disinflation? jonathan: i think we all felt that the time. lisa: he said to read the minutes. then it was like, did you read that part? tom: i thought of you. jonathan: when he said read the

minutes, it was in response to a question about the pause. it was weird. numbers are positive. we are down over the last four dates. positive this morning. up another few basis points. approaching 3.95. tom: what is important is that you continue to see some kind of yield curve lift. this is some kind of persistent inflation. there is a growth that everyone has been wrong on. jonathan: they are near 1.5 with first time this year. lisa: interesting that a couple weeks ago, you are asking about the aspect of europe to raise interest rates and everyone said

yes and yet here we are. is what we are looking at. initial jobless can't -- jobless claims. people are not filing for unemployment. we are looking for the margin impression on companies dealing with a tight labor market. that was a persistent trend that will be a big issue for the fed reserve. a 12:00 p.m., u.s. commerce secretary will deliver a speech on long-term vision for the u.s.. i am curious about what she has to say about tiktok and some other issues about what we see in respect to china giving a little bit more dominance over some of the technology will -- technology sphere and what that

leads into. today we also get some fed speak with mary daly at 2:00 p.m. what more can they say? they are saying that we will get back to 2%, keep going. what more are they looking for? i am kind of at a loss because they cannot tell us anything and data is much more clear. jonathan: backdrop for the labor market? tom: we don't have time now to go into it. we have to talk about the disinflation by including the conversation yesterday with ed hyman, citigroup out of london, in the last 24 hours on true disinflation in the united kingdom. jonathon: but speak on year-to-date moves. s&p up around 4%.

consumer discretionary year-to-date is up 13% on the s&p. here is chris. can we just start with something broad? what about the rally so far, is a going to be more durable than some people think? chris: i think we came off of a difficult 2022. there was a typical january effect, with big losers of the most. we sell better inflation data, which got people thinking about what could go right. whether that is a pivot, more recently refocused on rates staying higher for longer. it's not the terminal rate, but how long we stay there. that has caused people to rethink some earnings outlooks. we think discounts on stocks makes this a bit of a pullback.

tom: this is one of my themes for this year, active manager scramble. you have a legitimate active management portfolio. folks, for disclosure, years ago, i owned a truckload of this. we have active managers that look like index funds. if -- is this a year for active management or the pseudo-active managers who have squares of .99? chris: for years, we've been saying that active management still works. we actually do see some generation. you see this heavily weighted toward big tech driven companies and the issues they have. we think there is an opportunity for active managers to outperform by really doing the work on individual stocks. tom: john reads behrens at 6:00

a.m. every morning. he sits down with tea, not coffee, and he reads. which sectors or stocks are part of that active management for this year? chris: we are certainly bottom-up and focused on a select group of industries. one of our core competencies is in media telecom. it was down 40% last year. a lot of that was driven by google. tom: no one is watching. give me a name flat on their back. who is it? chris: up year-to-date a lot, but still very cheap, warner bros. and paramount, two of the old companies that have been in the midst of massive transitions from the old model of dual revenue stream advertising and subscription to this direct to consumer. there's a lot of pain that has happened. there is probably still more to come.

eventually, we have sustainable profits. lisa: when you are deciding which companies to buy, which seem appealing to you? how much are you looking at the size of their workforce and whether they have to be raising wages, like home depot and walmart? chris: nirvana for us is companies that have pricing power, but they have a very fixed cost basis. it doesn't cost any more to send more bits over their wires than it did if use ago. when we look at some of the big tech companies, they over higher and they have a lot of room to cut and to support margins. it is certainly a factor we look at. lisa: does that make big tech appealing? chris: we have not been big

owners of and google historically. more pain to come in the ad market, some secular issues that have to be sorted out around ai. they look interesting today. jonathon: this was great. chris marangi of marini funds. the wall street journal on a saturday morning with tea and ginger. read the papers, flicked through them. jonathon: when we lived in the same building, he was never allowed to come down to mine because he made a mess. lisa: what he said about meda was interesting. it is more interesting that it has been a year. it comes after the announcement of layoffs, saying they were

pretty much done in november. tom: i can't say more about his heritage in media analysis. what a train wreck off the enthusiasms a year ago, down 62%. it has bounced up 66%. to get back to where it was, it has to go up another 62% from here. jonathon: paramount year-to-date up 38%. to your point, they had such ugly years. tom: i deal with paul sweeney every day at 9:00 on world radio. jonathon: i think paul deals with you. [laughter] tom: paul sweeney just says he is never seen this. where is the profit? jonathon: they were chasing the growth. the question has changed, especially when it comes to streaming over at disney.

it was chasing growth and subscribers, now where is the profit? tom: they are making tough decisions on consolidation. jonathon: to build on the work from at hyman from yesterday. listen to that, it was a great conversation. really and, fantastic. he was great. don't ask me what he said. futures up by 0.5%. [laughter] don't test me. i have forgotten everything from yesterday. let's call it 3.9 five. equities are up. this is bloomberg. lisa m: keeping up-to-date with news from around the world. core inflation in the euro zone set a record last month. that probably cements the european bank plans to raise rates by another half percentage point in march. gains reach 5.3% in january.

headline inflation, which includes food and power, was up to 8.6 percent. the minutes from the latest fed policy makers meeting shows the central bank is inclined toward more interest rate hikes to curb inflation. still, almost all of them slowing increases. it indicates 25 basis point hikes are likely coming in the march, may, and june meetings. president biden says vladimir putin has made the world less safe by suspending the nuclear treaty. he does not believe that means russia will use nuclear weapons. it seeks to limit the deployment of intercontinental range nuclear weapons. india is hosting the g20 finance chiefs meeting this week. bloomberg has learned that officials there want to avoid the use of the word "war" and any joint statement, so instead the word crisis would be more acceptable. that is a change from their

stance last year. a bullish revenue outlook suggesting a push toward artificial intelligence computing chips is paying off. nvidia is also starting its own a icloud service. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ ♪

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pres. biden: i have not seen anything where there is a change in their posture, what they are doing. the idea that somehow this means they are thinking of using nuclear weapons, international, intercontinental ballistic missiles, there is none of that. jonathon: president biden on abc in the last 24 hours. let's get you price action briefly. on the s&p 500, we look a little something like this, up 04 -- 0.4%. a four-day losing streak. in the bond market, yields just short of 3.95. in that dollar strength, we keep milking out dollar strength. euro-dollar 1.0593. a 1.05 handle for the first time since the start of the year. cpi data out of the euro zone this morning. you can now include the german

cpi data. 5.3 percent, up from the initial rate of 5.2%. headline take seven to 8.6%. they have got a problem on the core read. ultimately, they are going to have to do more. fed speak a little later. the police speak is the thing -- boe speak is the thing. tom, i believe more tightening is needed. a pit it is not imminent. that is from the hawk. tom: really, really important. this is someone who is not once, but twice an expert. catherine man is absolutely associated with u.s.-china dysfunction. she has put it as codependency. you wonder what the codependence is. they sustain inflation. my answer is everybody is going to extend their x-axis. transitory is going become less

transitory. jonathon: are they pushing it out for sure? tom: you are still going to get blended inflation. jonathon: we came into 2023 the same as europe, discussing a recession in the u.k. now, we are talking about skirting it. tom: it is the growth out there that we are going to see in the fourth quarter today. lisa: we have to wonder if this is just delayed from the light effects. jonathon: long and variable. tom: right now, what we are going to do is look back 364 days and speak with marc champion, our senior reporter for bloomberg news, and a true expert on synthesizing all these emotions and realities for the continent of europe. there is a team over at the ft today to write up a big take and

talk about ukraine. they really talk about putin. it is heavily reported that one of their sources says "putin has three advisors, this according to lavrov. ivan the terrible, peter the great, and catherine the great." that is putin looking to the past to rationalize what he is doing paid what does he see in the present? marc: if you listened carefully to his speech the other day, he kind of began and ended on this idea of history, that these are our historic lands that we are gathering back now. it is really important, and i think we all, including policymakers in the west, overlooked how much he was becoming obsessed by history, really.

in the middle of 2021, he wrote 5000 or 6000 words in an essay about ukraine and about its history. it is a pretty skewed version of history, but he believes it. he sent that document out with the troops. officers had in their hands when they went to fight. the present for him is the past in a lot of ways. tom: do we have a ukraine that can attack right now? i understand it is a horrific war, and the news flow from washington to new york has been appalling about trench warfare. do they have the ability to attack? marc: at the moment, they are really just trying to survive a russian attack. they don't really quite understand yet how much the russians will be able to bring to bear that they haven't

already. but the russians have just been ramping up in all the areas where they have been fighting for several months along the eastern front. they are just ramping up, putting more and more pressure on the ukrainians. the ukrainian strategy at the moment is really just to try and let the russians come at them, grind down, exhaust their troops. this worked for them last summer. it was very difficult for the ukrainians, they lost a lot of people, too. but by the time the russians had gained a few towns at the end of the summer in the donbas region, it left them undermanned, exposed, and the ukrainians were able to counterattack. i think that is the plan for the ukrainians now. they are talking about the spring, once they have got their tanks from the west. the first of those, the brits say a few tanks will arrive in a few weeks time. these things will start appearing.

the bradleys, the leopards from germany. these are pieces of equipment that allow a maneuver offense. you can get out of the trenches and start to get your people into armored vehicles and move, if you can break through. at the moment, even if they were able to break through, they probably would not be able to sustain that. the hope is that they will be able to wear down the russians as they attack and be able to move. lisa: does china's involvement, their potential aid to russia, change the scenario at all for russia? marc: it would be absolutely dramatic if it happened. if the chinese were to start supplying arms at a high level to russia, it would really change everything on the ground. it would be very difficult, to be honest, to understand how the ukrainians would be able to break through, simply because

the russians would have everything they needed. they would also have long-range, precision missiles, to constantly take out ukrainian logistics behind the lines. that will be a game changer, yes. lisa: we have been hearing from the administration in the united states the potential to release evidence to make the case that china is truly seriously considering supplying ammunition to russia. who with the usb talking to by releasing those documents? marc: i think primarily the chinese. the americans had some success at the beginning of the war, where they put it out into the public all the intelligence they had about the fact they believed the russians were gearing up to invade. the audience there, the russians, they were saying -- well, it was also the ukrainians

and the west, to prepare them. but they wanted the russians to understand they knew this was coming. they wanted to be able to get out there and say there will be serious consequences. it didn't work. i think with the chinese, it will be the same. we will say that we know you may be deciding what you want to do, so just be aware that we know and that there will be consequences. jonathon: thank you, sir. as always, marc champion of bloomberg, out of london. right now, price, -- ned price, was speaking yesterday. we have not yet seen the p.r.c. provide russia with aid, but it is still on the table. we are monitoring very vigilantly for violations. it is a big, big issue going forward. tom: it's a huge issue going forward. i think it is part of the financial markets uncertainty out there. we would like to keep the war

separate, but it is not. it is not in europe and it is not here. the unknown unknowns here are intangible. jonathon: you want a proxy war with china? tom: let's review the footage from yesterday of the chinese playing cards with prudent yesterday. ♪ our dell technologies advisors can provide you with the tools and expertise you need to bring out the innovator in you.

