>> there is places to put money to work in the market and you can work your way through this. >> we have stocks that have rallied and continued data that tells us to be cautious. >> week are at an opportunity to get high income in a fixed income market. >> i think some of the broader panic in the market has come back a bit. >> there's a few things happening in the u.s. that is quite different than the rest of the world. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: bad news just bad

news. good morning for our audience worldwide this is bloomberg surveillance i'm jonathan ferro. tk will be back with us for payrolls tomorrow s&p down. noteworthy because it comes at a time when we see yields lower off the data. lisa: and some of the interest rate sensitive areas have underperformed on the heels of some softer than expected economic data i have to wonder how is it that people are waking up to the narrative that bad news is bad news. and the concerns about the banking industry. jonathan: this is before we get the banking industry here. that's the concern. the two i seems miss, miss, miss. how noteworthy is it for you? lisa: it's significant. more noteworthy people are not

pricing much of a rate hike perhaps less than 50% chance into market. they are pricing and 100 basis points of rate cuts. that reaction is new. this is a concern about weakness before we get the true weakness and that is what i think is noteworthy. jonathan: the estimate so far, 235. that's coming just a little bit, just a little bit a moving target. the number drops tomorrow. coverage starts at about 7 a.m. eastern time we will go through about 10:00 if it will set long. lisa: your optimistic. jonathan: let's get to the price section. good morning to you all at home. s&p 500 negative to tense up 1% just a little bit softer. yield down again to basis points. 10-year, 320 -- 3.29. that's come down from about 4.1%

at the start of the week. lisa: it's not providing support to markets. it is bad news? perhaps the advertiser as you say or adp was the advertiser this was the pick your intermediary course. u.s. initial job claims index it has turned negatively and ticked up lower over the past couple of months what happened to immaculate disinflation? what happened to the idea this will help us get to the fed's goal sooner? suddenly nobody is talking about that anymore are we going to far in the other direction? u.s. bond market closes early for good friday we will be around trucking anything else that comes out and then we will be tomorrow. as we do get the payrolls report it will be crucial because it is one of the most important data points the fed gets before their

meeting on may 3. and then at 4:30 p.m. as much as people would like to check out and go home i think this may be some of the most interesting data. they also released the data on the discount window lending which goes into this question of banking status. have we seen the bulk of the banking stress disappear? do we see ongoing borrowing and what is to suggest about how much credit is going to tighten later on because this is a very inefficient source of capital. jonathan: i was i was just smiling. i was thinking of people in london logged on to wennberg 9:30 london time. say no more, max, thanks for joining us and making some time for us this morning.

eurozone, overweight high-yield still pretty bullish, max, why? >> part of the reason really is the sentiment. i think it's a big part of it. when we look at our indicators both our short-term indicators, etf-based set and it -- sentiment. it's all around 20, 30%, tom. jon. part of it is sentiment of positioning and we don't only see the price based positioning we also see it on the earning side. look at earnings expectations now for the upcoming qr reporting season in the u.s.. a couple months ago in q4 we were around $57 but right now we are slightly scratching above $50. we are already expecting 7%

decline. some of those sectors had earning estimates revised by 20, 25%. so that is a sentiment, not only in terms of price and service but also on the earnings and on the growth side. jonathan: struggled to see in the equity price, the bond market, as you know over the last two weeks has been pricing a disinflation robust. >> i think probably for the next quarter that should be fine. we are probably in a will do locks-y quarter. downbeat top-down growth expectations and on top of that we have headline inflation particularly in the u.s. going from around 6% currently to around 3% by june.

that is all actually moving in the right direction. the trouble comes in the second half when facing higher growth expectations both on the earnings side and the top downside. as bullish anymore and on top of that we see headline inflation moving up again and inflation will probably approved to be a bit more sticky so i don't really have anything against anyone particularly bearish right now i think the timing is off. with the downbeat sentiment, to put on the bearish trait, that recession trait you can do that towards the second half of the year. you are probably going to end up three or four months too early right now. lisa: do you think i would be more optimistic if i would be doing more skiing in that alps? jonathan: i think you would be overweight stocks. lisa: constructive view on the

economy and everything else. max, i can credulous you on choosing a fintech -- fantastic path. how much is basically your call that were not going to see the bank stress yet and worries about the legs and credit tightening are going to happen just yet. >> i think a lot of it, but i am pretty comfortable with those delete like that every lending standards everyone keeps talking about we look at those relative to low growth actually takes around six, seven quarters to actual lung growth and that is only going to come towards the end of the year or in 2024. then you mentioned the bank so even at the larger banks if you compare them in the relative

terms for a couple financial conditions they are outside of the covid, the first covid wave of march 2020 they are now pricing and the biggest tightening since the financial crisis. there is really an awful lot of stress there already it's the same real estate. real estate is another risk of course that everyone has been suddenly waking up to. look at retail, look at office weeks. never actually got to the coded highs. there is an awful lot of stress already in the price. lisa: let's just put a bow on this are you buying, are you loading the boat right now with respect to bank stocks? >> i'm not sure i would load my entire but with that but i think they are pretty attractive levels now.

they do look quite attractive particularly in the u.s. when you look at how much euro banks have outperformed since september last year. the larger u.s. banks took a little bit more attractive now. jonathan: just to be clear, the larger banks, not the regionals? >> yes. if you put it down on the risk don't go with the regional bank for now. jonathan: appreciate the perspective. enjoy the slopes. max can are making time for us on his vacation. so much gloom on there. lisa: i should. i think i will come back a better person. i think he is on the slopes so he is a big snowboarder. jonathan: does he skate? lisa: i don't think so i don't know if he does anymore. it's an interesting question if the shifts of the market happen

too quickly. this idea of some sort of goldilocks the sky is falling, we are about to head into crisis. jonathan: i just got an image of tom keene colliding with gwyneth paltrow. lisa: nobody needed to think about that. have you been following that? jonathan: of course i followed that. let's talk china briefly. leading with a story that somehow china is being restrained do you think they are based on the meeting that took place between the speaker of the house on the present of taiwan? lisa: we necessarily haven't heard that much in terms of what they're going to do. they did criticize the meeting. i just wonder what were going to do with respect to pulling back the tensions. europe seems to be strengthening certain ties especially on the business side.

jonathan: speaker mccarthy is meeting with the president of time one and you have emmanuel macron meeting with the chinese leader. we will talk about that next looking forward to that conversation with the ucr center on u.s. politics director in the next hour. tommy wiseman is going to join us. although but -- unchanged on that currency yield lower a good. you next up for the economic data jobless claims coming up at 8:30 eastern time. payrolls friday just around the corner. >> keeping you up-to-date with news from around the world with first word, i'm lisa mateo. francis president urged xi jinping to use his influence to

restore peace to ukraine he said china's president could ring russia back to recent and end the fighting. he sought to rally international support for a plan. the u.s. has dismissed the plan but france has welcomed china's effort. kevin mccarthy said china can't dictate who he meets with. mccarthy spoke with bloomberg after meeting with taiwan's president in southern california. the gathering including both republicans and democratic lawmakers. mccarthy says he would like the u.s. to speed up arms sales to taiwan. meanwhile mccarthy has a warning for wall street. worry about the political impasse over raising the debt ceiling. he is very concerned about reaching a deal with democrats but he is so opposed to increasing the debt limit without carving government spending. anti-vaccine activists robert kennedy, junior will challenge joe biden for president. he filed papers listing himself

as a democrat. he has put forth conspiracy theories he served in various roles for environmental groups. shares of costco are lower. a slowdown led to dow about the american consumers comparable sales rose nine tents of 1% in march after excluding changes it was the lowest sales growth in almost three years. global news -- global news 24 hours a day. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo and this is bloomberg. ♪

>> if we want to make sure we foster democracy and peace and make sure we don't get into any type of conflict people need to sit down. china needs to understand they can't do eight who speaker of the house can meet with. for the same moment macron is sitting with xi. jonathan: kevin mccarthy speaking with annmarie hordern yesterday. after an export exchange just yesterday. lisa: this was kevin mccarthy

talking about going to tie want to meet the president and didn't do that. this sort of was a halfway step to express support but not really meet all the chinese too much. jonathan: you mention something important, something we should build on the difference between the u.s. approach to china right now and the european approach. my current there in china. we will catch up with guy johnson in about 30 minutes from now. he basically said look what's happening with airbus it is doubling its production capacity. that is a european company. lisa: a couple months ago i talked to mercedes tech executives. one of the most important and generates a lot of growth in the economy and asked them could you move away from china? can you actually remove some of

your sister and the answer is no. honestly the economy cannot function without that alliance so how do you dovetail diplomacy amid a very business heavy reliance. jonathan: it's been very difficult so at what point i mean how much can they do both the same time? this has been a tension have been talking about. i don't know how ticket resolved but right now it seems like the fisher between u.s. and europe seems to be growing a bit. jonathan: can we start there? just the difference of approach between europeans and the u.s. to tension with china at the moment. >> there's a couple things to note here first even though the rhetoric in the u.s. and many policies are very tough on china for both parties the trade relationship is still the highest it's ever been with china as well so it's not just europe that is keeping the economic back-and-forth going that is very true for the u.s.

right now as well. even europe is not fully unified on this. micron is extending a much more open hand his co-traveler who has been a bit more tough in her talk. i would say a lot of diversity between both sides of the atlantic but for the u.s. i would say the fact that europe is perhaps being a bit more openhanded with china especially with my current it could be an advantage. the biden administration has had sort of a three-pronged approach to china. cooperate when we can, compete where we should and confront when we must. the cooperation pieces obviously the trickiest of late and if you could have europe keeping the door open i think that is important for preventing what could be this increasing alliance between china and russia. what we don't want to see is a cold war that is built on a sense of grievance towards the west and towards the u.s..

france might be the good cop keeping the door open for that time being. lisa: what is that different relations? the good cop bad cop kind of die economy here this isn't something companies can depend on and we have already seen reports that apple is trying to shift its supply chains. how much does this create a liability for the u.s.? and create a real fisher in that alliance? >> i think we are seeing but the u.s. and europe trying to uncouple as we are saying in these key sectors. but also just very pragmatically knowing you can't just completely cut off this economic relationship with china. i think we will see the pressure but at the same time recognizing that some relations are going to keep going through. again we see france probably moving forward on the airbus production, at the same time scaling back on other kinds of technology where there is more concern about security surveillance. some of that will be on par with

the two countries began essentially deepening a rift i do think becoming a -- i do see that becoming a bigger sifting point. lisa: did china truly show restraint with the kevin mccarthy meeting? what taiwanese president is that really what we saw or is there potentially more to come and potentially a bigger and broader consequence? >> we heard a lot of rhetoric from china, a lot of pushback in terms of verbal comments to this and there was some movement one chinese naval vessel going through the straight yesterday nothing like the military movements we saw back in august when pelosi went. i think as you note it's partly because the meeting was a u.s. soil. it wasn't taken place in taiwan you are having a head of state visiting with micron.

