ahead of a payrolls report, bloomberg markets starts right now. kriti: green on the screen but a lot of it is the tech stocks. the biggest contributors microsoft, amazon, meta leading the charge. the s&p is higher by .2%.

at the same time, bid into the bond market. the 10 year yield marching closer to 3%. down four basis points on the day. this screams defensive to me. as yields come down, you are seeing weakness in the dollar. a little bit of caution ahead of the economic data. we have to get a check on the commodities because nymex crude at 80 while we're waiting for the central bank of oil to make more decisions on where the economy is going. next a lot of volatility in the commodities market. the real highlight of the week is tomorrow. the u.s. payrolls report some caution about the green on the screen that we are seeing. our guest ways and with a warning. >> this brief time of euphoria and markets where equity investors at least from a narrative standpoint were

justifying bear market rally because the economy was going to weaken. we had a mini banking crisis. the fed had briefly aborted quantitative tightening. it was going to lead to lower rates and a great outcome for earnings. it has now been dispelled by the fact that most importantly the labor market is starting to show signs of meaningful weakness. kriti: stick with the risks tied to growth and the meaningful weakness he was just talking about. bloomberg economics updated its recession probability model. the timeline shifting to two months earlier than the previous model. joining us is a chief u.s. economist a bloomberg economics. why the shift? what is driving this? >> the data is only updated up until february, so this was even before the collapse of silicon

valley bank. even before the banking turmoil, we are seeing the gains in the labor market was not as widespread so that is one factor going into the model that looks at the diffusion of job gains and the fact that even in the february report, spite the over 200,000 monthly gains, you only see the gains concentrated in a couple of sectors. is it by itself an indicator that the slowdown is coming? >> a lot of talk of this banking hangover now that i would say the crisis the turmoil may be in the rearview mirror, how much of the oil story factors in? should be -- should we be worried about what opec-plus is thinking? parks typically an oil price increase should not lead to a big negative growth impulse of the u.s. economy just because

the u.s. was close to being a net oil exporter since 2015. recently, he saw that the oil wells energy producers and states a been more concerned about returning capital to shareholders than responding to oil increase and that is why we think that the net impact of an opec cut would be negative on growth. earmarking down our gdp growth for this year by about .1% on the expectation of higher oil prices. it definitely does make the recession in the months ahead slightly deeper. kriti: what is the bigger issue? is it still inflation or is it the recession odds as we see the weakness in the economic data? are we ready to use the r word as a driver to bigger inflation? >> i think the word is the s word stagflation.

we have various ways of looking at the trajectory of the economy. for example, we looked at the weather pattern, we see an unseasonably warm winter, but then more supply shocks with demand slowdown. then the banking crisis is also stagflationary because firms need credit to produce. even as loans demand or slowing down on the supply side, the credit crunch does produce supply shock. i think it's more likely that inflation will remain a problem and growth will slow down to 0% pace in the second half of this year. kriti: a lot of scary stuff to look forward to. we will count on you to keep us honest. meanwhile, wall street traders remain defensively positioned ahead of tomorrow's uniquely

timed u.s. jobs report. the equity market will be closed. on top of that, the next round of earnings next week. who better to walk us through this then a chief equity strategist at steeple. i defensively led trade when it comes to the benchmark, is it justified? >> i would not classify big tech as defensive. it tends to prosper when inflation is slowing and economic growth is better than expected. that is called a disinflationary boom. it tends to benefit big tech and big consumer discretionary. that did not surprise us, that was our call back in october of 2022 a couple weeks after the low october 12, we made a note saying the s&p would rise 500 points by the end of april 23.

