kriti: we finally got the inflation number, it is coming down. bloomberg markets starts now. let us dive into the price action, s&p 500 green on the screen. not that much going on. on an inflation number acumen below economist estimates, you would think there is more action. the s&p 500 is higher by 3/10 of 1%, you look to the bond market. they are supposed to be smarter than the equity guys, it does not look like it.

again, no volatility. we will ask joe davis what is going on. i want to talk about the currency market, that is where you are seeing action. check with the biggest contributor of the move is, the euro. 109 on euro-dollar, straight of the 8/10 of 1% in favor of the european counterparts. brent crude be a big part of the inflation story, 83 handle and i believe 87 on brent. seeing the commodity move come back up, trading in line with the risk sentiment. the stock market has been trading on profit margins. mostly in check to see of corporate america can weather the inflation they've been handed. take a listen to what a bull on wall street had to say last week. >> 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. kriti: peaked for the decade. at the same time that inflation is decelerating, 5% year-over-year today. what is going on with the markets? who better to ask than joe davis over at vanguard? you can talk to economics and markets altogether. if we are looking at an inflation print that is less than what the average economists surveyed, why are the markets giving us nothing? joe: i think we are seeing two things, we are seeing progress on the inflation front. that is good news. i think what the market is grappling with is you are starting to see greater stickiness. at the end of the day, it is not great solace we have core inflation above 5%. near-term amendment may be slowing, but it says the federal reserve is knocked on. that is what the market is trying to disentangle. kriti: i am curious what is

driving the inflation story. when we started talking about inflation, it was mostly a commodity driven move. now you are seeing it mostly in shelter costs. what is next? joe: chairman powell highlighted three areas. the first component is the supply chain and good prices. that has generally run out of the system. housing has been well documented, that will start to slow. it is the third bucket that is the most important, that is core services prices. a higher relationship to wage growth, which is why the labor market comes back to the strength of the labor market. that is where we see the stickiness. we get down to 3.5 pretty easy just by pure math, but beyond that point, the last mile of inflation, will be tricky. kriti: it is interesting you say it will be tricky, you have to look at the bond market. we can tap into your markets

knowledge as well, yields came down pretty significantly. i think we are looking at 345 on the 10 year yield. what is the bond market telling you? joe: it is saying two things, one is that a recession, even if it is mild, is coming. the federal reserve is going to switch gears quickly and start cutting rates before the end of the year. on the second point, i remain skeptical. i think what is different from the past several cycles is the fed will not have the sort of latitude to cut rates, given inflation is well above target. that is the disagreement in the bond market, the latter acceptance of the fed cutting rates soon is propping up the risky parts of the market. kriti: we are getting headlines, seeing the economy is on a good path for inflation to come down. the idea of stickiness seems to

be something that is starting to be transitory. i want to ask you about how do you trade it? at the end of the day, if you are worried about corporate margins from the stock market, if mary bannister is right, is there any upside left in the market? joe: you have to be careful of chasing momentum that has been tied to low base rates. i think what is really key and critical is the fact that we cannot have our cake and eat it, too. if we are going to have inflation come down, that tells me somehow the labor market has not slowed, which has the bias for the federal reserve and action, given the inflation trajectory. that is the biggest disconnect. we have to be careful of getting too aggressive, because we are still at a turning point in the leading indicators but not yet in the fundamental data.

kriti: this is a point a lot of folks have not quantified. there is slowing, then a massive drop. you look at the back end of the 80's, forgive me for an earning out, but you looked at that and saw the deceleration throughout the decade. then, more severe drop at the end of the decade. are we worried about a severe drop again? joe: it certainly would be unexpected. it is not our baseline, and i share your appreciation of history. it is the unexpected that drives market pricing. the one solace is, we do not have significant imbalances on the household side. you do not have loan impairment, even in the banking sector. those are two areas you tend to look out for an accelerator in the business cycle, not to say it could not happen. but you do not have the acceleration effect, that is the