at the same time it's not the best look and moreover this is really a longing for china. i think the taiwanese president was clear about that as she was making her comments in the u.s. that china is seeing this as an ongoing effort and working towards all different talks to put pressure on taiwan not just military. this is something that is going to be very drawn out and not just a headline grabbing movement that china did back in august. jonathan: so you don't see anything big happening anytime soon? >> i'm not really alarmist about it at this point. right now i think china has a certain interest in not completely upsetting things especially as they are trying to kind of regain their position in the market regain themselves to completely upset everything with something very provocative on taiwan. i don't see right it way but i think it is much faster moving than any of us thought it would be even several months or a year

ago. i don't think any of us would prevent -- predict what was happening. lisa: do you think danning tiktok changes the game? >> it's putting the pressure on. i would say the middle-of-the-road on governments devices and that kind of thing is probably where the u.s. is best suited to sit right now i think a blanket ban does get into very tricky waters. you get into a situation with whack-a-mole with any kind of chinese products that have this capability and it is a little bit of a slippery slope to get into banning platforms just as china bans at some of our platforms. i think the u.s. is right to be taking a somewhat cautiously and not moving too quickly. jonathan: julie, this. lisa think a lot of people brought up this point.

if you think about how this might develop first you get the executive branch of government the authority to ban but it can go further and do other things. or you somewhat concerned that we have this one issue right now, china, and we on board with d.c.. whether it leads some to basically leverage the fear really start to push the fear through society and take advantage of that basically secure and concentrate more power than in washington? lisa: how much do you end up really violating some first amendment rights in the process? i guess aside from a judgment call taking a step back the daylight between the rhetoric and the nature of the rhetoric in washington, d.c. and the more measure 10 coming out of companies and a prickly the actions that a lot of people are taking it's hard to reconcile. people don't seem to be carrying

in the market but when you talk to people in d.c. the sky is falling and they will ban everything. jonathan: i would love to speak to cook. the leader of apple has managed to transition from the trump administration who was -- a lot of -- he avoided it when it comes to china are behind-the-scenes. make these moves without upsetting the economist party too much. lisa: that was a fascinating article and talking about the meetings and they are making moves. jonathan: if he wants to leave the state department at some point in the future might want to take the apple stock and cash it out. doesn't work that way? lisa: you can be his advisor.

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jonathan: 25 hours away from the payrolls report. equity features right now in the s&p negative 1/10 of 1% a couple days of losses the adp report a downside as lisa reports. kind of the data point you don't care about until you do and people did yesterday. maybe they will tomorrow as well it doesn't take anything about what we get in payrolls. ultimately still. i have to say the ism manufacturing came in softer as well that led to this move on

the market. heald looks like this on a two-year down about poor basis points to 3.74. i think trending in the 3.60 on two-year on the back of this two-year. lisa: some of the lowest levels we have seen going back to september of last year and this is interesting it isn't feeling any excitement for risk assets as you start the bed show bad news is bad news. this is the beginning i think that's the key point. this is the appetizer for what is to come with potential credit tightening. jonathan: will the data continue to be ok? euro-dollar shaping up as follows. 10906. kim close in the week. i think the ecb another rate hike from the ecb. lisa: on the one hand of course they're going to say this because they haven't disrupted the markets. the markets are saying we don't

believe you either you're knocking to go as high as you think but we have heard from everybody. honestly they can afford to be. they aren't disrupting anything why wouldn't they and potentially they won't have to. jonathan: 50's on the table. quite the story is in it? quite a story we had a ton of fed speak this week. more fed speak later this morning. the university of chicago calling for an independent commission to look into the fed in the last two years the fed has fell twice it has failed to see inflation coming and it felt to see the banking crisis coming too. a trust -- a trustworthy fed needs to come back there a transparent, independent, and authoritative commission whose findings are believable. president biden should appoint such a commission without delay. luigi joins us now. is this an institutional problem? >> i think that's what we need

to find out. i feel it's an institutional problem over just a chairman problem. we think the institution. i think it's a very consensus institution. i think the failures were shared thing has gone wrong. jonathan: is that a polite way to say there is too much group thinking in the fed? >> i think that is definitely the case but i think maybe there is more. this is a low point on the board i think only half of the phd in economics. you don't need to have a phd but it helps. understanding a situation like the one now. lisa: what are they getting around right now? >> i think they are getting it wrong the system. i think they have this idea that the pauses are sticky. i think first of all we are

never experiencing in recent times what you get on the money market. and second the world has changed. deposits are mobile. they are a click away. so i think if deposits move in such a better yield. thanks have to realize the idea of losses that can stay there and not have an impact. i think it's a fantasy. lisa: what do you think the fed should be doing? this is the consequence of banks not managing what assets well enough or do you think this really lies with the fed? >> i think the fed has a huge responsibility. they should have understood that couldn't raise rates so fast. when you raise rates so faster going to impose losses in the bond market. who's going to bear the losses? insurance companies. and you have to fill them out. banks? then you have to bail them out.

then something happens. there was an extra reason to move early on inflation. they were complacent and said we have the tools, we politico a little bit but don't worry because we have the tools. i think the tools were not very sharp. lisa: how much do you think the banking crisis people talked about has abated were sort of moved from some sort of acute pace into perhaps a chronic question around flows and with respect to credit creation but not necessarily a crisis? >> i think it's possible and hopeful that this is not going to be an open crisis like we have seen in the past. however, clearly put a lot of softness in the banking center. we need to remember those are the ones who land small, medium enterprises. the bread-and-butter of the economy is with the regional banks. they are very soft and they see

deposits flowing out. and they are not going to make loans because if they make loans and then deposit they have to sell securities. i think that the first thing they do for sure is not make new laws. and then probably they will try to slowly execute this when they can. we saw an article in the eft cash over assets in banks were particularly low. this is the cause of the current crisis. no, it's the fact that we have the withdrawal of deposits. banks don't want to divest so what they do is reduce the cash they have. jonathan: the deposits, let's touch on that. you have been highly critical of the federal reserve. let me be clear about that. we do need to talk about the role of the banks in this. it's the way the banks have been run. >> i think if you don't expect

some bankers to be stupid, you have not learned a lesson. we're surprised how little people were trying to do the right thing even if they were in the sector so we learn people make mistakes. it's a system that compare the mistakes of the bankers. especially when the bankers are not jp morgan. jonathan: lisa and i and opened a surveillance account without tom's name on it. they would probably offer us 0% still we have barclays down in the last 24 hours saying it could go back 1.5 trillion. return of capital or return on capital and can they reduce just by putting interest rates on deposits?

>> they don't have the return to do that. if you look at silicon valley bank if they increase the return on their deposits by i think 75 basis points they would have wiped out all the prophets luster. i don't think they have a return on assets to justify high deposits. that's the conundrum. if it was just increasing rates, it would be easy but they can't afford to. jonathan: so you say the banking system doesn't work with the 4% plus is that what you're saying? do they have to cut interest rates? >> first of all, i think the inflation might not be as big of a problem if we get into a recession. i think the recession will do the job. that was not the plan of the fed, it was a soft landing not crushing the baking sector. lisa: let's put this in perspective. it seems to be the nude -- new theme.

there is an imminent tension that's going to perhaps accelerate some sort of economic downturn because the banking system just is not going to function at these rates. >> i think it is underlying bad news. this would come with a reduction in interest rates. we know that compensates some of the problem. the real tension is the fed will not raise interest rates and will cut them and will that be enough to transform what is likely to be a hard landing into a more soft landing? that's the question. i think we are softening up and there will be a landing at this point and there is little doubt the question is how hard? jonathan: let's go to where we started the changes you want to see over time but i want to talk about the changes you want to see in the next couple of months. >> from the point of view of the fed and the government? jonathan: from the federal

reserve. >> i think the analysis of the banking sector i think it was there -- i think it was a failure. the fed needs to own it and change. and to be honest about the fact that probably we need to soften up interest rates because the banking crisis is coming and try to find a way to soften up the speaking crisis especially i think for landing on a small, medium business because those are the ones affected the most. >> you said be honest. do you believe that? >> you can be honest and be wrong. i think sometimes people believe we are the world. i honestly do not understand the basis point increase last meeting. i think it was just a signal to say i want to assure things are not as bad as they might be.

i have been wrong before i can be wrong now. lisa: i just wonder if there's a room for regional banks anymore. >> there is an invariant portal role of regional banks because we know small businesses don't borrow large distance they depend on local banks and particularly minorities depend tremendously minority banks. bank ownership and determine who gets the loans. i think we cannot say we only go with the few large makes because that means a complete change in the u.s. economy. jonathan: this it's a good you can put it on your podcast. >> capital is find it anywhere you get your outcast from. lisa: he was like he recycled

you have one yourself and advertising spot. jonathan: luigi, thank you this was fantastic. big questions there for this federal reserve. lisa: and really important ones when bad news is bad news not necessarily because of some sort of potential other event other than what's going on in the banking system. jonathan: we are saying it does not work with rates under 4%. that was the last conversation. lisa: and that is why people are so curious about some of these flows and how quickly deposits continue to leave. jonathan: and the federal reserve is going to five plus. lisa: which is pricing rate cuts. jonathan: futures right now on the s&p unchanged from new york. this is bloomberg. >> keeping you up-to-date with news from around the world with first word, i'm lisa mateo. it's no secret that china wasn't happy about house speaker kevin mccarthy meeting with taiwan's

president. the country have released statements condemning the meeting but political experts tell bloomberg president xi jinping has several reasons to hold off on any aggression. he is hosting french leader emmanuel macron to win support for his plan to bring peace to ukraine. there was evidence in jerusalem -- there was violence in jerusalem for a second straight night. and israeli police used force to remove dozens of people young people threw rocks and other objects at officers at the same time palestinian militants in the gaza strip continued their rocket attacks on israel. donald trump's campaign is trying to solicit donors. they are using polling numbers to show the former is an unstoppable force in the race for the republican nomination. he is described as pulling away

from dissent tests and voter surveys and says his indictment is rallying republicans to his side. elon musk says converting the world to entirely early -- entirely green continue investments. it could cost for troy in dollars more over the next two decades. his thoughts are in tesla's new master plan. global news 24 hours a day. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo and this is bloomberg.