most of that rally has occurred. the easy money has been made, so at this point we have to figure out what the next date is for a recession. that's the number one task for macro analysts right now. what is the actual month that a recession will begin? kriti: how much of that is priced in? how much of the recession story is already taken into account from the carnage of 2022? guest: certainly in fed rate futures and even to an extent in the bond market whether it is 10 year tips yield dropping from 1.8 to 1.0 or treasury yield falling well below 4%, that slowdown is being baked in. we think this market will pick out by midyear. may or june. i don't really want to be in front of what i think is going to be a very contentious debt

ceiling debate. both sides believe that they have a good point and they are entrenched. this will come down absolutely to the last hour. that could cause volatility as it did 10 years ago. kriti: what does that look like than? we are talking about june when the debt ceiling hits. what is the trade as we have that conversation? guest: this year is going to look like an upside down u. the rally we will expend itself around midyear then it will start to roll over into the summer. i do expect the fourth quarter will be down. all of our model said there would be no recession and it has been saying that for many months. no recession until about september 2023. typically, the market in the 12 recession since world war ii fell coincident with the starting date of a recession

after the market had reacted. i think the risk for economic growth and the risk of rising on employment and so forth is really skewed into the late summer early fall. i am expecting that kind of upside down u shaped year where a more cyclical posture leads you into the middle of the year then a defensive posture toward the end of the year. kriti: kriti: kriti: kriti: kriti: it seems like you and your team are skewing more toward cyclical bent defensive. what would make you change your mind? what would change that preference? guest: the debt ceiling is going to be very contentious. i think wall street has been severely underestimating have dug in sides are. i do think the economic indicators the 10 year three-month 50 day moving average which are very good

recession predictors. our payrolls model. all of these things crop up and point to the same month which is september 23. i would skewed toward defensive toward late-summer. i think right now, the cyclical growth is on a run as we expected. cyclical value which includes banks materials and energy, that has been weaker than expected but we made it up on the tech side. i think there is good value there for a little trade up as the recession is delayed. overall, i would stay cyclical into the middle of the year then start moving toward defensive late in the year. kriti: talk to me about your view on dividends. i'm starting to see a lot of companies starting to see more margin pressure to deal with the margin pressure, address the costs associated with the labor market now boost their dividends to keep that shareholder the base apprised and interested in the stocks. is that a trend that you continue to see into the rest of

the year? guest: we take a very quantitative and scientific and we integrate ai and everything into what we do. we have a pretty good feel for where things are going. the earnings are really just a function of return on equity times the book value. if you look at profit margins, they have peaked and they have peaked for the decade. it will not be higher than where they were two years ago for the next 10 years. asset terms are going to be low. the return on assets is going to be under some pressure. i don't see the corporate through leveraging. return on equity is going to come down as well back to its long-term average for the s&p 500 just under 13%. as a consequence, earnings growth is going to be week -- weak but still respectable. i think the pe multiple gets cut in half.

all of these things .2 a cut of the price earnings multiple, a raise in the earnings and a flat market. we will be at 4800 at the end of this decade which is where we started january 2022. kriti: it feels like profit margins are what the stock market or on the individual bases are trading on. how can you be bullish on the market if profit margins have peaked? what is driving the market westmark? guest: markets came off of a 30 year high and if you look at the trend, 1.5 standard deviations above the 30 year trend. margins were too high, they have to come down. as i mentioned, it's margins times asset. i think what you're looking at is a more value driven market

over the decade but growth have its moments. we have been playing one of those growth trades since october. overall, you looking at a very tactical range bound market for the course of the decade. the buy-and-hold investor who just bought the s&p 500 will end up with a very low return from 2021-2031. this is a much more active management job. your show and others the urge people to look at the daily moves and the short-term outlook is going to be in demand because you can't just buy-and-hold anymore, that's not a way to go. kriti: you heard it here first. we thank you as always for your time and insight. time for first word news. john: in beijing, france's president urged xi jinping to use his influence to help restore peace in ukraine.