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jonathon: the equity market trying to balance this morning. equity futures up on the s&p 500, just marginally, by 0.3%. the s&p 500 down about 3.8 percent, a four-day losing streak. the bond market, two-year yields. the new closing high on a two-year yield. right now, 4.7036. in the 10-year portion of this market, up a couple of basis points 3.9410. the 30-year at 3.9318.

look out for the boj march 10. we are getting very close to, and breaching sometimes, that 50 basis points threshold on a 10-year for curve control. euro-dollar taking shape as follows. eurozone cpi core comes in at a record high. euro-dollar 1.0593. the ecb facing down in economy that might be in recession. according to officials, they are set to go another 50 basis points. we heard from the fed yesterday. prepare for fed speak. restrictive policy starts we need to be maintained until the incoming data provided confidence. inflation was on a sustained downward trend. it was likely to take some time in recent upside inflation data.

after that, we heard from new york fed president john williams, confirming a commitment to 2%. >> price stability is the foundation of economic prosperity. without that, all the other goals we have, whether maximum employment, or low interest rates, cannot be accomplished. that is an absolute imperative for us. jonathon: that is the goal. can they achieve it without causing severe economic pain? tom: further morals, we disagree. we tend toward a john williams lower start. professor rogoff says maybe we will be removed from that 2% level. jonathon: it could be stickier than some people think. tom: there are people that are in the trenches that have to sort this out. one of them, a true expert, is

michael pond himself. he is head of local inflation ranked research at barclays. folks, just to give you an idea of the greek that michael pond -- i will read this out for radio. this is michael pond in his research no. the tii february 50's versus the tii february 53's. i have no idea what that is, so we will leave that to michael. if we get disinflation in the united states, and citigroup writing up u.k. disinflation, if we get abrupt inflation, what does it do to your bond world? michael: i think what's interesting in the bond market right now is that there seems to be different stories when you look at real yields and

inflation expectations, as priced through cpi swaps. the bond market is priced for that ed hyman disinflationary world. if we will be on the next couple of quarters, it is priced for the fed to be hitting their target all the way into perpetuity. yet, real yields are quite elevated all the way out the curve as well. have a combination of market pricing and relatively low inflation, but also relatively tight monetary policy. we don't think those things can exist for very long. clearly right now, the fed is hawkish. they are likely to continue to tighten monetary policy. we don't doubt their credibility on that. if they achieve their inflation goal, real yields are too high, especially on a structural basis. tom: how do you play this for mere mortals? do you buy to ration -- by duration?

marc: we think it is -- michael: we think it makes more sense to pit one against the other. either breakevens are right and inflation will come down, and therefore the fed be on this year needs to be quite a bit easier, or if real yields are priced correctly and the fed will remain that hawkish, it is probably because inflation is much higher and where the market has price. we think it makes sense to bet on both. lisa: is it good or bad for the fed that the market believes in it? on the one hand, gives the signal that inflation expectations aren't worrying. on the other, it muddies their transition mechanism. michael: ever since fed chair powell came out with his speech of keeping at it, saying they are going to keep at it until

they get their 2% target on inflation, the market did not want to listen to them. the market kept wanting to hear that dovish pivot. but with the data coming in, it is hard to fight that fed mantra of hawkishness and persistence. finally, the market is listening. that does help the fed, because it has been working against them, the financial conditions. with bond markets rally in, that works against what the fed is doing. right now, the markets are doing heavy lifting for the fed. lisa: you said that you are with real yields and inflation expectations as they are now. how does that play into the things that we have heard from many others, that perhaps this fed is going to have to allow inflation to be a bit stickier and a little bit higher than they would like? michael: it's a difficult situation. the fed will lose credibility if

they let inflation linger too high for too long and signal that they are comfortable with that. therefore, it will be much more difficult for inflation to come back down to 2%, if inflation expectations become did anchorage. we think that is not a good strategy and not likely at this point. tom: the idea of inflation here, talked in economic babble, and the idea is core versus topline inflation. when you look at the economics out there, including our glaze world-class economics -- barclays world-class economics, what do you look at? michael: we look at everything. we slice and dice across markets as much as we can. the fed is focused on headline bce, focused on core inflation measures, because core tends to be a better predictor of where it is headed.

you cannot react to where inflation has been, you need to think about where it is going. the fed right now is focused more on core services x housing. the main message there is they are not worried about inflation metrics anymore. they are worried about the labor market. if the labor market remains strong, and tells them inflation will remain strong, and that's what they need to focus on. tom: what is your 10-year yield? i know you never do this, i am wasting your time, but we are is the 10-year yield at your end? michael: just for you, tom, i will take that. we think it goes down to 3.5%. we think eventually the fed hiking will take hold on the economy. the economy is remaining quite strong here. we think as the fed continues to hike, the economy slows, and bond yields come down, mostly real yields, to 3.5%.

lisa: a lot of people are looking at the mess of information. they been talked about -- they've been talking about the shattered disinflationary dreams. is there anything you have seen that makes you question the faith that we will see 10-year yields go down farther in the market is right? michael: i think any inflation forecaster that is being on its needs to be humble. we think there is considerable uncertainty in the outlook. take rent, which make up 40% of core cpi, between -- we think that based on private series that are coming in very soft, i the end of the year, that portion of cpi slows quite dramatically. but right now, it has not. it has been sticky to the upside. that tends to trend. it may take longer for that to come down than we and the

markets expect. we believe that will keep the fed on a hawkish path for now. jonathon: this was great to listen to. michael pond of barclays. shattering disinflationary dreams. i love that. do you want to see disinflation? redfin coming out with house prices. after peaking at 47 point $7 trillion in june, the total value of homes declined by 4.9% in the second half of 2022. that is the largest drop in percentage terms since the 2008 housing crisis between june and december back then. houses dropped by 5.8%. i can give you the median price for a u.s. home right now. the median price was $383,000 last month. it peaked at $433,000 in may. a real change. tom: let me make clear, when michael pond talks, people in

wall street just stop. he is just that good. when people talk in housing, i stop. and they tell me they have never seen this. lisa: but it is complicated. i was reading through the report. their particular areas, like the sunbelt, work prices keep climbing. miami, new york, san francisco. it is really a muddy picture. one comes out and says it is the best commercial marmot they have ever seen, even as others talk about the potential for significant increases in vacancies for office space. how do you get a clear message at such a time of change? tom: this is how you do it. you aggregate 20 cities. off my eyeball right now, just smooth moving averages, the data is two or three months behind.

john, when you sold that condo downtown, that was a 21% pot. we have gone from 21% or 22% to 7% up. we are clearly on a vector back to 5%. jonathon: just got through a write up of this story. miami, total value of homes has fallen 20% year-over-year. lisa mentioned other places. sarasota, florida, knoxville, tennessee, and gains above 17% in 2022. a big difference. coming up shortly, lara rhame of fs investments. we will talk about nvidia later. lisa: chat gpt. artificial intelligence. jonathon: more on that still to come. this is bloomberg. lisa m: keeping up-to-date with news from around the world. with the first word, i am lisa

mateo. u.s. treasury secretary janet yellen says the global economy is in a better place today than many predicted months ago. in a press conference at the g20 finance ministers conference in india, she pointed to moderating inflation. she also reiterated her calls for support to ukraine as the one-year anniversary of russia's invasion approaches. british prime minister rishi sunak suggested he wants to do something the european union union has previously opposed. make changes to the brexit treaty. that will be part of a deal with the eu over post-brexit trade agreements to northern ireland. the british government says the existing agreements hurts trade between the region and great britain. the value of the u.s. housing market has shrunk by the most since 2008. as you heard here, according to redfin, the total value of homes declined by $2.3 trillion in the second half of 2022. that is a 4.9% decline.

the u.s. median home price sale was 300 $88,000 last month, down from a peak of a $433,000 in may. rolls-royce surged the most after two years, after earnings that beat estimates. the new ceo said the u.k. engineering firm which makes jet engines has underperformed financially for years and promise higher returns. rolls-royce will begin a strategic review to boost returns and resume shareholder payments. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ ♪♪ welcome to a new era of energy.

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>> it's fair to say that the global economy is in a better place today than many predicted just a few months ago. in the fall, many were worried about a sharp economic slowdown across the world.

the challenges we face are real, and the future is always uncertain. but the outlook has improved since we gathered in the fall. jonathon: fantastic to hear from janet yellen, who i wish we would hear from a whole lot more. equity futures look like this on the s&p 500, a little bit higher. futures up by 0.5%. the nasdaq up 0.8%. tom: let's steal 30 seconds from lara rhame. secretary janet yellen, i hope the president will listen to her and follow her lead. jonathon: democrats are providing some resistance to the pick for the chicago fed because he is a man and they would like a female or person of color. the two names that are now linked with the job are two

candidates to be vice chair. one is a finance professor over at northwestern, and an economist at harvard university. they are the two names where leading with at the moment. tom: for those who don't keep score, these are two individuals with prodigious skills. they have major, major chops, it is different. brainerd is really focused on the public policy of monetary theory. that is a little more focused on what the fed does and bring to the table. lisa: they both also have political histories. they have served in administrations before in other capacities, coming in at a tenuous political moment. it raises the question of how much this fed can push back at a time when you start to see more pain that may never come, but people are talking about anyway. tom: lara rhame, chief u.s.