>> there is demand for traffic of passengers around the world. there is demand for cargo during covid so the return to good

times is accelerating. continuing the sector and it's now a market or it's actually stronger. jonathan: airbus making moves over in china and this was the story he was talking about a little earlier. the difference between the approach from europe and the u.s.. having these conversations about the investment in china or at least that's the conversation we had on a weekly basis. airbus is doubling down in some sense this morning. lisa: they are building a new china jet factory and increasing their ties with the second largest economy in the world. it makes sense economically but how does it tighten given the fact that germans came out and said we need to be aware that this could be a point of tension. all these european officials are

heading over to save let's strengthen those ties. jonathan: guy johnson knows this company far better than i do. guy, what does airbus get back for this one? guy: not very much. a number of things to say. we are waiting for details. i have been in touch with airbus we don't have all the details at once. there has been a story on the final simply line. we don't have all the details because we haven't had the official site from the chinese. in semi that are getting exactly what they want. a a simply line in china but the key thing airbus was expecting going into this trip was a big order for a350's. the airbus competes with the dreamliner. that hasn't happened at this point. we think there probably isn't going to be in order here. china getting the assembly line

and it doesn't have to convince the new aircraft. this is a country where boeing you would have thought that would leave it open for airbus. boeing, remember, has no new deliveries. this should be wide open for airbus. they are making the commitment but it doesn't seem as if they are getting anything back. i wonder if there's political messaging in that as well. jonathan: let's talk about the political messaging. micron is over there and we said the u.s. and that europeans are competing with each other at a time when american -- the u.s. history to keep your pa -- europe on its side. >> boeing is not present in china. we have an apple store and there's a fantastic story about the new strategy when it comes to china. i think it's passive of this

narrative as well. the americans are more cautious. the europeans are filling the space that the americans are leaving behind is that going to be the narrative going forward? but the blessed stranded assets. a lot of european companies and it up with stranded asset in lisa: that concern doesn't seem to be in the forefront. emmanuel macron was going to china to talk about potentially brokering some sort of peace agreement with russia for ukraine. how much is this really an economic ace to visit where you basically seem europe trying to strengthen economic ties with china? >> i think it's always hard to t the part. they have operated in a more mercantile approach. it's always hard to sort of

differentiate but nevertheless there is a big kind of politics story here underway. i think europe's relationship with china will ultimately be defined by the way that china uses its influence of russia to define what happens in ukraine. i think that is probably the bottom line here but in the meantime the u.s. looks to disengage the europeans are not doing that. they are engaging still and they see that as being the best sort of path forward both economically and politically at this point. lisa: this is an important point and i wonder how this goes back to the daylight and european approaches. europe sees it as being leveraged and the u.s. fuse the trade ties with china as being a potential liability is that something you hear increasingly as the u.s. and european with this particular issue? >> i think it's really difficult. there is definitely a different

need those at work here with both sites. it will be interesting to see how that plays out over the inflation reduction act. if you look at what has just happened the details are confirmed as we anticipate they will be. the chinese have basically just delivered a commitment for airbus that is going to build an assembly line. they have to give anything back we don't of the financing details around this. so the moment the chinese seem to be getting the better end of the stick the europeans may be seeing an opportunity but where does it ultimately take them with the relationship with the united states? the europeans think they can play both sides. they think they can keep both sides happy. we will see if that turns out to be true. lisa: the larger back stock has been better than expected, economic performance and wage growth in europe at a time when the u.s. seems to be seeing potentially a bit of weakness.

how much of this really is tight to china's reopening and if it has been underwhelming to some it has given a real boost to europe's economy. >> the further you go east was to go the narrative. europe in some ways appreciated going the other way but europe is closer to the chinese story and the chinese story seems to be gaining momentum. returning sort consumer confidence so europe is set to benefit from that. look at what is happening with the luxury goods sector. it has done very well that's based on the china trade how much more juice is left there in that particular tank? it's come a long way very quickly. i think there is certainly a european, europeans are getting more of a quality picture from china have the markets already

anticipated them and price that in? i think if you think at -- look at things like lvmh. jonathan: the luxury players, can i change topics have you seen the latest research piece that the u.s. is becoming more like europe? the average u.s. workweek has dropped by more than 30 minutes. have you seen that data? >> i read that story, i thought it was fantastic. it's a huge number. so, yeah, maybe ultimately the european way of life is the correct way of proceeding. i thought you ally that with the ai story, the chat gpt story that they be we all get friday off. jonathan: i wish tom was here for this. guy, thank you. guy johnson. lisa: he's taking the half-hour. jonathan: let's be clear about that. tom keene has become more european. guy, thank you.

lisa, i know you have thoughts. lisa: people say from an economic perspective this is the labor market tightness. how does this also connect to quiet quitting and people who are just not working all that much anymore prioritizing their home life after the pandemic and what is that mean -- what is that mean so people who are a lot less and it averages out to perhaps a little bit less. these are some of the thoughts that i had. jonathan: thanks to rich miller for lining up the story. three groups you need to think about. educated young men have been reducing their hours. and orca hollow to reduced their work time on the job to 52 hours back in 2019. that is some of the composition behind this. lisa: i do think there has been a reset after the pandemic about homework balance.

people would be home and experience what it was when they didn't have the excuse of work. theoretically, it requires some shifts and order to make certain things work but i also think perhaps there are more trends going on. jonathan: slowly becoming your more european. what's wrong with that? lisa: we just spoke with max who is skiing in the alps. and did you see the way they have a whole lifestyle? jonathan: that's great two weeks off in the summer, take a month if you want to. lisa: i don't think we are moving in that direction. just ease this into it. jonathan: just cut it back. lisa: i think we did according to the study. jonathan: looking forward to that conversation equity features unchanged on the s&p 500. expected data through the week so far, more data coming up.

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>> there's places to put money to work in the market and you can work your way through this time. >> we've had continued economic data that tells us to be cautious. >> we are having a generational opportunity for investors to get high quality income in the fixed income markets. >> there's that level of flight to quality but the broader market has come back a bit. >> there's a few things happening in the u.s. that are quite different from the rest of the world. >> this is bloomberg

surveillance. jonathan: this is bloomberg surveillance gearing up for a long weekend for some of you. for others might have to tune in tomorrow morning to go through the payrolls report, weekend has not started yet. good morning for our audience worldwide. we are live on tv and radio. tk we'll be back tomorrow morning. equity futures are not changed on the s&p 500 but so far this week, the data is weaker than expected. will it continue jack's 2 lisa: what has accounted for the shift where bad news is bad news and we've seen this in three straight sessions which makes a trend. we got a new narrative every week in the narrative now is that we will get some sort of slow down and we're just getting the appetizer with this disappointing data. jonathan: mohamed el-erian said

you cannot respond to every data point. you've got to wait around for something to change. as the data comes out this week, is the communication from the fed starting to sound stale? lisa: the longer this divide goes on read got 100 basis points of rate cuts priced in and the federal reserve still talking about north of 5% and holding been there, there's a question about fed credibility that goes to the heart of some of the discomfort and volatility in markets and its stale but also out of touch. jonathan: the fed is communicating five and north of five and hold. this banking system does not

work with rates of four and 5%. lisa: that's underpinning the narrative and its a story you have to watch because you are seeing the un-performance of the kbw index and banks and regional banking concerns and the jitters that come up when you go and have a sense of people moving their money out of smaller banks regardless of what happens and whether they are stable because they are getting more elsewhere. one of the main credit impulses in the economy is driving the underlying feeling that bad news is bad news. jonathan: where will we be on may 3 when the fed makes its decision? payrolls today and bank earnings in between. let's look at the price action. equity futures are just about turning positive. yields are still lower across the curve down to her three basis points. that's on the two-year and down another five this morning.

lisa: we've seen some of these levels reach the levels going back to september of last year. as the fed says, they will raise rates to 5% and hold it there for potentially a year. in terms of the appetizer, the data does it matter until it does, particularly challenger job cuts. suddenly, i think we will be talking about these because if they are weaker than expected, it will confirm a narrative. we get the initial is jobless claims at 8:30 a.m. in the index has turned negative and we've seen it go lower. i want to understand whether this is driving the underlying pessimism that is even in risk assets. the u.s. bond market closes early for good friday. we will be here tomorrow morning from 7 a.m. until 10 a.m. eastern about the jobs report. we will speak with many guests about this.

i believe mohamed el-erian will be in the studio. it will be awesome to get his insights and at 4:30 p.m., many people will be logged on and carefully watching these data points from the federal reserve, not only on the discount window lending but the balance sheet which has picked up the last couple of weeks. jonathan: i'm looking forward to it. i'm always locked on. the light is always green. thanks for being with us. this was from moments ago -- he said the credit crunch has started with 71 banks in the dallas fed district was affected by the bank situation. do you agree the credit crunch has started? >> absolutely, you might call it

a credit crumble but the direction is ambiguous. its not just about deposits leaving the system. they can come out of small banks and they can find their way into the large banks and into money market funds. this is a way of recycling the deposits and bringing them back to the small banks. i'm not so much concerned about the flight of deposits as the ideology of a credit crunch. i'm more concerned with the regulatory overhead. unconcerned concerned with the fact that congress will be doing compensation callbacks and bank ceos they get their balances in trouble. i'm worried about the more variegated stress tests, stressing the banks were duration management. i'm worried about the banks going back into there sheets and scrutinizing them. i'm worried about the regulators doing the same for the banks.