there was violence in jerusalem for a second straight night. palestinian worshipers barricaded themselves inside a mosque and police used force to remove dozens of people. police say young people threw rocks and other items at officers. the biden administration is set to propose next week the toughest ever u.s. curbs and car pollution. the proposed standards are expected to concern tailpipe emissions, and other pollution from vehicles made from models through 2032. global news powered by more than 2700 journalists and analysts in over 120 countries. i'm john hyland this is bloomberg. ♪

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kriti: the spread between amcs common stock price and referred shares is widening after a court ruling sent a blow to trailers. denying a motion to lift an order days after the company

reached a settlement over the stock conversion. what exactly did all of that legal jargon mean for the stock price? guest: it means that the tightenin least right now is relatively moot. the big focus is on this case taking long are to play out so if you are shorting amc common stock, it takes longer and there is still little bit of invest -- uncertainty about how this court case will play out and what the conversion price will look like. it's all a question about timing and how swiftly this will take place. kriti: it's interesting we are talking about the timing because you have to factor in feels like the fundamentals at the moment but the factor in a retail basis as well. what is driving the original

shares more? is it the fundamentals of the legal court case or is the me mania? guest: the big focus is on if you are trying to play this as an arb, how much does it options trade you execute, that is money out of your pocket. kriti: fascinating that two years out, we are still talking about meme mania. i want to talk about another stock moving which is cosco. cosco missed earnings -- their

shales declining by 2%. what is crucial is this is happening when you start to see a lot of the retailers struggling. ticket items dealing with a big part of the deceleration in sales. joining now is our retail reporter. we were talking about how jealous i am that you get to go to cosco, load up your cart with groceries and bring it back. i have to carry them, can you believe it? a lot of people seem to be going to cosco still but not as much as before. is this a temporary shortfall when it comes to that retailer? guest: cosco is still getting a lot of traffic, but the march numbers came in light, well below expectations. it is too early to call that a trend. it does send a worrisome signal. cosco is known for value.

it is also known for its affluent customer base. to see them started to pull back in one month definitely raises some questions. kriti: i'm glad you mentioned the affluent investor based. this is a chain or warehouse that you have to buy a membership. ethic it's like $120 per year just to get access to buying in bulk. one of the takeaways from the last earnings cycle was at a time when the consumer is stilll

of the regional banks, we had to figure out what this would mean on the commercial side. what are you seeing right now? >> i want to start with the statistic on the screen at the

beginning that came from bank of america. i think it's really important to know that the lending environment for commercial real estate is really diverse. banks as a total all banks combined makeup 40-45% of originations in any given year. i'm not exactly sure where the 68% came from but woman look at debt outstanding, banks tend to be around 40%. within that, we do see a concentration among smaller community banks and shall banks -- regional banks which are the lifeblood of the bank lending environment for commercial real estate. since the bank issues you just described, we have seen a bit more caution enter the market. that's on the back of nine months of significant tightening that had impacted markets up until that point. we have continued to see banks

selectively lending. look at fed data and since the turmoil two weeks ago, we have seen an additional $10 billion across commercial real still -- real estate portfolios increase since that time. the reality is yes banks are going to be more cautious, but they are out there and they are still lending. they just being more selective and requiring solid underwriting when they do so. jon: do you think it could end up being original story? story out today, a survey of 71 districts in -- 71 banks in the dallas fed district showing a reversal in loan volume. guest: i haven't seen that survey specifically, but we looked at low growth rates relative to a month ago and look

at the last two weeks and compared those growth rates among acquisition development loans, multifamily loans, nonresidential which is where you would see things like office and industrial. growth rates in lending have been very stable and on par with their historic norms. at least in the aggregate, we have not seen a major pullback. i am not aware of any information at least an incoming hard data to suggest that we havseen any regional variations either. kriti: that's in the context of the banking crisis currently. let's zoom out and talk about this from a sector point of view because commercial real estate covers a lot and as the fed was tightening, it felt like one of the main sectors that was growing in a more meaningful way within the commercial real estate umbrella was things like data warehousing or tech focused. to what extent is that trend