economist of investments. i want to go to a phrase you have got on savings, momentum, and income. one person has called for a farther, longer out point of recession. that to me hinges on jonathan ferro mentioning housing. does that put us into recession? lara: this is actually a unique business cycle. i am happy we are talking about housing. no business cycle ever truly repeats itself. i think when we look at the impact of higher rates, housing is clearly ground zero in terms of activity. that when you look at gdp and the things the fed is really monetary when they think about recession, employment is one of them. we often think that when housing falls like this, you would see a lot of layoffs in the construction sector. and we have not seen that, really. it is just one small example of how the dynamics this time around are really different. the labor scarcity you are

experiencing in construction remains. a lot of these projects have long legs. maybe they were put off a couple of years ago because they could not even find the products to actually build these homes. that is a little bit of a way to say that in every recession, we go into it looking at our past prior business cycles, pulling up the playbook, and you have to rethink it every time. that's why we have to think about what the fed is trying to accomplish. that is to slow the economy down. our economy naturally wants to grow. it needs to break something, to get it off those growth rails. we still have not done that yet, even with such a big hit to housing that we all feel. tom: the famous gdp index, everyone looks at that. where is the momentum right now? are we getting a q4 equivalency forward?

lara: it is still based in consumption. an unemployment rate at 3.4%, we are going to get personal income and spending data no later in the week. but the income data are just not going to fall until we get some meaningful change in employment. with a 3.4% unemployment rate, you just don't get a recession. they need to move the needle on employment as part of their inflation wage goals, getting those back to 2%. for now, i think you are just continuing to see that momentum come from household spending, which is much more income-based they are not well driven. lisa: how much do you have faith that we have not seen the effect of the rate hikes? and if the fed does not rate hikes further, it will be enough to bring on inflation? lara: this is one of the paradoxes. you fix the mortgage market, which was the problem of the

last business cycle, then you have taken that peace away from monetary policy. with homes and mortgage payments locked in, you are not going to see monetary policy had the immediate impact on spending iq did during the 2005 rate height cycle. i'm not saying a recession is a foregone conclusion. i think the gdp outlook for 2023 remains stagnant, probably 0.7% -- 0.7 for the year. but at the end of the day, you are really seeing an economy that is grinding along and the fed is going to continue to have to push against a lot of momentum that plays over quarters. lisa: there could be much higher terminal rates than people expected, especially in areas like housing. how much have you ratcheted up your expectation with a percent types of terminal yields, but something above the 5% the

market is gaming out? lara: it happened so rarely that i am right, so i have to crow when i am. i have been saying that we will go above 5%, even as high as 5.5%. i think that is something that has been clear. while they absolutely need to slow the pace of rate hikes, they were basically raising rates with their eyes shut last year. they need to be now a little more thoughtful and methodical. the economy had so much momentum going into it. i think fighting against these market expectations of rate cuts, i think they have very effectively done that. i think the markets had to come to term with, this time around, the fed's strong sentiment that they will need to stay hard for longer. jonathon: i think data changed that conversation, not fed speak. we been talking about residential real estate care can we talk about commercial

briefly? we had this headline in the last 24 hours, that a landlord has defaulted on mortgage notes for buildings. lara: commercial real estate is also interest rate sensitive. we are going to see some valuations -- and remember there are so many fewer data points and the data is lagging in that sector, more than for the residential sector. i think we're going to start seeing headlines like this. but it is a sector where we are seeing diffused performance. we know office space will be challenged, especially in the major metropolitan areas. but for investors, i think we need to look in other areas. we need to look at industrial, we need to continue to look at, to some degree, sunbelt states. we need to look at multi family. i think there are a lot of areas where we have continued to under

build in this sector since the great recession. there is still a lot of room for returns there. at the end of the day, we need to access that differently. it's not a sector i think we are going to see as uniform and move in valuations as we have seen in residential real estate. jonathon: this was great. lara rhame of chess investments. thank you. [crosstalking] tom: i read every single word of the article. this is a huge deal. if you say to me, what have you changed your focus on in the last 90 days? i am reading about commercial real estate. every single day, 20 minutes to 40 minutes a day. i literally ran into the street on a major new york commercial investor and he grilled me about class b and class c properties p he said it is worse than 2007. lisa: that's the key, the class

b and class c. it's not desirable property. a report was put out saying that hybrid working will cause vacancies in offices to rise by 55%, versus the pre-pandemic norms. if you take a look at that, where is it going to be? it will not all be in commercial property. tom: the pimco challenge is that it is multicity. it is not just the island of manhattan. jonathon: for the people that come to new york, you get paid more. if you stay-at-home, eliminate cheaper place. tom: third rail. lisa: that has been an issue. i am wondering whether a change and economic circumstances will change the view in working in the office versus home. jonathon: there's no hope for us at all. [laughter] [crosstalking] jonathon: julian emanuel up next. ♪

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>> what i am following, cash on the sidelines. money needs to be put to work. >> you are looking at an environment where the fed needs to be tied up. >> i would stand by and see what they have got so far. >> we do think the economy predicts we are here. >> i think inflation can come down even if the economy does not win. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: did you pour your coffee all over your tide? it stinks. tom: the 10-0 is not as sticky

as the 10. jonathan: from new york city, good morning. this is bloomberg surveillance on tv and radio. a wise man said weeks ago, if you are not confused, you are not paying it tension, that was julian emanuel, who joins us of evercore. futures up .5% on the s&p 500. trying to bounce. tom: trying to bounce, nasdaq 100 up .12%. vix comes in at 21.86, but trying is the right equity energy right now. jonathan: keeping one eye on the bond market, maybe two. lisa: it is not just nominal yields but the 10 year real yields hitting the highest level of the year going back to early january. at what point how we got the full reset and stocks that we are feeling and bonds? have we priced in the full piece of rate hiking, even with recent weakness?

jonathan: i do not want to leave you waiting, julian, permission to speak to you. the s&p 500 up .5%. 3.93 on the u.s. 10 year, and a record high on core. lisa: revised upward after the figures they got in. we get u.s. initial jobless claims and the second read of the fourth quarter gdp in the united states. initial jobless claims expected to come in near historic lows. where is that loosening in the labor market that a lot of people are asking for? it hasn't shown up yet. we hear from gina raimondo at 12:00 p.m., talking about chips, developing technology in the united states. i want to hear what she says about china. let be in the speech or the subtext under a lot of the innuendo that she discusses? today, we hear more fed speak.

raphael bostic speaks at 10:50 a.m., mary daly at 2:00 p.m., is fed speak taking on less importance at a time when the data is so confusing and it is about the data, not about the nuances of which member and what voting pattern? jonathan: without a doubt. it is the data closing the gap between the fed's projections, start of the year. ultimately, investors understand , kind of understand the reaction function and responded to that economic data, retail sales, take your pick, and push the rate high. lisa: and the reaction has shifted a little bit over time. there is the issue of inflation number one, but people are believing the fed will be more hawkish if the data is more aggressive and they will not be if they cannot be. jonathan: what happens to the inflation process starting? lisa: maybe it already ended? jonathan: it is kind of bizarre.

usually they reflect the consensus in an interview somewhere, and he can talk about his own faults on matters. that performance in the news conference sounds stranger going over those minutes from yesterday. lisa: i would agree. at the same time, i wonder how much the disinflation was his. you are raising a great point, was it to take out the inflationary talk or was that a jay powell issue and not a committee issue? jonathan: julian is with this -- said that four times. good morning. we should start with you straight. you have a line in your research that says the price target is lower than higher. why? julian: so, if you think about coming into the beginning of the year, there were three reasons the market had done as it had done until a week and a half ago. number one, positioning is bearish. there was epic tax loss selling,

which is why the stocks that were the biggest sellers, the ones that had the weakest performance, are the ones that rebounded. that has been neutralized. the second is what you alluded to, inflation. the benefits of the decline in inflation, we are now at the bumpy path, and are we plateauing? we don't think we are, but the market discounted the benefits of the initial falling inflation, and then, of course, the third element here is this whole idea that the combination of the inflation reaction and the price action in the equity markets themselves has caused people to believe the soft landing is now the base case, so back at the end of the year, december, remember, the market was falling apart and everyone was pessimistic, 80% chance of a recession the next year. we think that numbers around 30. you look at new york fed measures and it is closer to 57. that, to us, is over discounted,

whether it happens or not, it is over discounted. so, we do think that the path has shifted to potentially lower before we start moving up. tom: citigroup talks about united kingdom disinflation how they talk about u.s. disinflation. what do stocks do if we get at a sub 3% disinflation? julian: in the long run, that is going to be beneficial, but, again, part of this environment is parsing between the short and medium-term and long-term with the short term having been this incredible ripped in the stocks that were most sold over the last several weeks. we would say in the medium-term that a consequence of inflation starting towards that path is going to be the growth slowdown that, frankly, you know, the fed wants because that is how the labor market cools off, and then, ultimately, when we get to

that point, that is when the benefits of inflation cake in, lower inflation, but that is often into the future at this point. lisa: let's translate this into a stockmarket market call. a lot of the pessimism came from that expectation of margin compression. we have massive margin compression. why hasn't that been priced and more significantly? -- priced in more significantly? julian: again, this is something we talked about frequently last year, the price action sets the narrative, so you have two consecutive quarters of eps reductions and the stock market rallied in the face of that, so, given the positioning and the price action, there is a tolerance for it, but from our point of view, this whole idea of multiple expansion happening before the economic downturn, however shallow, and we expect to shallow downturn, does not really add up.

we would rather see that multiple expansion coming out of the short and shallow recession then forecasted at hyman. jonathan: julian and i went to lunch, greek food, and he said you need to watch volatility. and then we had volatility in early 2018, and now this conversation of it 2.0. it was presented by j.p. morgan recently. they say it is overblown. can you talk about what that might look like and whether the warning is overblown? julian: overblown to the third power, in our opinion. here is the set up. with -- what zero day expiration offers do is increase volatility intraday, but if you look at the last several weeks, it has decreased it intraday -- into her day, so you have zigs and

zags from 9:30 to 4:00, and at the end of the day because options expire, it is neutralized. and that is a recipe for books staying balanced, no forced selling or volatility squeezes. tom: you could lecture that at san diego. they are the land of this. brilliant, it drives me nuts how people conflate intraday volume with intern day volume. let's take it out longer. when will you know that agile heimer is right about disinflation? you read his report. he said he planned to do it and you are so far back in the cheap seats, you are looking at brooklyn, queens. when you read ed's report, when do we get the disinflation? julian: we actually being it is still part of a subtext right now, so, -- tom: i agree. i am just asking. julian: are showing that,

actually, some of the shelter clauses are continuing to subside, contrary to what we saw last week from the fed's -- the shelter component. we are seeing wages start to moderate. they are still elevated, but all of this in our view, and the goods part we all know that that is well known, so, frankly, i think it is some of the more --, you know, the monthly data has another month or two of choppiness and then you continue to subside more gently than you had. tom: the pros on this, and i learned this from ed heineman. you were not there, where you? heineman is that cj lawrence screaming about three-month analyzed. we look at year over year, and adults look at the three months of data and then annualize it out, and those numbers are not