i think that will cause an overhang of concern and less risk taking in the banking community and that's what will drive the credit crumble, not the flight of deposits necessarily. if there is a flight of deposits, we are talking about a real credit crunch. jonathan: how are we thinking about this? >> with market outcomes, we've got 10 year yields coming down and that's supporting multiples but i'm afraid about the market because if you have a credit slow down an economic slowdown, you will have an earnings slow down and a revenue slow down, effectively and operating slow down in the corporate world. we are already seeing that with what happened with the manufacturing ism survey. when it falls to the levels it fell in the march report, its typically associated with a big decline in growth in core

revenues and corporate earnings. its also associated with negative revisions from the bottom up. that's what's in front of us now. there could be multiple elevation because of the low yields but you can expect the market to do well and we are just on the verge of seeing that. lisa: do you agree this banking system cannot handle rates where they are? >> i would have said something different. i would say the banking system cannot handle a very speedy and abrupt increase in interest rates to 4%. if any borrowers or creditors get accustomed to low interest rates and expect those to continue, their behavior will accommodate to those low interest rates and when they rise by a lot, that behavior will be forced to shift maybe

because of what happens on the balance sheets. its not the level of interest rate that matters. we've had 4% in the past. we glided through that comfortably, not associate with inflation but what has troubled me and what's troubling the economy is the credit -- is the rapidity with which interest rates have risen, that's unprecedented. lisa: translate this into the global market. many people are looking at signs that things are cracking in the u.s. than in europe and things are slowing down as a sign that europe is a place to go for assets. are they just six month behind the u.s. and they will see the tensions immersion their economies at the same kind of pace based on their outsized rate hikes? >> there is something to be said for the synchronicity of rates around the world.

europe was in the doldrums and the slump in the fourth and third quarters of last year so its coming off of a low base. you can imagine it will be hit hard unless there is another shot. it will have to be more than a credit crumble in the u.s.. china is recovering and that will help europe. the initial shock has faded. oil prices are relatively low in the things that have hurt europe and the third and fourth quarter of last year are no longer there. jonathan: is the dollar positive or negative? >> its dollar negative. there's something to be said for the idea of a global recession helps the dollar. i think that some old way of thinking. they can make a decision -- a distinction between growth rates around the world and the

comparison between relative growth rates. we will start to see this divergence indicated by the fact that the surprise index in the u.s. is edit down and europe is still going up. we will start to see a weaker dollar and we've already seen it. we've seen it in march but there is room for europe to get even higher to break above the 110 level. the next shoe to drop maybe dollar yen. we will hear more from the dot wants the government takes over. these are the consequences of the weaker u.s. situation compared to the rest of the world. jonathan: this was great, thank you. speed kills, not levels, thanks. lisa: he's not alone in that and what does that mean in terms of economic slowdown? are people expecting the kill to come and show up later in the year?

when do we have to see the kyl for the fed to response? this is the tension because we are not seeing it yet. softer than expected but there is underlying strength. jonathan: that's the big reason to criticize the fed. they use the language front loading which i think is frustrating. they were back loading. lisa: that criticism has been echoed by many people including fed members. we've heard that consistently. this was an error of not moving quickly enough. jonathan: in the next hour, we will catch up with the cio at northwestern wealth management in about 50 minutes. from new york, this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first word. in beijing, the french president urged xi jin ping to use his

influence to bring peace to ukraine and he thinks they can bring russia back to reason. there is a vague peace plan and the u.s. has dismissed the idea but france has welcomed the chinese effort. kevin mccarthy says china cannot dictate who he meets with. he spoke with bloomberg after meeting with the taiwanese president in southern california. the gathering included republicans and democratic lawmakers. he says he would like the u.s. to speed up arms sales to taiwan. mccarthy has a warning for wall street, worry about the political impasse over raising the debt ceiling. he told bloomberg he is very concerned about reaching a deal with democrats but he's is still opposed to increasing the nation's debt limit. shares of costco are lower with the second straight slow down that lead to doubts about the strength of american consumers. the comparable sales road just rose 0.9%.

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>> we have never spoken with one voice when it comes to china. when i became speaker, we made a select committee, 100 46 democrats voted for in your what democrats and republicans on this together today. that would foster a stronger relationship with chen because they would understand where our boundaries are. they would not worry one party saying something. jonathan: seems to be the one issue that does not divide washington on a d.c. we will catch up with amh in the next hour. welcome to the program, payrolls tomorrow morning and then

jobless claims in an hour and 10 minutes from now. equity futures are a bit softer earlier on then unchanged for the last couple of hours. equity futures are not going anywhere positive by not even 0.1 percent. yields lower on the bond market. a little look at the 360's yesterday at the front and of the curve on the back of weaker data. lisa: we keep talking about this tension, the fact that this market is expecting rate cuts in the fed says they will not do that. the market has been wrong before. people say dome fight the fed but at the same time, the fed has been wrong the last couple of weeks. jonathan: 10:18 a.m. eastern time.

the masters is happening. lisa: thank you, i appreciate that. jonathan: are you interested? lisa: not at all. jonathan: the way augustine national is covered is the most relaxing sporting experience on the planet, nothing comes close. lisa: i'm not a normal person. i understand why its relaxing intellectually but i wish i could relax to that. jonathan: blame your parents for that. if you are a normal person, you will find the masters relaxing. what are they doing in china? maria: there is a lot going on in china. you have a double fisted

situation with the french president who had a meeting with the chinese leader this morning and repeated this idea that china can actually help global peace and has a role to play. you heard emmanuel macron say speak and say i believe you can do this. when the french president speaks, he speaks on behalf of the french republic and no one else. separate to that, the head of the commission is also on the trip and she wants to focus in many ways on the trade situation. everyone wants to benefit from the china reopening. that is still clear for everyone. the you says they want to rebound -- rebalance the relationship it has to lay to decouple. they want to de-risk so that means look at areas in which china is profitable but other areas where it can be risky to trade with them.

lisa: how much is this the most attractive option for european officials with potentially waning support for the ongoing war in ukraine in terms of continuing to give support and remove all ties with russia while also trying to back ukraine and get some sort of expedient and to this? maria: how ukraine ends and the mediation that china could play is controversial and there is no consensus. when emmanuel macron repeats that china can help any says everyone should be clear that the only person who has some clout over blatt emir putin because everyone else has gone cold on russia is the chinese leader. maybe he can help with that but that is not consensus across the e.u.. a number of official say if china really wanted to help, they've had a year to do it.

i spoke yesterday with the lithuanian foreign minister who says when i look at china, that is not a peace plan. china only cares about china and they do not have a view on global peace. they just want to advance their agenda so this is controversial as to what china can do when it comes to ukraine. lisa: what was the purpose of this meeting? was it entirely economic and was it around the peas land for russia and china? maria: he seems to be convinced to some extent and he is repeating this morning that i believe, speaking in the first person so the french president thinks he has a special touch or a special dynamic that can sway china and change things for the better, perhaps de-escalate things in the war and tell russia that you need to stop it. the quote that came out of this

meeting is your the one that can bring senses to russia to deescalate the situation. this is not a consensus view and many officials behind the scenes will tell you its just naïve. china has had a year to do it and they have it done it. everyone wants to benefit from the china reopening. if your company in europe, its a great opportunity and not necessarily risky for europe. the risky areas are technology. the really wants to get a sense of where china wants to go but also make it clear they want to make separation between with beneficial and what is risky. whether they can do that remains to be seen. jonathan: dozen emmanuel macron have problems at home? maria: he does but he is someone who loves international relations, who lives for this. he seems to be more interested at times by the international politics but his agenda at home

is the structure of the way the french workers go to the foreign minister. he still says we are going to retire at 64. some say he should spend more time dealing with this. jonathan: are you saying the man from france likes to play statesman abroad? maria: he is interested biting lives for the appeal. he is someone who is genuinely interested, not just playing national politics on a daily basis and want to insert his point of view and feedback on these big conversations. the french believe they can do things that no other country does. he says if you want to have a phone conversation with vladimir putin, the united states cannot do that and the u.k. will not do it either in the germans with

their reputation in tatters over the nord stream. they believe they are a power of mediation and they have a capacity to bring people around the table. jonathan: thank you. the perspective from brussels. there was a style guide over the last few months and they said you cannot say the french anymore. then they had to backtrack afterwards. what did you make of that? lisa: i love maria. i love the backpedaling after she said emmanuel macron will play statesman while at home he has other issues. jonathan: the city is practically burning. amazing images coming out of paris. lisa: and he will play the bigger role on the global stage as somebody else deals with that. there is a question of how much tension there is between a

number of different european nations at a time when they are giving to ukraine. how do they bring an end to something that is in terminal and is a tragedy in terms of the people in ukraine. that's probably part of some of the accelerated negotiations. jonathan: did you see the interview with emmanuel macron why he explained the pension age needs to go up and he's got an expensive watch on his wrist? people suspect he realizes that that's probably not a good look and his hand dropped below the desk and he took his watch off. lisa: i have and seen that. how did that go over? jonathan: everyone was at -- was laughing about it, out of touch.

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jonathan: 60 minutes away from jobless claims in america and 24 hours away after that into payrolls. good morning from new york, on the s&p 500 and the nasdaq, just about unchanged. the nasdaq is down by 0.2%. there was a break -- a big rally in the bond market after weaker than expected economic data. on the two-year, down four or five basis points. ism services a downside surprise

and ism manufacturing a downside surprise. job openings, we wanted them lower and now jobs are down. lisa: we've confirmed the idea that we are seeing a real softening in the labor market and this seems to support that which is the reason why people care about adp. jonathan: let's talk about the euro briefly. the optimism around europe relative to the increasing pessimism relatively speaking in the united states leaves euro-dollar at $1.09. lisa: we will talk about how much further this story has to go. its not just with coming out of the official channels but also specific companies not the reason why i find cosco interesting. they reported yesterday a disappointing sales total for march. they showed a decline versus an expected gain.

this comes as e-commerce sales dropped almost 13% during the five week retail month. people are concerned how much you are seeing consumers pullback and how much will you see ongoing cost cuts. costco shares are lower by 2.6%. fedex gaining 1.3 percent, building on the gains yesterday after they announce they will merge delivery networks with express and other operating companies under the same umbrella. this is what happens when companies are looking for ways to increase profits and the don'ts he channels of growth -- and they doubt see channels of growth. the earnings reports we are about to get could be important in any official data we get out of the federal reserve or the bls. jonathan: morgan stanley said on fedex, it puts them on the path of the holy grail to

integration. it all sounds great and then use -- and then you see the equal weight grading denigrating. . they said it will likely take longer. lisa: there are not that many other channels for potential increase in profitability other than cutting costs and trying to streamline operations. jonathan: what happened to sell on the sell side? lisa: i would like to see some academic studies on that. jonathan: you can ask that forever. we promised we talk about europe. european equities are coming close to wiping out the losses from march. rebecca patterson predicted a gloomier long-term outlook for the continent.