ending? guest: i don't tickets ending at all. it is deftly the case that growth areas for commercial real estate remain the favored high quality asset classes. there is still a tremendous amount of interest and this is an area where banks are happy to be involved in the market. you are also continuing to see life-sciences as a structural growth area. data centers also. i don't think those are going to go anywhere. there are things that will happen during the ebb and flow of the business cycle, but woman think about more structural tailwinds, those are the sectors that have them. kriti: one of the big concerns is that the banking sector is doing a lot of the fed's work for. how does that factor into the

lending story? guest: is the case since the bank episodes since march 10, the additional tightening in credit conditions is estimated to have added effectively what to more 25 basis point hikes would have done. we do see the markets helping the fed to some of the work that it was going to have to do itself. that said, i think a lot of the impacts of monetary policy and rate hikes up until this point have been filtering through into the credit markets in real time. that's why we did start to see a pullback in activity in the second half of last year. a move forward as you mentioned with inflation being stubborn, we do think there is one more hike on the table and we think they are going to pause and see what that does for the inflation outlook.

kriti: these markets are interesting, but romaine bostick is going to take it from here. stick with us, this is bloomberg. ♪

romaine: a relatively low volume day ahead of the jobs report. kicking you off to the close on this holiday shortened week. >> a big jobs report. romaine: all the focus is on the macro data. you look at the price action we have been seeing today, it's a lot of talk about the moves in the equity markets. we should point

spending, costco did not hike up their membership. to what extent is still playing into their bottom line? guest: in terms of their earnings, that is going to play in. unlike sam's club, costco has pointedly not raised its membership fee. they said it's a matter of if not when. from an investor standpoint, the big question is when. historical patterns would suggest later this year but they have been pretty quiet about when they are going to make that move. kriti: that brings me to the broader story on the retail based. is costco the poster child for retailers or are you seeing them differ from walmart or target that seems to have recovered from the issues of 2022 west mark guest: walmart and target

have recovered, but those companies set out pretty muted profit outlooks for this year. costco is on a different fiscal year calendar so we don't have quite as much visibility on them. to see them with their affluent customers starting to come back to earth, it does suggest they could be joining walmart, target, dollar store and having less of an upbeat outlook. kriti: certainly something we will be watching. i want to get to breaking news another stock mover boeing planning to crank up its output by the middle of the year. months earlier than analysts had predicted. shares were negative earlier in the session, they have reversed their losses higher by .4%. it is a big deal in a market that was dropping much more

significantly for that share. stick with us, we will bring you the updates. this is bloomberg. ♪ the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com go. in t that one. go this one. go optimizing data. go efficiency. go results.

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kriti: now for today's wall street beat. goldman sachs predicting a glimmering earnings season that may just be as bad as begin of the pandemic. energy, industrials, consumer discretionary are forced into -- forecasted to produce better earnings. this season comes as the earnings yield on the s&p 500 is slightly higher than cash and the smallest premium in the last

two decades. this chart is about the major decline banks looking to kick off the next wave of earnings april 14 when jp morgan, wells fargo, and citigroup -- that doesn't even take into account the regional bank earnings that we were getting. how much pain is actually in the economy? everybody is saying the action is tomorrow. it may just be next week. coming up later this hour, we speak about how the commercial real estate market is being impacted by last month's banking turmoil. our guest joins us to break it all down. this is bloomberg. ♪

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john: the u.k. wants to restart talks with the u.k. for a trade deal. they're hoping to overcome president joe biden's reluctance. british officials are expected to privately lobby their american counterparts to reopen

dialogue when joe biden visits ireland in april. elon musk says converting the world to clean energy would require $10 trillion worth of investment but continuing to rely on fossil fuels will cost $4 trillion more. the former italian prime minister is in intensive care. the doctors are revealing the condition for the first time sayingffering from leukemia for some time that the disease is not in an acute phase. global news powered by more than 2700 journalists and analysts in over 120 countries. i'm john hyland this is bloomberg.