in the perception of the market. they are low numbers. jonathan: they looked better a couple of months ago than now. tom: yeah, i just looked at the 30-year mortgage rate. i was going to buy and i did not. jonathan: how does he is the office? are people coming in? is it a three day or four day week question mark julian: consistent -- day week? julian: consistently a four day weekend there is a bit more crossover, but the good thing is that the client engagement that i have got, a full travel schedule in march. tom: so you are traveling below 50? julian: and above, and on planes. jonathan: are you finding it productive post-pandemic? are you seeing more clients just by being in the office not as much? julian: zoom is a remarkable thing. you can go back to back to back to back, but, again, maybe it is old-school, whatever, there is

no substitute for in person. lisa: john, you are arguing for a four day work week. you are basically saying that people should be allowed to have a four day work week. [laughter] that is what was going on. don't you think we are more productive in general? jonathan: julian, thank you. good to see you, as always. julian emanuel of evercore. sam stovall is coming up in the next half. we will ask him about the four day week. from new york, this is bloomberg. ♪ >> four day week sounds good. keeping you up-to-date, i and lisa mateo. core inflation in the euro zone set a record last month and that probably cements the central banks plan to raise interest rates by another half percentage point in march. core price gains reached 5.3% in

january. headline inflation, including food and power, was up to eight point 6%. the minutes from the last fed's policy meeting shows the central bank is inclined toward more interest rate hikes to curb inflation. almost all officials back slowing the pace of increases. the market indicates that 25 basis points hikes are likely coming at march, may and june meetings. president joe biden says vladimir putin has made the world less safe by suspending participation in the new start nuclear treaty read still, he told abc news, he does not believe that means russia will use nuclear weapons. it seeks to limit the deployment of intercontinental range nuclear weapons. india is hosting the g20 finance chiefs meeting this week. bloomberg learned officials they want to avoid the use of the word "more" in referring to the russian attack on ukraine. instead, -- "war" in referring

to the russian attack on new crane. instead, they want to use use another word. governor gavin newsom appeared alongside elon musk, a sign of renewed cooperation between the vehicle maker and the state after moving or port headquarters from california to texas in 2021 -- moving headquarters from california to texas in 2021. 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. this is bloomberg. ♪ we all have a purpose in life - a “why.” no matter your purpose, at pnc private bank we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why? go. go brain. no, not that one. go this one. go optimizing data. go efficiency. go results. emerson's plantweb digital ecosystem is the brain for smarter, safer and more sustainable performance.

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more normal labor market. i think labor is going to find there is a limit distant to which wages are going to be raised by companies. i think it is because the companies are running into resistance from consumers to price increases. jonathan: yardeni research. he said, a soft landing, hard landing, no landing, and a lot have said the data between the start of the year and now. equities up half of 1% on the s&p 500. on the nasdaq, as well. yields are higher by three basis points and the 10-year short of 395 but getting closer -- 3.95, but getting closer. we can get to the way in video and the trade market. doing pretty well. lisa: it is all about not necessarily that, but artificial

intelligence. artificial intelligence is new cloud computing, are we entering a phase where we think it will solve everything? we are seeing a huge pop in shares, up about 4%. jonathan: nvidia is up close to 10%. tom: i think nvidia is the most misunderstood of the great tech companies, 22,000 employees, 50% per year for the last number of years. it has stayed of moonshot, and i think all in all, it is lesser understood, but it is well-run and is what people want, which is gaming, music production, all of that on monitors that need fancy stuff. jonathan: can you clarify, nvidia or in-vidia? tom: nvidia. lisa: sorry about that. tom: mandeep singh is with us

right now. he's done a great job of helping us with the layoffs in technology, and they are not at nvidia. the first thing i thought of when i read the article was you, and zuckerberg is going to flatten management at meta. i find that extraordinary. as technology becoming like regular businesses? mandeep: yeah, and a company like nvidia kind of allows every company to use the eye or the next generation of chips. i think what they have done remarkably well is they have gone from one secular trend to another, whether cloud, metaverse or crypto, to generated ai, and that is what shows you the power of semiconductors. we talked about it for the longest time and now it is more about accelerators. i think what meta is trying to

do or what other cloud vendors are trying to do is make sure they have computing capacity to stay ahead in terms of the scale and the amount of data they are dealing with. tom: what they are talking about is de-managing managers down to -- i will call it staff, with meta. with facebook, 86,000 people, and i don't know what percentage they will take, but you look at that and amazon, where they say you have to come back to work. i am sure nvidia is saying the same. people are going to revolt. who is going to win the power play between the employees and guys like zuckerberg? annmarie: -- mandeep: even though remote work is something that was forced by the pandemic, it is not going away completely. that is where the nature of jobs will evolve, how you go about doing your work will evolve, and

i think ai and technology has a big role to play. talk about how much productivity you can get through zoom, and you have to think about generated ai or whatever comes in terms of processing of data, large-scale processing of data, and i do think some jobs will get automated but there will be a productivity boost. that is why companies are important in terms of what they are trying to do. time will tell. social media will have the use cases of ai and what is going on in the semiconductor world. lisa: let's talk about catchy petit and how involved it is. microsoft eliminated some emotional responses to people, and on february 17, they started doing this after responses included repairing a reporter to hitler. another said, you are not happily married and you are in love with me.

what is the development and how advanced is this? mandeep: you have to think about how the models are trained. although we are talking about the data now, this is 10,000x more than what we were able to do last year. the ability to train algorithms and models on large volumes of data is there. how accurate it is going to be? i don't think any chat or bought that comes --bot that comes later will be accurate, first generation. but what you need is processing power, large amounts of data. if you talk about full-scale language being used to train the models, that is huge. think of, yes, it got it right the first time around, but once you figure out what the right way to answer is entering the algorithm to do that, i think it is going to improve at a rapid pace, and that is what you are

going to see over the course of the next two years. lisa: which chipmakers are on the front for 10 which are not when it comes to this -- front foot for this, and which are not when it comes to this? mandeep: nvidia is clearly the leader, and that is why you see so much excitement around what they can do on the data side. they built it from 3 billion dollars to $15 billion over the span of three years. they could keep doing it if the market moves away from intel, which we know it is on the cpu side, and every datacenter requires a lot of accelerators. that is huge and that is why you see the excitement. there are other chipmakers that enable ai and not just nvidia, but you have to think of networking cloud and accelerator is the highest component when it comes to ai processing. jonathan: thank you. always nice to talk. close up 10% in the premarket. good to see you of bloomberg

intelligence. a listener asked this question of chat gdp, is lisa abramowicz pessimist? lisa: please do. jonathan: as an ai language model, i cannot make subjective comments about lisa abramowicz outlook on life. however, based on her professional work as a journalist, it is not accurate to describe her as a pessimist. lisa: it is true. jonathan: while she may report on potential risks of downside scenarios in the markets, it is important to remember this is a fundamental part of financial journalism. lisa: i love chat gtp. don't talk about emotion. tom: is that our new publicist? lisa: exactly. that is fantastic. i love it. at a loss for words. i would like to think the people -- tom: we are talking disinflation and economic reports that have come out.

sometimes the anecdotal matters, and we have a reporter in london, francine lacqua, who was as expert at the italian as you, and she put out the inflation of pizza in italy, and bloomberg actually has an olive oil pricing. all of oil off the moving average of the pandemic low has increased 157%, and so have other ingredients, as well. francine does not think she will be able to get on in life. jonathan: francine has decent olive oil over there. lisa: that is the nicest compliment you could make. jonathan: as someone whose family is from italy. tom: where is the best one from? jonathan: they would say naples. tom: ok. that is something you could use. jonathan: i like something called something that is like a

pizza but fried. have you ever had a calzone? it is a little bit like that but much smaller, and your deep fry them and you can have them savory or sweet. they are very very good. you used to get them on a tray. lisa: in rome, you can buy pizza by the weight. you can say, one to that little slice over there. jonathan: i have not seen that before. interesting. nice. where did you go? lisa: in rome? jonathan: do you remember the restaurant? lisa: it was a standing place. jonathan: nice, lisa. thank you. ♪ girls... the chess club has gained an edge on our bake sales. we need more ways of connecting with customers, fast. i know some consultants with great ideas. can they help us improve our digital experience?

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jonathan: equities trying to bounce and doing that on the s&p 500. we look like this, equities .5% on the nasdaq 100, up almost one full percentage point. the nasdaq the fourth biggest waiting, and nvidia up by more than 10% now off the back of earnings. we will pick up on that later. in the bond market, the two year, 4.70, u.s. getting closer and closer to the closing high at this hiking cycle, going all the way back to 2007, we closed earlier this week at 72-ish, short of 3.95 on the 10-year maturity. tom: we are starving for data.

this is a market of ambiguity and uncertainty, and we are all slaves to the data. 194 is the fiction we had last time. once again, we surveyed up to 200,000. we could see another 196 in the revision. at 8:30, there is all this noise, but it is still thursday: 30. it is claims thursday. jonathan: it is not just payrolls. tom: yeah, did you see that? jonathan: i did not. tom: there is important testimony. i had the honor of observing the process, which is different. nobody has a follow-up question and japan. nobody has a follow-up question, and the bottom line is, this is original and it will be measured, and we may not get much news out of it, but there

is a movable force there, kuroda wanted inflation, got inflation, and now what? jonathan: and now what in the bond market? if you look at the 10 year maturity on the jgb curve, it is bumping up against that 50 basis point line, which is the threshold for yield hold control. they have had to come into the market and clean it up. tom: g chinese chattp would be perfect -- chinese chat gtp would be perfect. jonathan: record high on the euro zone, a euro-dollar trying to strengthen. 1.05, the first time we have seen that the first time since the start of the year. lisa: a reset and terms or the fed has to go. can you imagine of corroded says it is over, yield curve control? goodbye. well, i don't think that will happen. let's look at stocks moving. nvidia is talking about those shares popping more than 10%,