rebecca patterson joins us right now. this is not the first time we played this game in europe. >> déjà vu all over again. in the case of europe, they stalled in their growth instability belt-tightening during the pandemic but that's coming back in force next year. they are trying to do some fiscal reforms but its going to be at the edges, not meaningful. people will have to start belt-tightening again next year. the ecb is telling us regularly they are not done. we have higher interest rates, i'm sure we will get tighter lending standards in europe just like in the u.s. and then the fiscal tightening as well. the tools they have, i need more

coffee, your viewers and listeners no. maybe those will help because its a sort of safety net but will they use it? they've never used it so it saidn if not a when. a lot of european stocks are globally focused and china will be slowing into next year after reopening search area the u.s. will clearly be slowing so that external demand that tends to help european stocks will fade quickly. i think you will just have a lot of factors coming together at once which means the rally we've seen in recent months in europe is just not likely to persist. jonathan: where does that leave the single currency? >> that's a great question. part of what's happening is a relative shift in interest rate expectations. the ecb's sting a little more hawkish. the fed expectations priced into the market are all over the map. we are looking at maybe a 50% chance of a hike in may in the united states versus 70% at the

beginning of the week? its very fickle but what gets me and was hurting the dollar more is the rate cuts being priced into the second half of this year into next year which i still think are unlikely. if i'm right and the fed pauses but does not cut, i think that will ring a measure of support to the dollar that we are not seeing now. if you have that happen at the same time the economy is slowing and people say give me those 5% t-bills, give me those u.s. bonds for liquidity, i think you could see more dollar strength further out. its not going to be an easy call given that the u.s. is starting from a position of a big deficit. lisa: this introduces a real overhang of the banking stress we have seen recently and is at the beginning of a banking system that cannot handle the pace of increases on the federal reserve to interest rates?

do you think they are between a rock and a hard place at the fed if they go through with the plan you say. we will see a pretty significant recession later this year that will challenge the dollar and challenge world -- all sorts of risk assets. >> if we have a harder recession and that helps bring inflation down to below two which would be fast, i'm not sure that's a given. the change in rate expectations is already there so that's reflected in the dollar's current value. i think the bias of risk is that the fed does not ease as quickly and it does and bring the dollar down lower. it would be helpful for u.s. stocks but i think the trade is not so much on the currency and the dollar as u.s. equities. part of the support equities are getting in the u.s. is under the hood with a few tech stocks driving everything but the broad support is i think hope springs eternal that the fed will come to the rescue.

even if inflation is coming down, the pace is coming down, we are multiples above the target. to think we will get either inflation down quickly enough without more economic pain which would flow through to earnings or something big will break -- you mentioned banking -- if something bigger breaks in a crisis supersedes inflation for the short-term, that could lead them to cut. in either of those scenarios come is not great news for equities and it could be good news for the dollar if you see people outside the u.s. coming into the u.s. for safety, the relatively what it he, the relative yield we offer. lisa: what is the threshold to cut rates? how high is the bar at a time when they will face harsh criticism and people losing their jobs? >> they are saying they are resolute and has to be 2% and

they have to say that otherwise they risk losing credibility. wedo know what the true number is. is it anything below three? is it 2.8% but momentum toward 2%? does it have to be below 2% to get to a cut? it will depend on the broader ecosystem at the time. how many jobs do we have to get out to get inflation down? i think they will look at the holistic picture, not just the inflation rate but i believe you could get cuts before we get to below two. is it four or three and a half? probably not, it will probably have to be a to handle with good momentum but we are not close. jonathan: we talked about a bond market pricing in a disinflationary bust and then there's gold, what's going on there? >> i love go. i started researching gold in

1997 at jp morgan. then i got to trade gold in 2008 and 2009 so i had an amazing education and gold is complicated. the thing to note right now is you are seeing people saying this is a very uncertain time and the war in ukraine, the u.s.-china tensions, the debt ceiling, recession risk -- i want to have something safe in my portfolio even if its only two or 3%. you are seeing investment demand. turkey last year made a huge investment demand not shockingly what's going on with their currency and inflation rate. the thing that's getting less attention and needs more attention is what's going on with the central banks. you have cyclical support for gold to the greek we have falling rate expectations, falling dollar. we still have inflation risk and uncertainty but the structural support at the central bank, last year they bought the most gold in one year they have bought since the world gold

council started tracking this in 1950. in november and december, china but -- bought 62 million tons? forget i said that. the important thing is as the u.s. is maybe pushing away some of its previous friends, there are central banks wondering how to diversify and rush to show that diversifying into the canadian dollar bonds or australian dollar bonds is not good enough because they will work with the u.s. gold gives them more room to maneuver so i think you will continue to see central banks work for gold in addition to the investment demand, jewelry demand. we are close to an all-time high in gold. i would expect it will hit an all-time high this year. jonathan: thank you. this was great. i'm wondering if there is deposit news in the mix as well? lisa: may be a place to go for gold. i'm wondering why gold was a

store of value and it required an army to protect the stores. the physicality of it, will it become a liability or will it be an asset? you can hold onto it but a liability in that it started to transact and liquidate in the same kind of way in a different market? jonathan: in europe, we used to calculate how most -- how much it would cost to rent space in a vault and what ultimately you would wanted to be. the swiss used to have the highest denominated note so you can get the most swiss francs in a square meter. you can spend a lot of time on this. lisa: i enjoy that instead of golf. jonathan: how dare you? lisa: that's what relaxes me. jonathan: education and a

commercial break coming up. this is bloomberg. ♪ lisa: keeping you up-to-date with news from around the world. its no secret that china was not happy about house speaker kevin mccarthy meeting with the taiwanese president in southern california. the country had released statements condemning the meeting but political experts tell bloomberg president g think has several reasons to hold off any aggression. he is currently hosting the french leader and european commission to win support for his plan to bring peace to ukraine. there was evidence in jerusalem for a second straight night. palestinian worshipers barricaded themselves inside a mosque. the israeli police remove dozens of people and police said young people threw rocks and other objects at officers. palestinian militants in the gaza strip continued their rocket attacks on israel. donald trump's presidential campaign is trying to enlist donors who have supported the florida governor ron desantis.

the campaign is using polling numbers to show that the former president is an unstoppable force in the race for the republican nomination. the memo describes him as pulling away from desantis in voter surveys and he says his indictment in new york is rallying republicans to his side. the biden administration's calling it the largest community solar effort in u.s. history. vice president kamala harris is announcing an agreement between summit ridge energy and south korea q cells and they will deploy projects that can power 140,000 homes and businesses in illinois, maine and maryland. no financial details have been released. global news, 24 hours a day, on air and on bloomberg originals. powered by more than 2400 journalists in more than 127 countries. this is bloomberg. ♪

>> donald trump was charged with 34 felonies, he plead not guilty, they said the next court appearance is in december and between now and then, there will

be a whole host of motions filed by terms lawyers to try to either change the venue of this case and/or dismiss it. the biggest problem will be can donald trump follow the admonition of the judge to try to temper his commentary on the case. jonathan: the former federal prosecutor on what's dominated the attention of this country. here in new york city, the former president went from trump tower to the court and that was amazing because he talked about the legal art of making a misdemeanor and felony. we talked about why that was peculiar coming from a d.a. that is seemingly intent on making felonies and misdemeanors. lisa: you can talk about this particular district attorney and some of the criticism he's come over -- come under locally and i pair that with the larger question. the bigger issue is even some people who don't look up trump are not particularly happy with

this trial at a time when there potential other legal actions and it seems to be helping him raise money and get further in his political career. its interesting to see that republicans and other candidates are forced to rally behind him at a time when they otherwise are critical of him. jonathan: including ron desantis, the governor of florida who has had to come out and say something in support of the former president. lisa: including mitt romney who voted them piece of former president trump criticizing this case. this has been one of the big questions -- how much does this create a liability on people who did want to see former president trump as the leader of the republican party? but also does this mean we will get joe biden running again and potentially winning the nomination? jonathan: this is a story written on bloomberg overnight.

the trump campaign is trying to get voters from the desantis camp. its phenomenal what trump has raise in the last week. lisa: and he's gotten more attention and more money. we have also seen other candidates start to raise a bit of money. this is also something that is heating up into campaign season. i wonder how much we can dovetail what we hear in the theater of all of this into actual policies in the next couple of months? people are talking about the debt ceiling debate and creating unity at a time when this increases some of the disparate views. jonathan: the speaker of the house speaking about the debt ceiling debate in about 30 minutes. we will get the latest from anne-marie in washington. let's touch base with the markets briefly -- equities and

bonds and foreign-exchange, interesting developments in the equity market. we had a string of weaker than expected economic data. ism manufacturing, ism services, downsize surprises. on the job side, jobs down but let's go with the headline and move on to the adp report. a downside surprise again going into payrolls. we were looking for to 40 but we will get the data tomorrow. it was bad news and bad news in the equity market. we have not seen this before even in bonds with rallies -- with yields lower. the bond trading in the three 60's and close to that again now. down about six basis points. lisa: you raise the point about mohamed el-erian talking about how you should not be trading on every data point. do people do that or use data points to confirm a narrative?

you could look beneath the surface and come up with a narrative that you wanted that would fit the data you're getting. right now, we are seeing people concerned about growth especially in the face of some of the concerns around the banking industry. we just got challenger job cuts. this is interesting because it did rise as much as people thought, it rose more than 300% but down from the prior reading. will people look at data that does not confirm a narrative of softening? i think that will be an interesting take away. jonathan: they said this economy is guilty until proven innocent. lisa: at least with respect to the equity response to what we see in bonds. until now, we had not seen that and that's an interesting shift over the past couple of weeks. suddenly, equity markets are waking up to what funds have been saying which is this fed will be forced to cut rates in the face of real weakness which

is going to impede profitability. jonathan: i think mohammed would be the first to say that different seats will have different opinions. if you are in a market seek and you get incoming information like adp, jolts and ism and use a string of downsize surprises, you will make a move on that. the outcome changes every day in the market will respect that. if you are a policymaker, if you move away from the baseline, that baseline is get north of five and stay there and donor cut and that's what we want to communicate. they want to project all of that but are they going to start to make a change after weaker economic data? lisa: april 12 we get cpi and they say you will get this potential weakness and it will come out and people will hunker down in bonds when it comes to selling certain stocks and then

cpi will come back and you will see is not making the progress people wanted to see. that will whipsaw the other direction because that's what the fed is looking at and that's the reason why they are not talking about rate cuts the market is currently pricing in. jonathan: the fed has implied that the -- what's developed over the past month will have disinflationary forces and to some extent is it a substitute for rate hikes? once you said that, if you see a deceleration in the economic data before that story has started to bite, i think you start to build an argument that the fed can back away. lisa: do you think the discussion from the fed has been consistent? has it been consistent in a time of great uncertainty? some people would say not so much. they say they are willing to take a lot of pain and not really think of pausing and cutting until we see progress.