kriti: let's dive into the market action. we are seeing a mixed picture. we have a led rally. the s&p 500 trading around 4100. the real outperformance is the nasdaq, all about tech. we have a great all-star lineup that it's going to dive into this forest. you are seeing the bloomberg dollar index unchanged. the question is all about inflation. and 80 handle on nymex crude. jon: all helpful context.

you talk about tech and beyond that, we have corporate stories influencing the mood around the economic outlook. costco seeing the weakest sales growth in three years has heard that stock today. then you have is a -- mosaic, that number is down after jp morgan feeling worse about the macroeconomic concerns. we saw the u.s. jobless data today showing some crack. in canada, a resilient jobs market again. better than expected jobs numbers for the last four months. canada adding 4000 jobs versus expectation for around 7.5 thousand. the wage story 5% growth. there is still an expectation

given the economic uncertainty that the bank of canada will not make a move higher on interest rates when it meets next week. kriti: despite the hot canadian data, investors need to keep in mind the overall slowdown in global growth. imf growing the outlook is the weakest since 1990. take a listen to the managing director speaking earlier on bloomberg tv. >> some of the fast-growing economies like china or south korea are growing fast no more. you would expect there would be others to pick up the torch of strong growth. this is not happening. kriti: she wasn't the only one speaking. the st. louis fed president spoke about the turmoil and the banking sector and the drop in u.s. bond yields sank this may help to mitigate the negative macro economic fallout that might otherwise occur in the aftermath of a time of financial stress. comments that turned around of

this market. joining us is a senior u.s. economist at bank of america. his james bullard right? -- is james bullet right? guest: we expect the recession to start in the third quarter this year. think it will be relatively mild, but the recent slowdown in the economic data support our view. jon: a recession call but in terms of rate strategy, do you think we are done on the rate hiking front? guest: we don't expect cuts to start until march of next year and in that aspect we are quite differentiated from what markets are pricing. kriti: 100 basis points worth of cuts by the end of the year. a cut soon as july.

why july? why is that the concern? guest: the way in which that would play out is the financial stress might get a lot worse. it is not our base case, but if that were to happen and if the resulting economic slowdown potentially because of credit tightening were a lot worse than what we have in our forecast, then i think that may be a case for the fed to cut relatively soon. if you look at their playbook in 1987 and 1998 in response, it was to quickly and aggressively. jon: beyond watching the banking terminal, are there other areas that might influence the central bank? i reference the fact that even though we have a tight labor market in canada, there's a lot of deeply indebted people and that ties back to the housing market in this country. differences with the united states, but that is one of the reasons why the bank of canada

is in pause mode right now. guest: the challenge for the fed is that the underlying macro economic backdrop justifies hawkish stance. inflation is still wellion is se where the fed would be comfortable. the other thing to watch besides banking sector stress is inflation and how much inflation will slow down in the next few months. we have done some analysis around this on what is driving inflation and we found that on the good side, supply chain issues have gotten better but not nearly as fast as we would have hoped. we are getting disinflation but not deflation. on the services side, demand is still robust and that is driving inflation. jon: if ultimately we see you have outlined the possibility of one more hike than a pause throughout the rest of the year,

if things start to look a little dicier on the economic front but the fed wants to stick with that plan, how does that influence the messaging not just from the likes of jay powell but all fed officials? guest: in our view, the fed will not cut immediately when the recession starts and that is different from the last two downturns. those were exhaustion is shocks where it made sense for the fed to lean against the shop. if this recession happens in our view it would be a fed engineered recession and it would be a means to the end of getting inflation under control. unless the recession is worse than what we are expecting, we think the response will be to remain on hold around 5% cut when inflation is showing signs of moving much closer to target that we think will be in march of next year. kriti: now factoring opec. are you write about higher oil prices as a function of what's going on in the middle east? guest: it is certainly a concern