10.5% about, premarket trading, how much is this in terms of bearish expectations before earnings results and how much is this ai coming the new cloud computing? how much will this drive the optimism around the chip story? you look skeptical, tom. tom: i don't agree with any of this. the ai thing, free cash flow, putting 19, 3 billion dollars, model free cash flow out five years, $10 billion. $3 billion to $10 billion. this is all ai baloney. it is a financial machine. they are off the mark 38%. lisa: why are they bringing in that money? they provide chips that provide capabilities that a lot of the companies want to do. we can debate it in the break. dollar general, not artificial intelligence, those shares are lower after reporting earnings

this morning, down 5.5 -- down about 5%. you can blame the weather for the weakness in the economy, dollar general saying earnings disappointed in december because of the storm. how much is this going to be an indication of people pushing back, margin pressure? when people start blaming the weather, i get skeptical, just like you. jonathan: so is january better? lisa: they expect january to be better because they expect same-store sales to rise. that said, let's see, people don't seem to be buying the optimism with those shares lower by more than 5%. wayfair, online furniture company. on one hand, you expect them to do poorly in light of weakness, etc., but they beat on revenue, but they posted a bigger loss and saw subscribers decline. those shares lower. i don't really get that. tom: i have been on the website.

lisa: i think it is, you subscribe. jonathan: and you get delivery and better prices. lisa: like crime. jonathan: prime lisa: --lisa: like prime. jonathan: prime for wayfair. tom: i don't get it. i tried it. jonathan: i get a list of emails from them. tom: exactly. stock has gone 50 to 350, and only down 85% from the pandemic high. lisa: can i point out that movers we talk about turns into it being like this is the story and tom is like, i do not buy a thing. tom: nvidia gets no love. nvidia gets no love. it is apple, apple, google, google, apple, meta. i think the media doesn't give them the love they deserve because they are little bit different. jonathan: i disagree. [laughter] tom: the managing director of the imf, she disagrees with me, and i get this. lisa: i will start doing the

same thing. tom: that will do it. jonathan: thank you, lisa. 55 minutes away from jobless claims and core cpe for the fourth quarter. rj gallo is weighing in. tom: is he still there? jonathan: i hope. here is a quote, the resurgent data enhances the prospect of the fed holding its target range at 5% for longer, thus increasing the chances are recession in the future. the data is good, rates are going to be high for, and ultimately we get a recession that might be harder in the future. this is a problem for a lot of people in the market. tom: it is, and rj gallo, i should point out, at federated management, great perspective. what have you changed in the last number of weeks? is there a reset from your end, or is it steady as you go? rj: great question.

the month of january, the bond market got off to a tear, the treasury index around 3% and total return. larry impressive. then you get to february, it is the complete opposite. treasury is based applied, yields have risen 30 to 50 basis points across the curve. why is that? jonathan touched on it earlier. the datastream has been undeniably strong on services, jobs, retail sales. consumer strength is resurgent. it is paused to the idea that we are going to have a slowdown in the near term. our view is that this gets the fed to be more hawkish, go higher, hold longer, and perhaps we get a mild recession that will make bonds perform well as you look out over two years for three years from today. tom: you were at columbia university in the trenches of managing money a few years ago. if we get price down, yield up

in a bloomberg total return index and it breaks through to new price lows, are the 30 year mortgages a benchmark that goes out to new highs, how will investors respond? rj: well, those years at columbia, i was working in the endowment office, a junior investment officer, very junior. still in the trenches now, managing portfolios, and it is interesting you race the date. back in the early 90's that columbia, we had the 1994 tightening, and it felt terrible. stocks and bonds struggled. it was nothing compared to what happened in 2022. double-digit losses across fixed income were astounding, and i think that re-creates value. the market has become addicted to the idea that duration equals fear. we need to turn the page on that. january was a little bit of too

much enthusiasm, but when you have the aggregate yield over 6.2% or over 4.7% and the duration is 6.2%, you now have income to support total return. the yield would have to backup 75 basis points before you are at zero total return, different bond market world and investors need to back away from their fears and edge at the curve rather than holding on to cash in worrying about the next rate hike. lisa: is it the cash you are putting into duration or the risk portfolio, as you expect the fed to hold rates higher for longer? rj: i would suggest investors should do both. within our total multisector spans across the curve and fixed income, we are overweight trends, and underweight high-yield. we are of the view that asset allocation matters within fixed income, as well.

it is not just moving cash into bonds but how are you allocating within bonds? our allocation is up in quality. we are cautious the ultimate slowdown of the economy will experience as the fed's cumulative tightening takes hold, will it take prisoners? it will widen corporate spreads, and we will see underperformance of investment grade and high yields so we remain underweight until we see wider spreads and better opportunities. jonathan: i get the argument for income, in the treasury market, i think we all do. but i struggle with at the moment, do you think we have to carry on tolerating the positive correlation with equities we have simply out? rj: i like the word tolerate. i and the manager anna balance fund, it is you knees and dividend paying equities, and we came out back in 2003, one of the underlying arguments for investors is the inherent risk production from the muni and fixed income side and the

dividend paying side. it works for decades plus until it did not. you mentioned that that correlation has been brutal. and stocks down like 18%, and then there was some hope as you turn the calendar to 2023 that we would get back to a normal markets were risk on and risk off meant the assets moved in opposite directions, not together. we have restored that positive correlation with stocks and bonds down. ultimately, higher yields, and fed closer to done with its tightening then starting its tightening, and suggest we are getting back to a period where that correlation returns to more normalcy. it is harder on investors. a friend of mine who was a financial advisor said he spent a lot of time on the phone last year explaining why their portfolio was down almost 20%. i don't think you will have that experience this year.

the returns are significantly better. i am not an equity guy, but i think the equity market has been a little too buoyant with respect to inflation. it has gotten choppy again, and we will see how that turns out. jonathan: never stops the equity guys from coming to bonds. they love to do that. rj gallo, thank you. tom: very true. jonathan: that is not the story today, yields up, treasuries down, and equities are doing ok. on the 10 year, we are short of 3.95. coming up, leland miller of china beige book book international. that is next. ♪ lisa: keeping you up-to-date with news from around the world, with the first word, i am lisa mateo. janet yellen says the global economy is in a better place today than many predicted months ago. in a press conference at the g20 minister meeting in india, she pointed to resilient u.s.

economy and moderating inflation and reiterated her calls for support to ukraine as the one-year anniversary of russia's invasion approaches. thank of england policymaker catherine man dismissed talk of an upcoming pivot to easier monetary policy. she spoke in london. >> given that the risk of increasingly persistent inflation rises disproportionately with a share backward looking this, i believe more tightening is needed. lisa m.: consumer price growth remains at a four decade higher 10.1%. here's another view of that chinese balloon that flew across the united states, taken february the third from us by plane, at an altitude about 60,000 feet. a day later, another plane flew near the balloon off the coast of south carolina and shot it down with the sidewinder missile. shares of nvidia are higher in premarket trading.

company came out with a bullish revenue outlook, suggesting the push into artificial intelligence computing chips is paying off. they are also starting their own ai cloud service. 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. ♪ if your business kept on employees through the pandemic, getrefunds.com can see if it may qualify for a payroll tax refund of up to $26,000 per employee. all it takes is eight minutes to get started. then work with professionals to assist your business with its forms and submit the application. go to getrefunds.com to learn more.

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so let us focus on the how. just tell us - what's your why? >> that would be a big and serious mistake by china if they start to provide aid to russia. so far, we have not seen that happening, but we have seen signs that china is considering to provide military aid to

russia, and we are watching closely. of course, china should not do that. jonathan: it is a major concern for nato members. that was the nato secretary-general off the back of comments from the state department person yesterday, saying we have not yet seen the prc provide russia with legal aid, but we do not believe they have taken it off the table either. we are concerned. i think a lot of people are concerned about that issue. tom: of course, as president biden is returning home. i believe and record torn will be with us tomorrow. as we look at this one year of agony of the war in ukraine, i would suggest there is value in the markets, and it is that the e.m. is slipping away. mentioned a stronger dollar recently the last couple of days, and across the allies, whether you are looking at poland or turkey, i think it tells a story about the

challenge. jonathan: and gains in european equities. tom: you have been following it. jonathan: in paris, 14% year-to-date. the dax in germany, up 11% year-to-date. italy, the ftse up more than 15, so we have a frame taking place at the moment. a year of this war, which is dreadful. deeply unsettling, and on the other side, we are talking about european economic recovery. equity markets off to the races, and the energy crisis a number of months ago looking less like the crisis it could have been. tom: most wars are like this. not that you can predict what they're going to do, but the balloon gets there, and as julian emanuel says, we bounced off of it, maybe 70, 80 days ago. jonathan: as the economy fades, does the support for the war in places like the united states and across many countries in europe start to fade? tom: does it start to fade? so much as focused on china.

really this was something yesterday, folks, reaffirming their belief on china growth. joining us is an expert on the granularity of china, leland miller, to say he is chief international officer of china beige book international does not scratch the surface. what is the symbolism you see if one year ago, esther putin is talking about a football field away to mr. lavrov, versus what we saw yesterday between putin basically playing bridge with china? what is the symbolism of how close they were yesterday, talking to each other? leland: the imagery is perfect for this. you have china making no bones about being closer and closer to russia, particularly as russia encountered way more problems than anyone expected at the beginning. there is no question right now from china is all in on russia's side of the perspective of their

support but are they crossing red lines in the background? it was not an issue the first six months of the war. now there are reports they might be willing to cross lines in terms of providing lethal arms and goods to russia. that takes us in a different direction. tom: is the backdrop here recovery after pandemic for china? evercore isi suggests, as others do, we could say even 6% gdp, do you agree? leland: i do. there will be cyclical bounced back in china starting in the second quarter. people who have made too much of baby indicators in january and february, the story should be more bullish or less bullish, but the recovery will start no later than march, may be april, but then businesses will get back at it. they told us to do not want to invest, borrow or higher, but now they will do that and there will be a measure of revenge

consumer spending. the question is when you get to the second half of the year how much policy support the government would like to lay on top of already and organic recovery. so you have the ability, bouncing off terrible numbers for 2022. the numbers will be good and there will be recovery in china in 2023, but is this more than two to four quarters question mark we don't think so. jonathan: there is a little -- quarters? we don't think so. jonathan: are you saying the chinese consumer is turning more and more to domestic brands within china? leland: it is hard to read through the noise of covid. in general, yes. you have a big problem where the world was not exporting much during a time when china's exporters were running full throttle. as we get into the post-covid eric, we will see that more. when you look at battery technology, the chinese are dominating, so there will be an

inclination to buy home on some of these things and maybe a lot of things. lisa: we have been trying to decipher the change in she's easing -- xi jinping's tone. they are now willing to cross more lines that they were not willing to cross, what is the implication from the underlying economy? is youth employment going up? is there frustration with the administration? is there something going on that can give us a sense of why there has been a shift? leland: there has been a shift, but i think it is a mistake to call it the game changer that a lot of people on wall street are saying. there was never a desire by xi jinping to run the property sector from its heights pre-covid down to zero. there was always going to be a roller coaster ride, and the way we describe this was they need to call the herd and ventilate. ventilate before they take out the strong firms before cash flow drives out and contagion spreads, so you are in a ventilation part of the sector. if they think the companies are

still doing risky things i need to be handled, then we are going to go back into that part of the cycle. this is a relatively gradual process to minimize properties as a growth driver. the fact that we are seeing relaxation at the three lines, that is happening right now, but that does not mean xi jinping decided his policy the past three years is wrong. i don't think he has. lisa: is this a sign that the chinese economy insulated itself enough from u.s. and other nations that they can withstand sanctions and consequences put on the nation as a response to crossing other redlines with russia? leland: depends on the stations. i would say this sanctions are used to three, five years ago, and there may be sanctions, sanctions, baby sanctions on banks. the kinds of sanctions we are looking at now are big economic warfare tools. foreign direct product could take out major chinese companies.