is it progress to see troop stress and the banking system? jonathan: they did muddy the water in one particular point. many people come on this program and say things like you have tools to deal with financial instability and the monetary side to deal with inflation. it is intuitive and it makes sense until you sate the financial instability and what is developing could be a substitute for rate hikes. that's not to stores, that's one and clearly those on the left shape the right. i think that's where they have muddied the water. this is what we are looking at now, its not payrolls tomorrow were cpi next week, its banking stress and how much that banking stress will materialize into a bigger substitute for rate hikes in the future and/or maybe the rate hikes they've already done which will have to lead them to reducing interest rates. this is what was said this

morning -- the credit crunch has started. he referenced this -- a survey of 71 banks in the dallas fed district shows a dramatic reversal in loan volumes. this fed survey was carried out for march 21-20 nine and will that continue for the rest of this year? lisa: many people say they want more transparency. they said they would like to see the fed come out and deliver a report that gives us a sense of how vulnerable some of the smaller and regional banks are and how much they are seeing real on in their deposit base. its telling that western alliance, one of the banks that came under stress, their shares went down significantly on the heels of a lack of transparency around deposits and how quickly they were going down. yesterday late, they revealed how much the deposit had gone down. there was still a rally in the shares because people are

looking to understand what the scenario is, not just potentially sell everything. jonathan: i think the deposits in the first quarter were down 11%. i wonder if their experience is a lesson for the regional banks that will report in the next few weeks. lisa: transparency will be rewarded. jonathan: first republic is scheduled to report earnings on the 13th. we will say i -- we will see if they come earlier. then you get cpi april 12 and a lot coming up including payrolls tomorrow morning at 8:30 a.m. and the estimate is attached below 240,000. we will pick up that conversation next. looking forward to that conversation shortly. futures are just about turning higher and positive bite zero .1% on the s&p 500 and yields stay lower. we are down another six basis

points on the two-year, 372. from new york city, this is bloomberg. ♪

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>> where the fed will be first in the easing cycle. we do not know when the. >> i think the fed is not going

to cut 2.5 times by the end of this year. >> i think the fed continues to pound the table. they are concerned about inflation. >> the recession seems more certain. >> with the recession starts that is when the market bottom out. >> this is bloomberg surveillance with tom keene jonathan ferro and lisa abramowicz. jonathan: we are part of the others. new york city, good morning. this is "bloomberg surveillance.". tk is back with us tomorrow morning for the special coverage on the job board. -- the jobs report. the equity futures positive .1%. the story of the week you are familiar with by now, data in america weaker than expected. lisa: it is interesting if the markets trade off initial jobless claims that not so long

ago were considered irrelevant and potentially involved in the way they were struck -- constructed. how much are people starting to look under the hood, not only other banks by are companies like costco that are delivering some disappointments? jonathan: the data is always confirming the bias. lisa: sometimes there is more clarity than there has been the past year. people cling to what they can to give us some compass. how much are we looking at banks and add earnings more of a compass than other backward with the indicators the fed uses to crowd policy? jonathan: we have established the bias over the last week or so. to compare and contrast with the where the data was, super resilient going to the banking stress. no lending was the phrase everyone heard and would use the phrase loosely. he did not meet no lending ever come admit no recession at the start of the year.

now all of a sudden it is hard landing, banking stress, and more stress in the banking system through the year. lisa: the read through to inflation, if we do get this weakness, does that bring inflation down? is it enough to offset the other aspects? if not, what you get with respect to political pressure and market pressure to the fed to move away from their higher rates at a time when inflation has not been defeated? that's when i think it will get interesting in the bond market. jonathan: tomorrow morning, payrolls. there this morning, jobless claims. next week on the 12th, wednesday we get cpi data. first republic on the 13th. jp morgan on the 14th. you want the estimate for payrolls, in our survey, we stress it is a moving target, french estimates going into the print tomorrow, 235 -- french estimates going into the print tomorrow, 235.

235 is testament. the previous number 311,000. that is the data, here is the market. equity futures shaping up as follows. s&p futures turning positive. positive .1% on s&p. yields lower on the 10 year. 10 year we are down three basis points to the eternal weight. -- 328. lisa: if you take a look at fed funds futures, you're looking at a fed rate of 3.8% by january of next year. that is down almost 5% currently. how does that read through you? at what point does it undermine the fed ability to direct markets if the communications lack to effectuate change in market direction? jonathan: are there reasons to embrace the

gloom? british and justice -- brent schutte joins us. are you embracing the gloom? brent: we do think there's going to be a mild recession in the coming quarters. i do think the data continues to point to a recession. i think it is likely to occur in the next few months. i suppose it is a bit gloomy. good news is we have fixed income for investors behaving as a hedge for markets. that's the good news. as what we have been positioning the last few months. there are opportunities coming out of this. there are asset classes that trade at 13 times on mark gurman earnings that i think a mild recession will give way to something much better. and that is where i think there is optimism as we push into the future. lisa: can you talk about the evolution of your views based on your constructive outlook perhaps a couple months ago and how that us turn to less

constructive on risk over the past few months? brent: we have categorized this time period as a space between. back in october we believe that inflation was peeking. i still believe inflation is peeking. i think inflation is considering to eventually ease. we are kind of in the space between spear so as inflation came off of the boyle you start to see the markets do better. but we thought we were headed towards recession because the fed has gone too far. maybe that is a change i've had the past few months. more so we are headed towards recession, the data points that way and we thought investors would eventually have to embrace rougher times as the market started thinking about a recession, which is what you are in now and that is why the past six months we have shifted more towards x income and landed our duration because we do believe once again there was a hedge. was not in 2022 because equity market dow site was caused by too much. he repriced -- it repriced.

lisa: until long duration, what about the short end at a time when people are pricing in rate cuts we have a fed saying our job is not done? brent: my big fear as i heard a lot of investors who want to hike on the front end of the curve and i do not know where rates are going to be in two years. i expect lower. think about investment risk, we do not want to the 10-year treasury yield at 4%, where do you think that 10 year treasury might be in a couple of years? what you think the two year might be in a couple of years? it is more along that commentary there and if you look at the past few months long end of the curve despite short end going down, we at in duration it has been better than short end. jonathan: it is raise a question about the amount of money in money market funds. you get sense that a lot of that is just about guaranteeing return off of capital and not return on capital? brent: this is what investors

should not do which is panic. no one knows what is going to happen. equity markets has discounted some of the recession already. we made our high 15 months ago. the past recessions, that's the longest time period from the market peak, we can argue about when the recession is going to start and if you think about it we are 15% lower than we were at the beginning of january of 2022 which would be the second largest decline from peak to recession start date we have seen. i do not think it is all gloom. i want to make sure people, the what we on -- handle uncertainty is diversification. medical all and an all out on asset classes -- but ago in all and on asset classes's when you lose as an investor. jonathan: let's talk about the index. another range, 3800-4200 the last several months. we think about that range --

when you think about that range, we break that range would be to the downside? brent: slightly to the downside. i think it is a mild recession on the opposite side of this. i do not think you can time the upside so i do not think people should get to negative by do think s&p 500 has some room to the downside. jonathan: have you developed also what equity leadership is going to go if you believe the bond market moment is just a moment? brent: equity market leadership reminds me so much of 1999-2000 where large caps did not do so well in common expansion is there a price to perfection. i think small and big caps was traded 13 times well below the historical average, i think that is where the equity upside is and i know we are all negative on europe still. i heard the commentary before. i think they're still upside in international stocks which have a dollar declining tailwind behind him now. they traded below valuations also. jonathan: mid-caps, there is

exposure thereto financials, tickly russell. his store you have faith in? brent: do not think were in a cascading big default. would cause the downside in the banks, the collateral is going down because rates has arisen. reveries going the last few weeks? -- were has rates gone the last few weeks? i think that's a key deviation between today and 15 years ago for the collateral or assets were not quality. the buffers will work. it is unfortunate the banks got caught in a period of time were rates were still rising. jonathan: this is wonderful. brent schutte of northwestern mutual. it is interesting to hear someone is usually constructive come out and say gut check knowledge whether data is going and it is getting weaker. lisa: that's why people have moved away from just buying every dip and he start to see

that change in behavior. i wonder if diversification goes back to bonds and stocks or whether it changes and diversification is something different, a different mix of stocks or bonds, that to me is going to be the theme ahead of this year. how much we move away from the broad benchmark indexes? jonathan: move away from the s&p 500 created just hug it and hold it and look at the gains month after month. lisa: that is exactly it and it is what we have earlier this year. if you got those three stocks right, great but it otherwise if you hug the index, you're golden. jonathan: it is why the leadership story is so important. the microcap stocks, which -- the question is vital. lots of people think the answer depends on the bond market. if we do get it that they gets 5% and stay there and is a go back to the old days is going to be difficult to take

outperforming it as you see through the year so far, yesterday who's winning? lisa: exactly, big tech addressing underperformance but people really believe something is breaking and this banking system cannot handle the pace of the hikes we have seen to date, that would support going back to a lower rate in the near future. jonathan: some evidence banks are struggling to deal with rates at 4%, 5% from zero to months ago. jobless claims come out. these are information for you. she catch ups with carl riccadonna, before we get there, speaker mccarthy catching up with the bloomberg's and marie. we catch up with amh in just a moment. lisa: in beijing france president urged cpc use his influence to help restore peace to ukraine.

he says china's president could bring russia back to reason and end the fighting. he has sought to rally international support for a peace plan. u.s. assets dismissed the idea but france has welcomed the effort. kevin mccarthy says china cannot dictate who he meets with. mccarthy spoke with bloomberg after meeting with ing-wen. together included both republicans and democratic lawmakers. mccarthy says he will like the u.s. to speed up arms sales to taiwan. mccarthy has a warning for wall street. you should worry about the clinical impact of a reason the debt ceiling. mccarthy told bloomberg he is very concerned about reaching a deal with democrats but he still opposed increasing the nation's debt limit without curbing government spending. it is a bold bet on future demand for air travel and aircraft orders at one of the world's biggest aviation markets.