likely outcome. kriti: talk about how the federal reserve moves next. you are looking at 100 basis points of fed cuts by the end of the year. if i have your thesis correct, you are not expecting cuts until 2024. if you see the dramatic drop, will that shift your view? joe: it would, because that is not our baseline. it would imply that inflation is coming down more weekly in the sticky components, wage-based measures. the recommendation to policymakers is to stay the course. going back to history, the lesson that continues to stick in my mind is from the mid 60's, 66 and 67, the federal reserve cut rates. the labor market was tight and slowing. the cut rates aggressively. we avoided a recession. within 12 months, the federal reserve had to triple defend

fund rate. again, this time is different from the mid 60's. it is a reminder that you have to stay the course until the job is done. kriti: so glad you noted out on history and did not leave me on a ledge, always appreciate that. let us put some numbers on what the federal reserve will do next. 25 basis points priced in. if your recommendation is to stay the course, what happens in july, august and september? joe: i still think it is open, i do not think they make strong conclusions. we have two more hikes penciled in. if we would see a major deterioration in the labor market, i would see the federal reserve backing off. but that is not the baseline. those hoping for a quick reversal have some months to wait. kriti: a quick reversal, let us see if we do indeed get that.

something we will ask you next time on the show, we think you as always. coming up, a special guest. galaxy digital founder michael novogratz on this year's crypto rally. stick with us, this is bloomberg. ♪

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kriti: this is bloomberg markets, time for the wall street eat. bitcoin climbed above $30,000 this week, the first time since june. at the end of the day, this may be a macro story that made cryptocurrency stand out performers. the next guest said when i look at the price action, look at the

excitement of the customers calling the fomo building up, it would not surprise me if we were at $30,000 by the end of the quarter. a bold call, something one -- something that has stayed the course. mike novogratz is joining us. sonali: you made this production a couple of weeks ago. you said at this price, you would be the happiest guy. so, do you feel vindicated, are we on course to stay the course? mike: a lot has changed since the beginning of the year. the government has gone full jihad against crypto, pressuring the banks not to lend to crypto companies, flurry of subpoenas and notices. despite that, crypto prices are higher. that gives me great optimism and confidence that the crypto

community, which was originally formed outside of main street finance as a reaction to a banking crisis has been re-galvanized by silicon valley bank, by the actions of our government, by the reality we have too much debt in the u.s. and abroad and it has a price to pay. you are seeing that in the balance between a federal reserve that was fighting inflation may be moved rates faster than the market participants knew how to manage. now we will have a credit crisis in the u.s. and the economy will slow. markets are telling you that. that gives a great backdrop to bitcoin. sonali: you brought up the credit crunch, we are days away from banks reporting earnings. the treasury secretary downplayed some of the worries.

when you look at the issue, how significant is that and what are the ripple effects? mike: regional banks grew credit growth between 12% and 15%, money center banks were close to 15%. regional banks are under stress, they need to raise capital. one way is to stop lending. it does not surprise me at all to see regional bank lending shrink to three to 5% per year, which is still growth. it is a big shift. that could be 2% of gdp alone. also, normal banks, go and see what chase manhattan is paying on your deposit account or checking account. it is 10 basis points. the consumer woke up and said this is crazy, i can put my money in a money market fund, which is different than my savings account.

the consumer had a quick education wake-up call and i think you will see a consistent shift away from lending money at stupid rates. shame on the banks for paying so little and not saying anything to the consumer. may be the consumer protection gurus in the government should worry about them. kriti: how strapped are they when it comes to the banking community? mike: listen, if you looked at the losses, it is a number that is daunting. it is a ton of capital. the accounting rules and what the fed has done with this borrowing window allows people plenty of time. when you are borrowing at 5% from a fed window and funding a portfolio at 2.5%, banks are going to make less. less loans, less money.