this is the question about whether china will actually move forward with violating the big bank sanctions, giving russia tools and russia arms in ukraine. if they do that, president biden will have a big mess on his hands because to hollow out the credibility of these powerful sanctions, which were intended for china in the first place if we look at it, he has to crackdown on companies violating. that could cause a bigger brouhaha with china, which is something he is trying to avoid. if the chinese are behaving badly now and we don't know yet, this could go in a negative direction this year. jonathan: and quickly. leland miller, thank you of the china beige book international. the outlook for growth still pretty decent in china. this captures growth projections. the immediate projection for chinese gdp, 5.2% this year, 5% the year after and the year after that. five handle.

tom: bloomberg has a great study, and this is annual gdp. there was the time of the fiction of 10% gdp, 2010, 13 years ago, 10% gdp. down we go to the shock of the pandemic. i did a fancy moving average study, out nine months or so, a 5.8%, 5.9% of the center tendency, so that 5% is just below that. jonathan: apple in the middle of this. a press release was sent out from bloomberg intelligence, a survey of generation z on apple and grand apple and the iowa system. apple was the -- ios system. apple was the winner of consumers aged 18 to 24, 70 9% preferring it versus the current market share of 41%, leading us to believe, us being bloomberg intelligence, that ios can become more dominant as the users age.

that was the take from a survey done. tom: this offside looks at the addressable audience, and with the cloud, this is a huge topic, but with apple, it is not that they are gaming it out, they are just looking at the statistics from last quarter, which is the usage of all that stuff and i get all these bills on my charge card of stuff that offspring are doing on apple -- that my offspring are doing on apple. you don't need chatgtp for this. lisa: i get messages occasionally like really? jonathan: do they like the ios system or just brand? lisa: they like the interface. i don't think it is about the system. they like the way it looks. jonathan: so not just the brand iphone. lisa: it is not a visual thing. jonathan: it is not just a screw but the brand apple? they are drawn to it? ok, this was good. thanks. ♪

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jonathan: they have got more work to do. i scratched my head little bit about what the chairman communicated in the last news conference. tom: we will move on from the minutes because i didn't read them but i am going to move on to what we see in the interest rate arc it. pick your weapon. i looked at the 30 year mortgage. 7%, lisa. is anyone modeling in the probability that the more it goes through at a high level? i don't think that people have factored that in yet. lisa: it's a potential to ration expects yields to go lower. tom: the gift of a coupon. lisa: ultimate faith in the fed. you see it in the markets, people believing that the fed can get inflation back down near

2%. pushing financial conditions to perhaps not be as tight as they would be. the question is, is the market right? has there been a more substantial change in the data that will make inflation stay high for a bit longer? tom: it's the arch question the chairman wants to know, fully employed america, critically, he doesn't want it to be a fully employed america. jonathan: except they don't say that. tom: but it's what they are thinking. jonathan: they say they need demand softening. or loosening. and they you ask them about that and they say no it's not what we want to do, we need to get inflation down. tom: shuffling the data here now, different from the nirvana from a couple of days ago. still accommodative but we have just given it back.

that's the probability, this series indicates higher yields. jonathan: i miss frances donald. happy birthday, francis. she said that today is my birthday and i'm not asking for much, just instead of central banks saying reduced demand they say fewer jobs with less increases and less growth. they just don't say it. equities this morning, good morning to you. up with a lift and a yield to swell and a correlation breaking down at some point. 390 five, there it is, tom. you have been waiting for that. tom: this is important, a word we haven't used. sorry, 3.95 08 is grind, grind, grind towards a higher yield. are we going to adapt? jonathan: you might be a strong data point away from four on the two-year. tom: getting into it right now,

folks, it's the equity market in your long-term view with a speculation around the short-term view. we have the chief investment strategist, sam. we have been busting chops all morning about equity guys on the bond market. with great respect for your work, how does an equity guy like you use the bond market as a study? sam: with higher interest rates, what effect will that have on the discount rate within the intrinsic value models? looking at substitution capabilities where investors say you know if i'm not going to get that kind of return in equities, do i want to start to nibble at fixed income? expectations are that he year from now we could wind up seeing nice gains. investors are constantly jumping from one lily pad to the next looking for the best opportunity down the road.

it's why they look at both sides of the equation. jonathan: it's super difficult to generalize but when people call you up and look at the yield curve and it kicks through at 5% on the six month or the 472-year 4%, just short of that, what are you advocating for? what do you tell them about where they should go? sam: history would tell them that we are due for a recession. looking at the year on year percent change, at these levels we have fallen into recession with a bear market. year on year leading economic indicators, a bear market environment. the yield curve is as inverted as it has been since the early 1980's. looking at the s&p 500 earnings, typically operating results tend to be coincident with recession and right now we are beginning to slip into an earnings

recession that will probably last until the summer of this year. i would tell investors that when they finally do start to look across the valley, the turn will be very quick. the s&p has gained an average of 13% in the nine months after the fed paused its interest rate policy because it typically starts to cut interest rates nine months after and when you see the market up by double digits and you see all sizes, styles, and sectors in positive territory, you don't want to be wrong for too long and therefore on the sidelines for too long. lisa: people getting ahead of the downturn, at what point will they end up with -- basically, listen no seriously -- [laughter] tom: controlling and bronzing this place. lisa: sam come help me. jonathan: do it for me so i can

catch up. tom: ♪ bali hi ♪ [laughter] lisa: people not on the sidelines because of what you are saying, they don't want to miss out on the rally that stems from the beginning stages of a recovery. how do you know when you are getting there? sam: it's a very good analogy, despite [indiscernible] [laughter] sam: we basically don't know how long the valley is and it is a mirage that we are staring at it this point. i think that's the concern. that is why the volatility had been picking up and why investors are now questioning whether the october 12 low will hold. certainly we have to retest the level to decide if the low is the low for this market or as some technicians are saying, no we have to drop down to a further fibonacci level, 200 on the s&p. i think right now the question

is how can you as an investor in a sense rain in your emotions so they don't become your portfolio's worst enemy. lisa: talking about raining and emotions, big tech, interest rates going up, the ability to cut much more than others. it's a leadership as we look to indexing. sam: technology month to date, giving up if you will the positive performance in january, positive signal for the barometer. february, historically, the second births month of the -- second worst month of the year compared to september but technology does have the potential and profit margins and i think it has investor attention because they want to gravitate back towards the growth area. typically following a down year

investors rotate from first to worst, meaning going from the defensive's consumer staples and health care utilities into the groups that were beaten up the most and tech was one of them. jonathan: sam stovall there, cfra, alongside lisa abramowicz and valley what? lisa: look across the valley. tom: david said this to meet a couple of days ago. down in the valley. he did it on the fiddle. he's really quite good. the fiddle is like a violin. [laughter] tom: ♪ down in the valley ♪ jonathan: great radio. keep going, i like that. tom: my father use to sing over a can of cream ale. jonathan: how many cans did you consume? tom: ♪ down in the valley valley solo grandma is gloomy ♪ jonathan: chat gpt said no, you

are not. lisa: just so you know, our fantastic listeners had a message for you, someone questioning whether you are actually italian. [laughter] up ever -- evidently there is in italian industry where you can buy in jonathan: that's a chat gpt question? lisa: no in actual life viewer. tom: wait, wait, i have been with john at chelsea market. he walks in there with all the tourists and they shake at the italian places when he walks in. it's like stop and you see people whispering to the manager. jonathan: here to collect. [laughter] jonathan: that's my part-time job. i'm just here to collect. thanks for that. that's not what i do. futures. tom: pretty good jonathan:.

in case you thought that's what i did, i'm not. matt lisette he is coming up very shortly. in the last couple of years he's been fantastic. he made this great move on calling it a recession when other people were not calling for one. tom: he timed it, he did the two. jonathan: he'll be great, with us in new york i think. that's cool. tom: probably from the deutsche bank towers. lisa: i think he's coming in. tom: from the deutsche bank towers. which i still don't call -- jonathan: deutsche bank center. [laughter] jonathan: i spoke to someone about this recently like, center? tom: warner bros. discovery store. jonathan: they didn't even know. lisa: maybe they can do better branding. jonathan: matt? [laughter] this is bloomberg, apparently. [laughter] lisa: yes, it is. keeping you up to date with news from around the world, i'm lisa mateo.

core inflation in the euro zone set a record last month, cementing the european central bank plan to raise interest rates by another half percent in march. price gains reaching 5.3% in january with headline and they should including food and power up to 8.6%. the minutes from the latest fed policy maker meeting showing that the fed is inclined towards more interest rate hikes to curb inflation. still almost all officials are back to slowing the pace of increases with 25 basis point hikes likely coming at the march, may, and june meetings. president joe biden says vladimir putin has made the world less safe by suspending participation in the start nuclear treaty and he told abc news that he doesn't think it means they will use nuclear weapons. the treaty aims to limit the deployment of intercontinental range weapons. shares of alibaba are higher, soaring 69% in the last quarter.

they kept a lid on costs and shoppers continue to spend online is the pandemic raged. still, revenue increased only 2.1%. investors are worried that a sustained recovery in chinese consumer spending may take some time. tesla placing a global engineering headquarters in palo alto, california. elon musk appeared alongside gavin newsom at the announcement , calling it a sign of renewed cooperation between the electric vehicle maker and the state that he scorned for the last few years after moving corporate headquarters in 2021. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪ ...meets trailblazer. ♪ ♪ classic meets modern. ♪ at morgan stanley, we may seem like a contradiction...and we are.