the move in china is a key part of their plan to increase production of the a320. in texas, the threat of more blackouts are prompted to state senate republicans to take action. catfish through a plan that could compel residents and businesses -- they have pushed through a plan that could compel residents and businesses to for more power plants. lawmakers want to avoid a repeat of the greater collapse in 2021. global news powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ the first time you connected your godaddy website

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>> we have never spoken with one voice when it comes to china. they've gone from administration to administration. we created a select committee and had 146 democrats but ford. watch democrats, republicans here together. that would foster a strong relationship with china of china will understand where our boundaries are, though not worry about one party saying something. jonathan: i'm lucky to work with people who work hard and fly around the country to bring you interviews like that. amh went from new york over to california and then back to

washington in something like 48 hours. lisa: she did great work and got an interview with someone with a leadership role at a time of bipartisan support for increasing tensions with china. jonathan: on several issues. kevin mccarthy speaking with anne-marie. amh joins us right now. great work. fantastic conversation. her big takeaway? annmarie: one is speaker mccarthy wanted to show a bipartisan a response in this action against china and standing up with taiwan even when he was meeting with the press after. he would not talk about former president donald trump when the questions were asked about him our current president biden. he said we are here to talk about what this bipartisan group of lawmakers are going to do in response to taiwan the. those things he said he wants quicker ammunition and weaponry being supplied to taiwan. you must make sure easing of

backlogs and wants to say his congress is speaking with one voice and he is trying to trump it, the house china select committee. this is something the select committee looks at major issues with china and give advice on how congress should act. this is one of his biggest plays in foreign policy since he has been a speaker. he wanted to show he was not changing policy. some of his members want u.s. to change to not have this image was one china policy more strategic clarity. he was not doing any of that. in terms of telling the u.s. demonstration line, but also wanting to make it clear this was a bipartisan delegation. jonathan: is anything to learn about how timeout responded to this meeting they responded 12 months ago -- how china responded to this meeting and how they responded 12 months ago to speaker pelosi at the time? annmarie: we saw aircraft meditates go into the

southeastern seas of taiwan's and also reported they were inspecting maritime cargoes going across the taiwan strait but this is a muted response to compared to when speaker pelosi made her trip last summer. we have never seen anything like we saw last summer including a missile flying over taiwan. that was by design. washington wanted to make sure that there is not going to be a recurrence of what we saw with speaker pelosi. that's why this meeting took place in southern california at the regular library on u.s. soil. one thing interesting reading the tea leaves, everyone has something to say about this meeting yesterday, the white house was saying to was quote unquote transiting through the speaker pelosi, rare praise from her saying the meeting is to be committed for his leadership, bipartisan participation and distinguished an historic venue.

very interesting comments from the former speaker to current speaker. lisa: i want to turn to some of the issues you talked about with him including the debt ceiling, with kevin mccarthy sending a message to wall street should be more worried than you are, how hard is this line, i am not lifting the debt limit on possibly not negotiating on terms laid out? annmarie: what i took away from the conversation is not putting just wall street on guard, he's also putting the white house on guard. it would not give details of his proposed bill that he wants to get through the house but he said i may have news will be come back from recess later this month when congress is back in session. the idea is the white house has been trying to almost divide and conquer. they are saying we will not negotiate fiscal spending cuts when it comes to the debt ceiling. must be a clean debt ceiling lift as it has been three times under the former administration.

because mccarthy was su waiting to meet yesterday that they plan to have the bill hit the floor. if it gets to the house, will only have republican votes and has no life in a democratically controlled senate but what it does show to the white house is that mccarthy has his members in line and they would not budge and what he wants is another conversation with the president. lisa: has his members in line, at some point he had to give up a bit of power to have the position he has. how surprise our analysts that he has been able to consolidate the republicans around unified abuse considering the fight it took to get them there? annmarie: this is where the tension is. white house does not think or the strategy is they do not think he is going to be able to do it give it 15 round bows it took to get him to the speaker podium. what he is signaling is that he thinks he will be able to have his members in line but remember

this going to be a lot of negotiations with antirepublican party. because there is -- a lot of negotiations in the republican party because there is a wide spectrum of they should view the spending cuts in lieu of their both teresa debt ceiling. this is what he wants to do but we have not seen it yet. jonathan: these are two points, china, taiwan. debate. what does speaker mccarthy had to say about what happened with the former president? annmarie: he says it is publicly motivated and it is not just republicans, he mentioned the former governor of new york as someone who speak -- thinks it is supposedly motivated. if you see from the former president is very divided partisan lines. i did ask him if he would support more people coming into the republican candidacy to run for the 2024 bid. he deflected and said we have not seen biden announced his

candidacy. but that is not your party mr. speaker. he insinuated he is for democracy but he would not say whether or not he want to see a challenger to the current president and what we know is -- the former president and what we know is leading in the polls and campaigning a ton, north of eight or $10 million from his campaign on how much he has been making in donations since the news of his indictment. lisa: did you get the sense that kevin mccarthy was frustrated at the energy that it was taken and the focus off of the other issues and the consolidation he had gotten around the republican party? annmarie: he did not say that but i think it is fair to say that yesterday in southern california there was a group of reporters, especially international reporters, but the day before when i was in

southern manhattan, it was blocked -- blocks long of reporters. i've never seen so much press in my life outside new york state supreme court on center street. i think without signals to me is what's the former president as a huge story around him, he takes the oxygen out of the room and he's doing that as well in washington. jonathan: i am eighth-grade. -- amh grade coverage. lisa, it is taken away a lots of oxygen for some other big issues in washington. lisa: and other people who would otherwise be potential leaders in the popular party. this is what people are talking about is that of the debt limit. i do wonder under the hood how much frustration there is among the numbers of political operatives saying wish we could get back to what we have to do in washington. jonathan: your member operation

biting for the campaign in 2020, it was said by could do nothing and let the president, at the time donald trump take the airways. sit back, do nothing and hope because i believe this this is the guy who wants that she wants to run against -- this is the guy he wants to run against. lisa: it is that president biden had the upper hand on winning the general election which has to be creating puppets want to come out and support and also want to win. jonathan: jobless claims and is away. -- minutes away. lisa is going to look run you through latest data just ahead. ♪ ♪ to guide you through a changing world. ♪

i screwed up. -mhm. ti got us t-mobilegh a changing world. home internet. ah!

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>> break it down in bond use and stock futures, 30 minutes ahead of what we get with respect to additional data. minutes away from the latest initial jobless claims. we are seeing the nasdaq continuing to underperform the s&p at a time where people are wondering if bad news is bad news. s&p slightly down but yields sharply lower. 10 year yields 3.25%.

yesterday's disappointment with respect to the adb payrolls and agile survey, a confirmation with initial jobless claims which rose to the highest levels we have seen in a. 228,000 initial report it up from 198,000 the month before. continuing claims also rose to 1.8 million from 1.68 million. if you're looking for some sense that the labor market is softening, you're getting it in the anecdotal data. if you take a look at markets you get a response from that because it confirms the narrative we have been seeing. taking a look at yields, you can see two yields a touch lower. you see 10 year yields as well halloween suit. tell me break this down, carl riccadonna at bnp paribas. wonderful to see you in studio. your first take on the importance of some of this. the data pointing to a softer labor market. carl: is thinking about the data

dropping, i thought the rule of thumb is 10% over the prior quarter average and alarming lame signal you into a recession. i was guessing in my mind, would that be. i was thinking 230,000. we are pretty much right there at the level that gets outside of any noise and starts to be a meaningful signal of problems. the debate is whether it is a slow down or hard to stop. i do not think it is hard stop evidence just yet. i am sensitive around the interpreting jobless claims as he looks around the easter holiday because that is when school spring breaks happened and often we see one off spikes or dips in claims. if we are holding at these levels for a couple of weeks and they are not a retracement, and that would be more alarming to me and we are starting to see the road deterioration in labor conditions that could push us to a weaker pace of economic

activity. lisa: is that enough for the federal reserve to cut rates considering they have been targeting inflation and this does not speak necessarily to progress in inflation fight? carl: there are some progress in inflation fight by depends where you look. look at the part of inflation basket that matters to the fed, core inflation and core services, you not seeing improvement to any material degree on that front yet. that is what is happening fed policymakers in the back of their minds as they realize that's what has to break to be on a path to sustainable passports 2%. we are not seen that in the data. if the labor market slows, it is a key fact we need to see to move in that direction but one with in jobless claims is not there. we saw green in the façade the last jobs report -- -- resolve

finance q. week can, resell manufacturer looked week as well so i think those trends will continue. it is not necessarily tomorrow's job report is going to be the key one. the survey week with the same week we had the stresses in mid-march in the banking sector. i think it would take a month or two for that fallout to show up in economic data direction of travel is clear. lisa: when we talk about the past week, i want to talk about revisions. we got those and they populated 246,000. it was revised upward from hundred 98,000. the total number of continuing claims revised upward from 1.6 8 million two 1.8 million. this a couple weeks in a row there's an elevated number of initial jobless claims. is that significant for you, the upward revision to the wrong side we are seeing? carl: you highlighted the upside index and i think it tells us how -- what is happening to the

data and how forecasters are thinking about the data. there is a moment. we have this extended stretch where nonfarm payrolls continually surprise relative to because this is expectations and has been going on for months now. eventually it's going to have to go in the other direction. i think we're getting close to that point. i think things were too fast moving in march to show up in tomorrow's payroll print. i think we will see more evident in second quarter. before we move own, we can stick with the theme of data and revisions. something i think slipped under the radar screen last thursday was the third print on the q4 gdp which everyone says a third print why pay attention to it? q4 that is our first look at economy wide corporate profits. as an uncomfortable trend we see in the economy. a year ago it was going something 20% year on year.

in the last quarter it contracted 2% in fourth quarter. it is only going 2% year on year. big discoloration and their profit trend drives investment, drives business decision-making. lisa: equity futures lower after the data. futures on the nasdaq lower .4%. you said march. the events we saw last month. i imagine you're talking about silicon valley bank and some of the bank treasures we saw. how much do you think that changed the landscape and accelerate the potential downturn this economy to see? carl: we know it is grading some tightening of financial conditions and it is going to take time to show up in the real macro data. all eyes on the cute one senior lending opinion survey. we did not get that until after the fed meeting the stated side to publish early. but we will get glimpses of what the sluice could look like.