that will slow the economy. credit contraction recessions are bad, you will see the fed move more aggressively to cut rates than people had thought. sonali: the banking story is tied to the crypto story. there were arguments about the run-up in crypto tied to how robust the crypto lending market was, tied to the ability of banks to be able to bank these companies. is there hope for the crypto industry when it comes to traditional finance to lend money to provide payment services, given the scale back and regulatory crackdown you been talking about? mike: it is a tale of two cities. in the u.s., foolishly and or excitedly -- and shortsighted billy, the biden administration is making a push against crypto to slow it down at best, if not, squelch it out.

hong kong has gotten very crypto friendly regulation, we hired six more people in the hong kong office. do by pushing to be crypto centers. europe having much more clear rules of the road than the u.s.. crypto is a global industry. you can have bitcoin go up despite the u.s.'s reluctance to embrace it. the republican house is not going to let any bad legislation go through. this is going to be more the sec trying to regulate by enforcement, the biden administration using soft pressure on banks. this is an industry people care deeply about. it is not going away. sonali: i am curious to put on

your macro hat, we are on this long-awaited day of an inflation print and the market is not doing much. how do you trade a market like this and what do you expect, given your views about the economy? mike: the clearest traits have been and will continue to be long goals come along bitcoin come along ethereum. these assets that should do well with the fed stopping hiking, then cutting. people have them. the euro needs to take out 110 convincingly, then we go to 115. gold needs a couple of weeks clothes -- cloves, you will be surprise that gold at the end of the year will be 26, 27, up to 3000. bitcoin had a huge run. we could consolidate here before moving toward 40,000, as long as

the fed plays out the way i think it will play out. trees do not grow to the sky and they take pauses, they consolidate. this was a day were people had the positions. we will see where things close on the week. the number itself said inflation is falling, that is an important piece to the fed. the fed will still hike, it is a stupid policy. why are you going to hike if you know you are cutting by the end of the year? i need to look more like paul volcker. i do not think it is that big of a deal. 25 basis points. but i think that will be the last hike. there is still data between now and then that they don't. sonali: in the event of a recession, how does it coin perform if the economy gets worse? mike: that is a sweet spot for

bitcoin. bitcoin went up aggressively and 2021 based on the idea they would print money forever. the government was writing checks they could not cash. not just the u.s. government, but lots of governments. it went back down because the chairman decided he would be a fed governor and acted more like paul volcker than a money printer and was tough and forceful in moving rates from zero to five. bitcoin and gold were supposed to go down, it has gone back up on the reverse. the entire time, there has been adoption. with all the bad press, sam bankman-fried and the frauds and hooligans. the story of crypto continues to grow. we have this adoption cycle. it accelerates when the price goes up. more people tell their friends

when they are making money than losing money. these are global technologies and global ecosystems. sonali: you mentioned the potential contraction before he moved back up, 40,000 maybe by the end of the year. a contraction, what is your floor? where the risks under the surface that can create a situation like we saw last year? a lot of people saw the end of last year coming. mike: you never know where the black swan event shows up. i think we swept a lot of the bad actors off the table. the big question is how the u.s. regulators deal with finance, they have been sued. my hope and bias is they will negotiate a very large fine for the mistakes binance made in the past and binance will pay the fine and move on.

that would be best for the crypto community and probably the best for the whole ecosystem. we will see. i do not have great insight on how they think about that. sonali: while we are on a big cpi day, we know how you feel about bitcoin and gold. you've been treating them like safe havens in this environment. are you willing to go sure anywhere? mike: the stock market is more challenging, because you have the lower rate story, which boosts equities. then, you got the economy is going to slow. i find a stocks be really range bound, still relatively expensive. it is not a cheap multiple. they are not really cheap to buy as a value, they seem to be expensive. i do not have a position. it is hard to trade, even though

rates are going lower. when the fed finally cuts rates in september or october, if i ask 10 guys that are smart macro guys, i get 10 different answers. 25, 50, 75 or 100. because there is such variability, how the yield curve looks and where the euro dollars are, it is more complicated. i am keeping it simple. the gold euro bitcoin works with the story. kriti: certainly something we will keep an eye on, we're going to come back and ask you what side of the coin you are on. we thank you both, this is bloomberg. ♪