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>> it's going to be pretty painful. the no landing story is looking at banks right now. right now things are great. the fed i think is doing a pretty good job of communicating what their plans are. if i was them, i would pause and see what they have gotten done so far. jonathan: always great to hear from ed hyman, not predicting, but calling for one. he says that everyone calls it the deutsche bank center, matt does. not sure i believe him. good to see you, matt. up half of 4%, let's call it three basis points on the 10 year. tom: let's get right to it, we are thrilled to bring you from our studios in new york on radio and television worldwide, matthew from deutsche bank.

thank you for joining us in studio. you've got this data coming out as well. you nailed it. not only the vector of the gdp recession and not the er recession but this idea of a slow down and nailed where everybody got wrong the immediacy of the recession. you said no. do you stick with that, now? when is the win around any kind of slowdown you see? matt: the recent data gives you confidence in that timeline. but we have seen from job reports, retail sales. bottoming and picking back up, he tells you q1 growth should be solid and above trend, we think. the ongoing narrative we hear from the fed about the gradual slowdown of growth doesn't really seem to fit with the data that we have. that narrative likely has to change but from an inflation perspective there is less than

we thought last year. core inflation picking back up over the coming months, leading the fed to be more aggressive in the terminal rate fields into the hard landing. jonathan: where is your downturn on the calendar? matt: no doubt difficult to do. q4, it's always been a second half story for us. we do expect the fed to be more aggressive. repricing the terminal rate a lot but not enough yet. probably higher on upcoming inflation data. then you have a number of things in the second half of the year. household fragility with a debt ceiling that could lead to financial condition tightening and weaker government spending. there's a lot of risk. jonathan: 560, is there an upside risk? matt: with data the way it is today, there is upside risk. looking at the labor market,

it's really important. it's not just the latest data points. january data should be taken with a grain of salt. meaningful revisions to household income in q4 of last year, with inflation data that was revised up meaningfully in q4. looking at the fed, they will have any evidence of disinflation by the may meeting. they may only have a month or two by the july meeting. it's really a question of can they tighten conditions enough. jonathan: i want to -- lisa: i want to dig into that a little bit more. upside surprise, is that because long variable lag is not a thing and we are already seeing the effect of the tightness not being tight enough at a 5.5%? or is it that this is a less interest rate sensitive economy that needs to have a much bigger shock? matt: there are two lags. what the fed does and the reaction to monetary conditions. the lag has been click and type,

reflected in mortgage rates and financial conditions tightening quickly with the lag of it tightening into the economy which is where we are probably seeing the economy more resilient with excess savings. state and local governments sending out checks with a latent stimulus and at the same time a labor market that is undersupplied making it very resilient to the tightening so far. the lags have different structures. the one where it hits the economy is taking longer than we have seen in the past. lisa: is there a sense that there's a level at which the economy could break or put a major halt on the trajectory with momentum? matt: i'll be honest, we don't know what level that is and that's part of the upside risk on the terminal rate. i year ago if you had told me we would have had a 5% handle on the fed fund rate it a recession i think that might have been a preposterous conversation to be

having. pricing higher, financial conditions are tight. they are tightening. i don't think they are tight enough to achieve the dual mandate objectives. we have to be open-minded and humble about where the rate is going to be. tom: deutsche bank going back 13 years to a raging debate at the time off of dooley garber and all of the research efforts. it was a titanic debate about china savings. paul mccauley was involved. brett and others. i want to bring that domestic right now. not the unknown with china but what is the unknown for matt was eddie in the american economic experiment right now? what is the mystery out there for you? matt: 3, 4, 5 years out there's a really interesting conversation about what the neutral fed funds rate is going to be. it is really about what we are seeing today that is simply reflecting unique pandemic

circumstances or what is it that is more structural? some things might be more structural going forward. all of these shifts going on. demographic forces, deglobalization, climate change policy. things at the margin that i think will be inflationary and a world where maybe fiscal policy in the u.s. does not structurally change in a given direction but globally that might shift and it lifts the neutral rate for the fed. jonathan: you see that coming from europe, china? matt: in europe you have defense spending and climate change policy with a shift away from domestic savings in the economy over time. in the u.s. it's a more open question. a debt ceiling debate, could it lead to fiscal retrenchment? tom: he put that sentence in there just to keep his job. jonathan: are you getting questions about that or are people avoiding it?

do clients try to talk to you about it? matt: it is clients try to talk to us about it at the moment. the past few you had to come up against it and see it reflected with everyone focusing on it. this time around there was more focus early on with what was going on with speaker leadership votes. it's very clear on both sides that there are, they are entrenched in their views at this point and it will be an issue so i think there has been greater focus. jonathan: to not be an issue it has to become an issue? something they can back away from? matt: i don't see any way either side should back down from their view unless it becomes retrenchment. jonathan: an issue for further out the calendar. lisa: it's such a frustrating discussion to have. there's a group of economists at jefferies that put out a note saying the selloff that you are seeing above 5% in the short and could be tied to the debate.

mohamed el-erian came out and said it's not. but this is the issue. how do you game it out? even the reaction in the markets, what is it? is it safe? the irony around how the market would respond. jonathan: they say it's different this time. lisa: but people are more concerned about the significant ramifications around spending declining. jonathan: jobless claims are expected to come out at 200 k and matt is going to stick with us on this. he talked about 5%. if he told us we would hit the five handle on fed funds 18 months ago and were asked to guest, -- to guess, i don't think you would turn around and say the claims are around 200,000 with unemployment at 3.4%. retail sales, you wouldn't have any of that stuff in mind.

tom: i go to the resiliency of the american economy, sounding like a broken record, what we adapt and adjust to is the free lunch we have had on rates. it's over. are we going back? no, but we are going on to something that has elements of what we used to do. jonathan: but can it truly avoid a major break somewhere? tom: can it be down in the valley somewhere? jonathan: you want to sing us out? have you had complaints? [laughter] ospace, advancing flight for future generations. ♪ welcome to a new era of flight.

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jonathan: love this line from governor kuroda. he says the g7 needs to keep on tightening to calm inflation but japan needs to keep up monetary easing for stable inflation. there they are for you. one more beating left. tom: did he mention matt luzzetti in his comments? jonathan: i think he missed that one. here's mike mckee. good morning, mike. mike: preliminary numbers coming in. we are surprised again. 192,000 jobless claims. that's a little bit weird given the situation. it was forecast to come in at 200,000, you mentioned that

before the break. i'm waiting to see what the revisions are from 194 thousand. gdp has been revised as it always is. this is the second revision. 2.9% was the forecast, the original release dropping now to 2.7 as we lose some personal consumption. 1.4% there. apparently americans spent less then we thought in the first quarter. 2.1 was the original release there. we do get the quarterly pce price index up 4.3%, up from the initial release of 3.9 that does not serve us well for tomorrow. initial claims have not, i don't have the update in terms of, oh here we go, only raised 1000. so we are in a situation with jobless claims where we are at on hundred 92000 and or. a week before, 195,000. the forecast was for 200000 and

nobody is falling -- filing for jobless claims at this point. the continuing claims number, 1,000,664 is down from 1,000,600 91. so the labor market remains strong. the fed noted that yesterday and it does look like inflation may have picked up a little bit more in the fourth quarter than we had thought. jonathan: mike mckee, thank you. 192,000 on jobless claims. we mentioned this morning that we might be a strong data point away from the full handle. on the 10 year, 396 before it gets close. on the two-year, 472. yields higher on a couple of basis points there. closing high off the year, it was about that level. yield term, equities pulling back a little bit on the s&p 500 . still advancing by one third of one perth -- one third of 1%. you can thank nvidia for all of

that. whatever you want to call it. core pce, that's another read on that. jobless claims expected to climb higher but they did not, they climbed from a revised 100 95. what did you make of that? tom: my amateur take is to added up annualized plus the gdp price index and i've got nominal gdp of 6.6% if my matt luzzetti math is correct and that's what keeps you going if you have nominal gdp at that level. jonathan: matt luzzetti, we got to come to you on that. 192 thousand, your thoughts? matt: it's remarkable that the fed has tightened as much as they have and that market isn't coming into better balance as they had hoped for. the recent revisions to the data really shows no weakening at

all. i would highlight the core pce number as well. likely reflecting the seasonal adjustment in cpi getting reflected in the core cpe data as well. that plus a reading tomorrow. i think the fed minutes, the sentence i focused on the most was there is concerned if they don't tighten sufficiently that progress on inflation could halt . with revisions to the incoming data that we are seeing, there has to be a question about whether or not they are tightening sufficiently. jonathan: after payrolls i spoke to a lot of people who said there was more noise than signal. based on the data of the last couple of weeks, is it more signal than noise? matt: we are not going to produce 500,000 jobs on average so there is no doubt a lot of noise there but when you look at the jobs data right before it picks up with initial jobless claims everything tells you it's a labor market with momentum that

is tight. tom: looking at the core inflation equation, can we guesstimate any of the factors given that we are coming out of a pandemic with a biden stimulus? i'm so fortunate i'm not doing what peter told you to do, which is actually try to guesstimate this. what is your confidence in guesstimating forward? matt: look, it's always difficult. even more difficult in the current environment. looking at the q4 gdp numbers, downgraded consumption is meaningful. we were close to zero growth already. looking at housing, consumption, and capex, it looks like from the numbers you had a sharper slowdown in q4. i think that the data we have had since then suggested it was a temporary blip from when we thought financial conditions were hitting the economy most significantly and if the fed doesn't continue to engineer conditions that are tight enough

you have an economy likely to pick back up and a labor market not likely to listen. lisa: does that mean another 50 of the table? matt: it's not optimal from their perspective. how do you get back down? if you only want to go one or two, it's going to be difficult to do that by may or june. i would think that for the march meeting if they need a surprise, you've always got the free card on the dot plot that could signal intentions to show a fed fund terminal rate higher than what the market has priced in, holding it for longer. i think their messaging is really important. if they were able to talk it down as the minutes did, that could have an effect. tom: this is critical, this is original. since when does a central bank talked down financial conditions? lisa: literally in the past decade. [laughter] jonathan: now they are talking them down.