there were survey data out of the dallas fed this morning. also, bank earnings easing starting next friday and the week after that continuing with regional banks reporting. from those earnings calls and the tone of the discussions, we might get glimpses of what the sluice will look like in early may. lisa: how much are looking at those surveys in official data and at the corporate warning as the await you had not before, not just numbers, but guide is we're getting from corporate executives see things in real time and confidence deteriorating quickly? carl: in a fast fluid impairment the macro data is slow to keep up so he had to pay attention to what is the driver of the narrative and at the moment it is the stress and it made here and the smaller regional banks that is the primary focus. that and i know data -- anecdotal data about what is

happening in those sectors becomes that mower important and it is true for fed officials, fed watchers and market participants. lisa: given the chips we have seen, how much have you changed your view for this year? carl: in light of the banking stresses, i agree with chair powell general assessment that credit tightening will do some of the work for the fed and is remodeled that out we came to the conclusion 50 basis points of tightening so we had a terminal fund the call of 5.75 and out that back to 5.25 in light of -- you looking at it through different modeling exercises but look at financial conditions and what is happened in the fallout of svb. it was interesting that a lot of that tightening has backtracked, half of the tightening of financial conditions has unwound in the weeks afterwards will result this is not a giant systemic problem that is echoing

the scary times of 2008, but rather it could prove to be an isolated incident. there are long consequences. things are acting more consciously -- consciously but we have to be careful not to over interpret what is happening. lisa: what is the readthrough in the real economy and what kind of downturn the economy could enter it this year? carl: let's go back to core service inflation is not showing improvement and we should not expect it to show improvement until we see softening in labor conditions. it is very unlikely we can walk the tight wire, the very narrow path to get to a soft landing in this environment, especially now we are see banks are doing tightening for the fed. we have this phantom factor,

tightening of bank credit conditions. our view to get inflation from the levels they are at towards a 2% path will take a recession in the economy to loosen those labor conditions. you see him of that today. i'm not saying we are there yet. our view is recession as a second half of the year story. where looking for gdp growth of 1%. it is a growth recession ahead of a recession. it will feel recessionary. we see in the suisse claims data. we saw it in the ism. is going to continue to snowball. lisa: we did see an upside surprise in initial jobless claims the past week of 228,000. we also saw an upside revision to the prior week and i keep going back to this because it is substantial. were talking almost 50,000 jobs that were not accounted for in terms of initial jobless claims last week there were vice and put it in the data. you talk a little bit about how

it is going to feel painful and soft landing concept is not in the cars right now. what is a historical analog in terms of period of time we can look to for template of what the downturn look like? carl: that's a very interesting point i was hoping you would bring. the may be interesting parallel is continental illinois. you're wiggling your brow and for good reason. continental illinois it was a bank failure in 1984, biggest in u.s. history up until 2008 and of course, there is no great recession in 1985 or 86. we will until 91 before there was a recession. yesterday on the show talking about the long convertible lack of banking stresses a poster monetary policy. that is very important. people do not remember continental illinois. the fed to continue tightening, raising interest rate after the

fact the economy did not succumb into recession. everyone is saying we are headed into recession because of the banking stresses that we had to put on our contrary hat and think more creatively. the episode tells you where to heading into recession but even before the big stresses, our view was the fed whether it is the bank doing it or the fed we have to tighten policy to a point where we break the labor market and that is recessionary. lisa: carl gardner wonderful as always. we always appreciate his insights. coming up we have john gates talking about commercial real estate and tomorrow we will be here for jobs day specials. it starts at 7 a.m. this is bloomberg. ♪ >> it is no secret that china was not happy about house

speaker kevin mccarthy meeting with taiwan's president in southern california. the country have early statements condemning the media but political experts tell bloomberg xi jinping has several reasons to hold off on any aggression. he is currently hosting french leader to when his support for his plan to bring peace to ukraine. in france, unions are leading another round of strikes and protests against the president pension reform. the bill to raise the minimum retirement age from 64 from 62 has passed parliament but unions are but it they can force a u-turn. there was a balance in jerusalem for second straight night. placentia worshipers agape -- barricaded themselves in the mosque and israeli police use force to remove dozens of people. young people through -- they say young people threw rocks at officers and at the same time posterior militants continued their rocket attacks on israel.

donald trump's presidential campaign is trying to elicit dollars was supported ron desantis. the campaign is using polling numbers to show the former president is an unstoppable force in the rates for the republican nomination. memo describes them as pulling away from the santas and says his indictment is rallying republican suicide. shares a cosco is lower at second straight -- led to doubts about the strengths of american consumers. two sales rose just .9% in march after excluding the impact of changes in gasoline prices. it was the slowest sales growth in three years. i'm lisa mateo. ♪ inside, outside, big or small, angi helps you find the right so for whatever you need done. with angi, you can connect with and see ratings and reviews. just search or scroll to see upf on hundreds of projects.

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existing rays, it would be easy but they cannot afford to. >> you are saying this banking system does not work with rates at 4% plus? >> yes. lisa: it was fantastic conversation. talking about the consequences of the rapid pace of rate hikes, the absolute level of rate hikes and out what we see in regional banking system that seems to be coming under significant pressure as we talk about all of this it has been commercial real estate that keeps getting the attention. it's going to be the next shoe to drop because regional banks account for so much of the lending in the space. we have to get expert views and john gates has on the ground look at what is going on in the commercial real estate market ceo of markets markets. i want to start with letting you set the stage of what you

think has been misinformation people talk about potential armageddon or as it is effectively a position of what is to come? john: can we talk about commercial real estate sector i think we should talk to pars, leasing activity which is what tenants are going -- doing and owning the assets, sales activities and refinancing activity. they do not necessarily work in lockstep. we have a higher cost of capital than a year ago. we did have a couple of bank failures which gives everyone a pause. the reality with commercial assets, office assets has been less in favor than other asset classes over the last several years for a couple of reasons. remote work factor has been a part of that. then with increase loss of capital, loan-to-value ratios rise must automatically.

asset values have fallen back across a couple of the asset classes and that makes it harder to refinance buildings, makes it harder three said values and trading activity slows down. leasing activity has pulled back but that is much more to do with underlying economy, high inflation, high interest rates so less economic activity overall. lisa: also with longer nature of some of these leasing agreements which may not reflect in real time some of the changes in punishing conditions. talk about expected weakness, particularly in office commercial real estate is space. much you are anticipated in declines in valuations for we are? john: it is hard to say how much it would be but a pullback in office values because money cost more. the price of money went up so the value of the asset goes down

and it is also been impacted by leasing activity/ numeral office product -- new office product, leasing activity much better there than anything older so as we return to more normal work activities there's been a flight to quality so those asset values higher than they were assets so those values will hold up quite a bit better than older assets. lisa: you talk about how things normalize in the work environment and earlier you were talking about the work from home trend. can you give assistance of what the new work landscape -- us a sense of what the new work landscape looks like you? how much our businesses shifting back to it versus work from home hybrid? john: quite a bid. the think is the work from home phenomena hit us like a

wall. for a well a lot of is expected us to return and that is not what has happened at all. it has been a trend line. it is been faster than a triple but very methodical enterprises on a monthly basis -- very methodical and it rises on a monthly basis. it is a difficult economic environment. in office jobs hiring is the client, it is turned down -- as the office jobs hiring has declined. leasing activity declines because hiring activity declines dramatically. returning to the office has continued to trickle up. the americas flag the rest of the world. europe 80% of pre-pandemic levels and asia is close to that and we have been over 50% and you seen certain industries announced were going to have much more working in the office. the trend continues overall economic activity pulls back and it confuse the data.

lisa: do you think leasing rates drop and that will entice more companies to abuse -- to return to office view or do you think that is relevant and people keep paying high rates for premium properties and leave the others empty? john: we have seen more the latter. the office leasing activity has happened has been concentrated in new were more expensive buildings that have new amenities to offer and other conveniences. volume there has been much better than in the older product and 1 -- when demand diminishes supply has three price and you will see ricin economics decline there and much more likely to hold steady with the newer office product. lisa: what is the crime is going to look like there is a two tier system emerging with the top tier of office space getting more attention and garnering higher rates and lower tier not

getting clients, not getting people to feel space and not getting financing from banks that are in many cases off of the market? are we going to see empty cities of office space that is unavailable? john: we see more of it than we want for now. why the things that is happening in our industry -- what other things happening in our entry is repurposed see the office assets. downtown los angeles has been acquired but every urban area in united states has a lack of affordable housing so which of these assets can be well positioned to be multifamily assets as an example. it is a question people are asking. there is work being done about that. hospitality is another possibility. it will take some time to do. i think you see a fair amount of it happening and it will change the nature of these urban environments. housing activity brings people that brings retail activity and

creates a good thing but it is not happen overnight. i think we'll see more of that happen over the next 5-7 years. lisa: it is really expensive. the lack of windows and a huge force not cut out to be split up into apartments. how much financing is available for the projects in properties not that attractive otherwise? john: some of the assets do not lend themselves to that because they're deep inside but some of them do. you have to see reset in values because it is capital-intensive thing. without an asset might be worth this to be repositioned as hospitality? reset the value that is materially lower to attract the capital. that process is occurring. lisa: we have been in this business of commercial real estate for about three decades. have you ever seen a period of time where there's this much

angst around the industry? john: for different reasons but it probably, all down cycles are different. it is a part of the reason we have them is because we do not see them coming. the go back to when we set there was a massive amount commercial property and our member silicon valley northern california telling us, we got the forever. we were never fillet and of course, technology and all that office space got release and we went from panic mode to this is a healthy market environment. if i was smart enough to prevent what is happened -- predict what will happen and when i would tell you but i think the industry will be fine. we have more corporate america and a global corporate state we are a better company if we are back in the office working together and engaging as teams. that trendline will continue.

i think the sector will be ok but there will be office over product that is going to be repositioned. you may see stuff some of the most and rebuild and that will be -- that would take a while for that to happen but office buildings are here to stay in the feature -- and the future will be ok. annmarie: thank you for being with us. have a wonderful holiday. coming up at 10 a.m. eastern managing director of imf, our own tom keene in washington dc in conversation with her after the meetings that we will have and will be at next week. in the markets you are in softness led by the nasdaq down almost .5%. s&p now directly negative down almost .2%. use lower on the hills of disappointing data yet again out of the -- yields lower yet again out of jobless claims. from new york, this is

bloomberg. ♪

lisa: jobless claims -- following jobless claims. equity futures point 1%. countdown to the open starts right now. announcer: everything you need to get set for the start of this u.s. trading, this is bloomberg the open with jonathan ferro. live from new york, counting down the economic data misses are piling up. amazon and google struggling to find workers in europe and the trump campaign making