kriti: this is bloomberg

markets. shares down about 9%, from morgan stanley slow web traffic with the help of holiday promotions. joining us as madison mills, what is going on? madison: this is after they fled to 27% decline in year-over-year web traffic for peloton, because of two reasons. one is that they have declined promotions following the rush into the new year, obviously new year's resolutions leading to a lot of web traffic. also, declines in customer turnover. a couple of months after users subscribe, they are likely to fall if a little bit. the important thing to look at for peloton's free cash flow, we saw a cash burn of nearly two point $4 billion in fiscal 2022, that moderated to 341 million of negative cash flow at the start of the year. they could break even this year. kriti: all over one of the major

movers in the session. coming up, we will speak to the governor of south african reserve bank. in the meantime, markets are in the green. this is bloomberg. ♪

jon: welcome, this is bloomberg markets. jon: let us dive in -- kriti: let us dive into the price action. we are seeing a lot more volatility, check out some of the names. peloton tanking 9% year-over-year web traffic down 27%, something morgan stanley is highlighting. the other one i want to highlight is cirrus logic tech,

apple potentially dealing with iphone design changes. that is a risk, cirrus logic is one of them getting hit down about 13%. a little bit of arbitrage in the markets, emerson electric down 1.2 percent, potentially acquiring national instruments. you are seeing the major bump to about 10%. emerson, the classic acquire trade down. jon: i will take the macro from you. and as we watch the markets more broadly speaking, reacting to inflation data this morning, signs of easing, does it mean the fed is done with rate hikes -- does not mean the fed is done with rate hikes. the canadian dollar we've been watching very closely. it has been stronger today, part of that goes back to everything we learn from the bank of canada , specifically today for the

second meeting in a row, deciding we will keep rates unchanged. they ratcheted them up over the last year, remain at 4.5%. the governor talking about inflation trending toward 3% this year, possibly toward 2%. getting back to the currency reaction, there is a view that the bank of canada might cut rates by the end of the year. tif macklin pushed back on the idea. >> what i can say about deliberations is that based on the information we have today, the implied expectation the market the we are going to be cutting policy rate later in the year does not look like the most likely scenario to us. jon: let us bring in david. on the one hand, painting the picture of a possible soft landing.

pushing back on the idea of a rate cut possibly later this year. david: what we saw in terms of the inflation focus was that while inflation in canada is trending downward from the high of 8% last year, turning around just north of 5%, the service part of inflation remains quite sticky. that is because of the strong dobbs -- strong jobs market we have in canada. that is a little bit of a concern. they are not necessarily seeing too much slack in the canadian labor market, there is also upward revisions in terms of the economic outlook in canada and the bank of canada's quarterly monetary policy report. it looks like economists and the bank of canada largely see on pause for the remainder of the year. there is some outline economists calling for a rate cut, but it

looks like we are not going to see rates fall below the 4.5% in 2023. kriti: what is the bank of canada taking their cue from? when i to canada, i think jon erlichman has created this association -- i think oil. oil is getting near the 90's, what does that mean for an economy like canada that is so exposed to commodity prices? david: one of the wildcards in today's policy report was the focus on the global economy, how we saw a stronger china economy. but also the weakness seen in europe and the united states will play a part into how oil prices fair over the next couple of years. at the same point, imports and exports in terms of how they contribute to canada's gdp are looking to be a drag heading into 2024. that will be an important part of seeing how canada's economy

is able to handle itself there a weakening global environment. that being said, with the canadian dollar around 74 cents canadian, the weakness relatively to other global currencies should help canada's export economy bounce back from any sort of doldrums it may see in the coming months. kriti: as we get that decision earlier, you are looking at it trading at about 134, 3/10 of 1% stronger. we thank you for breaking that down. i want to come south of the border and focus on the inflation report we got stateside. core inflation showing hints of moderating, probably not buy enough to prevent the fed from raising rates next month. how do you trade it in the economy? liz mccormick gives us all the answers. i want to start with the fx trade, we just talked about it with respect to the loonie.