and it will affect headline inflation. it's something the fed will watch and it will make their lives a lot harder in terms of balancing price stability and potential financial stability. they don't have a lot of control over that, and they typically use core inflation as a measure but at the end of the day as jay powell has said, there mandate is headline inflation because that's what affects the quality of people's lives. kriti: the central bank of oil complicating lives for the central banks of the rest of the world. as we see a deceleration on the headline level, you still have shelter costs factoring. commodity cost. then wage costs as well all of which seem to be coming down. which is going to be decelerating the slowest? guest: on shelter, there is a bit of a lag. we expect shelter inflation to come down over the second half

of this year. on goods, it's really an open question outside of commodities. we see some deflation in used cars, but when will that spread to apparel? that will be helpful. then it's a function of partly the labor market because of wage inflation which will drive costs but also because the strength of the labor market is probably the primary driver of spending. kriti: what's the biggest risk? guest: there are risks in both directions. on the upside, that the labor market doesn't slowdown and spending remains robust. on the downside, the downside is financial stress is worse than what we are expecting so we get a quick slowdown. kriti: there we have it. coming up, alibaba is one step closer to taking on chat gpt.

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kriti: this is bloomberg markets. it's time for the stock of the hour. we are focusing on ai. the wall street journal reporting google plans to add an ai option. caroline hyde is joining us to break this all down. from alphabet to alibaba, the

biggest players in global tech all rushing to create this tool. >> yes and some to mixed results. alibaba is coming as soon as april 11. the speed of the progression that is what is exciting people. google thinking at some point they are going to put generative ai chatbots. you were saying the hope that perhaps alibaba does better on the day than baidu. shares fell because they did it in a pre-presentation rather than live. jon: creating ai products is part of the story than the funding is another part of the story which you were reporting on bloomberg technology particularly when it comes to ai rivals in china. it what can you tell us? >> the whole story seems to have

blown up over twitter. worrying about a piece that was put out the information that u.s. dollars from endowments is still flowing into china and flowing into startups that are creating ai rivals to the united states. we know the geopolitical tension this falls into, take a listen we had a great guest on. our guest had joined in the argument on twitter. here's what he had to say on the show. guest: i am ringing the alarm over. ai requires capital. the idea that venture capital firm would take money from investors in the u.s., send them to china to build a product that could be used against u.s. interests makes zero cents.

caroline: people are hammering about private money going into startups. a lot of companies made inroads into china and now you are suddenly having to unwind that amid the geopolitical new narrative. alibaba is a public company. who are the biggest owners, goldman, morgan stanley. jon: helpful context. following the money is part of this growing ai study. you can catch caroline hyde on bloomberg technology on monday. real estate could be the next shoe to drop when it comes to the outlook for the economy. regional banks that make up a vast majority of lending when it comes to many of the commercial real estate loans, here's what

one ceo had to say about the spheres. guest: our cost of capital today than we did a year ago, we did have a couple of bank failures which gives everyone pause. definitely a pullback in office values because money costs more so the price of money went up so the valued assets goes down. ♪ lomita feed is 101 years old this year and counting.

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♪(lovely day) (lovely day)♪ ♪(lovely day)♪ a bank that knows your business grows your business. bmo. >> the worst part of the books for banks are commercial real estate loans. those loans are coming due. $1 trillion of commercial real estate loans between now and the end of next year. that has to be dealt with. >> you always have to fear commercial real estate.

is one of the risky activities in which banks engage and every now and again, it gets overbuilt and out of control and people take losses. >> the regional banks are better capitalized than the largest banks in the country. they need to make sure the world knows that. that they can absorb any turbulence that comes their way. i think they can withstand the shock because they are the principal lenders to small business, to real estate, to things that make the economy grow. jon: banking turmoil continues to ripple into the banking system. this adds to fears about

possible debt defaults in the construction and office markets. our guest is a global head of forecasting with cushman & wakefield.