tom: milton didn't talk about it, schwartz didn't talk about it. ucla didn't talk about it. how do they quote unquote talk down financial conditions? matt: i think the last decade is a new kind of communication from central banks, guiding towards expectations around they want to do to bring about financial conditions to achieve their objectives. they should always be asking is the market interpreting signals as we want them to be and are we achieving financial conditions that will achieve -- tom: it's like dr. phil except it's dr. matt. lisa: but the interesting thing is this fed has less power than it has had in a long time because the data is what the data is in they have to respond accordingly, not necessarily off the rhetoric. matt, when you take a look at what we are seeing in the upside revision to the core pce is there a sense we could end of the year with even a four hand

inflation overall headline? something significantly above where people are projecting? matt: inflation has been difficult to forecast it it's unlikely given what we know is going to happen with rent in the back half of this year, those are really important components that are going to be trending down. that said with our core forecast for the end of the year, the forecast had been left at a few months ago but now looks more plausible given the data we are seeing. it's an environment where you don't want to discount upside risks to inflation, particularly if it's inflation. jonathan: communication from the fed has changed and they have started to manage financial conditions in a more direct way but that is because the nature of the economy changed and became much more financial lies to. because of that, we also thought that when they started to raise interest rates, to your earlier point, they would hit the economy much faster.

communication has changed, the nation of transmission has changed. everything tightens up. i feel like i have to sit here and sit here and say there is so much we don't know. to your point, if you told me 12 months ago, told anyone five handle fed funds, they would not have said 3.4% or claims that 200,000. do you think we need to be more -- not you, we get along, this is not directed at you, do you think that we need to be more humble about what we don't know about what's happening with the fed and do you think that they need to be as well? matt: absolutely. there's a lot of data volatility with reliable indicators to look at. it's an unprecedented environment in which you are sitting on excess savings where the labor market seems to be structurally undersupplied. the lacks structure and how it works out, these are all key

sources of uncertainty. for the fed it means they need to see evidence that it's moving in the right direction in order to back off. lisa: anything stimulative about being able to earn money from your cash? matt: looking at it within that margin you would say yes but we have seen what happens to mortgage rates and the housing market. we have seen rising delinquencies on autos. i don't think it is stimulative. that component could be but it certainly has tightened financial conditions. jonathan: that's exactly the kind of thing that drew matus talks about. lisa: lisa: -- lisa: but you have to think that, market rates with other costs immunized, i'm just wondering.

it's what i'm saying. jonathan: maybe spurring lisa: other people. lisa:so you could make the argument that it could have the opposite effect. jonathan: something to talk about because i don't thing we a clue. lisa: i think that's correct. jonathan: i wonder if the fed even has the tools to bring it down without smashing the economy to pieces. lisa: a lot of people are wondering what it's going to look like. tom: tomorrow the pce deflator, .4, .1. i do a quick three month annualized. that's how you get it. what's the value right now of a three month annualized review by guys like you when the chairman is wedded to month month year-over-year. is there a value to looking at 90 days over? matt: absolutely. a lot of it is being inflated

that's where the revisions are important. in february they thought the core three -- cpi was 3.1% annualized. they found out otherwise and they got a pickup and inflation on top of that so you have completely changed the trajectory and -- projection. jonathan: i don't usually stay this long. i am staying the extra 10 minutes for matt. lisa: he really did. jonathan: it's true. everyone else here usually in this block. i'm not around. anyway. more coming up in the next hour. jonathan, sarah, credit suisse, all coming up shortly. ♪ lisa: keeping you up to date with news from around the world, i'm lisa mateo. janet yellen says the global economy is in a better place today than many protected months ago. in a press conference from india, she pointed to a

resilient u.s. economy and moderating inflation and reiterated her calls for support to ukraine as the one year anniversary of the russian invasion approaches. the biden administration will take a security first focus when it begins doling out $39 billion in funding to jumpstart u.s. production of microchips. gino raymundo says that the objective is to return supply from asia to the u.s. and that the plan isn't meant to subsidize struggling companies. a huge winter storm battle during -- battering the central u.s. and doing the end. by the time it is done the minneapolis area could get close to 1.5 feet. hundreds of flights canceled. meanwhile, the same system bringing record warmth to the southern u.s.. jp morgan collected more in overdraft revenue last year despite changes designed to limit it. a sign that once more customers are having trouble keeping their

accounts flush with cash. jp morgan took in 1.2 billion dollars in overdraft fees, a 3% increase in 2000 21. the bank of america overdraft revenue fell 65%. wells fargo retreating from a business it once dominated, they cut more than 500 employees in their mortgage unit this week. they also plan to shrink the portfolio of loans they service, adding to thousands of job losses across the home loan industry. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪

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tom: lean forward. bruce splat saying what we have been talking about all morning, classe is not last bc in commercial real estate. as i told you, lisa, i've been really watching this. cranes has been doing a great job along with bloomberg real estate and natalie on this. manhattan landlords will owe in the coming months, a phrase they use, $12.7 billion in a redo. this is the focus now a people like brookfield with all of their abilities saying that this is how we get from a to b and you wonder what everyone else is going to do. lisa: the backdrop is people are using less hybrid space and a lot of the leases are long leases. leases coming up in 10, 20 years. when you start to reset, you start to see the pain we might not have already seen. there is still a lot relative to

demand. tom: we do understand that this is across the nation, it's not just about the island of manhattan. john gittelsohn leading some of our coverage there. right now we continue the festivities with the futures in the vix, coming in nicely, 21 point 93, certainly a better take than what we saw yesterday afternoon. i should note oil, we barely talked about it today. west texas intermediate, getting that out, brent crude 8130. all the focus is on the bottom market in that is the private -- province of ira jersey at bloomberg intelligence. open question, taking you down to the 30 year, which part of the curve gives you the most information right now? ira: it has to be the short end of the curve, we are hyper focused on what the federal reserve is going to be doing.

it's not even the 2-year note necessarily but shorter than that. things like looking at where the december funds fed futures with related index swaps might be trading. we are still pricing not only for higher more hikes but also the fed still becoming potentially by the end of the year. even though we are now only cutting we thought we would be at the end of the year before, you still have this up and down move that the markets are still very keen to continue to price. tom: i'm looking at the ira jersey function at the bloomberg and i have looked at it more in the last eight and i have in the last five years and i'm beginning to see a five handle across the t-bills. help me with that, what is the significance of 5.00? do you have a different level that is of significance? ira: 5% is clearly an important number. we haven't been there in over a

decade when you think about how long it has been since the global financial isis in the federal reserve putting rates to zero. 5% probably for some people, they are really happy. the issue with doing something like moving into short paper or money markets is there is going to be a time to move out and one of the reasons we continue to see this inverted yield curve is in part even with a 4% 10 year yield or very close to it right now, you can lock it in 10 years. having 4% in 10 years when expectations are for it to be below 10%, maybe not this year or next year but over the longer term, that seems very attractive given the last 15 years of financial history. i think that risk continues to be that short-term interest rates go up even more and that it pushes us more towards a recession that is going to be seen as this crazy inversion of the yield curve that can be done

for the rest of the year and maybe into 2024. the way we think that things will develop in terms of monetary policy. lisa: there is a lot there to unpack. the data that we just got with harder than expected core pce and a revised look at fourth-quarter in the united states. again we saw another job -- drop in jobless claims. timed together, how long do you think the fed can feasibly hold rates above 5% even the persistence in the economy that a lot of people cannot understand? ira: so my view is that we will continue to have inflation around 3% in a year-over-year basis above the fed comfort level. at the same time if we don't have job losses, that means the fed can stay at the ultimate level where the fed funds rate will peak. whether that is 5.25 or 5.5 is

debatable. there's going to be a lot of data coming out in the next couple of weeks. once we see that i think that the fed can be very patient. and actually keep rates at the peak much longer than in the average cycle. the average cycle, they start cutting after six months, seven months, it could be over a year before they actually start cutting and i think that's one of the reasons why you will start to -- continue to see this in the yield curve for the next few months or so. lisa: there's a heated debate about whether to care about the debt ceiling and if it affects the pricing in the debt market. a lot of people are arguing not yet, wait until you see the whites of the eyes of crisis. how long until you see a distortion like we saw in the past? ira: it's similar to what we saw in 2011 and 2013, where the debt instruments that would be

affected by a short-term delay of payment, which is really what we are talking about here, are being affected already. when you look at t-bills out into late august and early september that is the sweet spot right now, we are projecting out in that range september 1 plus or minus a couple of weeks and that's in the danger zone right now. so you are not seeing those t-bills cheaper on the curve compared to where you think they might be otherwise. i think that people have wised up to the idea that if we have a delayed payment you want to get in front of it because there are operational headaches and you don't want to be in those instruments and we are already seeing that. tom: now the dumb question of the day brought to you by lisa and tom, i will take it today, lisa. lisa: thanks. tom: if you need to move higher in short-term paper, who takes the loss? ira: so it's interesting you say that, because right now tryst rates at

4.5% in the two year yield, you would need those to go up towards 6% in order for you to start losing money in the 2-year note. you don't actually take a loss, you just have less of again because of where the carry is. [laughter] tom: sounds like an equity guy. ira: but it's true, thinking about it, if the prices of your bond go down by 2% and you make 4% in a year or more, you are still up 2%. so your actual breakeven winds up being several hundred basis points, which is very attractive in the short end and is one of the reasons why you get these fits and starts in terms of how high front-end yields can go. tom: lisa, years ago young jersey, i think it was at credit suisse, i can't remember, the mail would come in and he would get the scissors out and start clipping the coupons. what you just heard there is

textbook bond guy. i've got a coupon and the coupon will salvage my loss as a take a lesser total return. dan is in boston right now screaming. [laughter] lisa: looking at the 5% you can see that is actually the greatest yield you are getting on 12 month t-bills relative to the s&p 500 earnings yield going back as far as i can do it. keep going back to data, it's obviously a relative value proposition where sure even if you get some price losses, the income offsets in a way that you aren't even seeing in equities right now. tom: out of time, great briefing. you can see that on the terminal today. it's all going out on bonds. i didn't send this to our crack control room team. we didn't get there but we did get to 3.9% -- 3.97% in the

shock data. lisa: keeps surprising on the upside. you know the chicago fed national activity index is up at the regional fed index data points are coming in hotter than expected. it came in as expansion. all of it pointing to the same thing. the trendline, great, these are not necessarily significant in and of themselves but put together it tells a different picture. tom: looking here quickly at the four-week moving average updated on jobless claims, it's 191000 and we will get a new number here. today i have never framed that in my mind. never imagined that is where we are. jonathan: is this -- lisa: is this because people are not getting hired? not getting fired? tom: a topic for tomorrow and tomorrow's economic data. stay with us on bloomberg television and bloomberg radio. good morning. ♪

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jonathan: live from new york city, good morning. equity futures trying to bounce from a four day losing streak on the s&p 500. futures down .5%. "the countdown to the open" starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. live from new york -- jonathan: live from new york, the u.s. labor market is looking even more resilient. janet yellen says the global outlook is improving, no one at the federal reserve once to stop hiking.