as we talk about the fed potentially nearing the end of their tightening cycle, is that a no-brainer bear case for the dollar? liz: i think it all goes to the next layer, which is the billion dollar question. kim the fed be on extended hold? markets think not, but every economist you seem to talk to says one more hike, then we will sit here. chair powell has hinted at that, we are not pricing in cuts now in the forecast. i think a lot of the currency depends on, does it become clear? it seems very getting close to the end of the tightening cycle. what goes on from there is less clear. does the fed just sit there? if they start cutting, that is bearish. the fed seems to say they will not do that, but the jury is out in the marketplace. jon: we were talking about how

in canada, the central bank governor was pushing back on the idea of a rate cut later this year. they hit the pause button. he talked about the idea of a soft landing. when you talk to the street about the situation for the u.s., are you hearing the soft landing scenario being shared much? liz: jay bryson was on tv this morning from wells fargo. he said he also does not see cuts and especially if the case, which she was not preclude income of a soft landing plays out, there's not a lot of reason for the fed to be cutting in 2023, because the buzz word is sticky. the fed is looking at core services, which is above the headline, and the core number itself. i think that will be the focus. if the core numbers remain sticky, probably cuts are not likely to happen. in the soft landing phase, you

kind of have that dynamic playing out. which i do not think people are writing off as possible. kriti: let's translate this over to what the bond market is doing. as we see the inflation miss, 5% is high, but less than the estimate. it is lower about 10 basis points on the day, yet it is paired back. how much higher do we go on the front end of the curve on the two-year, is there a ceiling? liz: the volatility is just the nervous market. it will become a technical trading mark. you blink your eye and it is back, amazing. i think most people feel like the two year yield may be has reached its peak, we were flirting below four, then about four. but to break to a new high does not seem likely.

a lot of people on the long end of the curve -- we had a 10 year auction -- the auction was kind of lukewarm. but people are feeling like eventually we are going to have a recession, some say sooner and others say later. if the fed is done tightening and we have a slowdown, a lot of people are saying maybe the 10 year yield seems good where it is. i would not preclude we get higher in the two-year. not to a new high, but you see it pick up. we have a fed meeting coming, may is the blink of an eye away. the folks that goldman today took out a june hike they'd placed in, partly on how the banking stress plays out. then, is it the end if they do one more hike? the two-year has a lot of volatility left. kriti: we had joe davis earlier

in the show, he said he is still expecting hikes going into the summer. liz mccormick walking us through, what can't she do? we think you as always. coming up, warning about commercial airline profits as hike cost counters demand. this is bloomberg. ♪

jon: this is bloomberg markets. time now for the stock of the hour, we want to key in on american airlines. that stock having its worst day in about 10 months after disappointing preliminary quarterly numbers were shared. profit expectations not what

wall street was looking for. even though a lot of people are traveling and demand has looked good, there are cost pressures that airlines are dealing with. simone foxman has been tracking the story, what do we know about what is going on with america right now? simone: the analysts are expecting about 4.6 cents a share for earnings to come out in a couple of weeks. instead, american airlines is saying to expect between one and five cents. it is likely to be higher than what we expect. you mention higher nonoil costs, specifically labor costs. those fell in the first quarter, 1.5%. that was half the decline we expected. the guidance american airlines put forward. all of this is a part of their plan to cut $15 billion in debt

over the next two years. it wants to pay lower interest rates on some of its borrowing, it is the most leveraged airline. things like cost can really get in the way of those plans. kriti: i love that you mention that, because when i think of higher oil prices, i immediately think higher jet fuel costs. that is something american and its counterparts have hedged against, i am curious if they've said anything about the jet fuel costs or the labor cost that they will address. simone: this is something that is hard for them to control. they have hedges, but opec-plus policy is something that comes out of saudi arabia and russia, not something the airlines have a ton of thought about. they do not have a ton of oversight. but higher labor costs is a consistent theme that we are

hearing. united last month came out with a warning, said it would see what surprised analysts. a loss for the first quarter, specifically on the back of things like higher labor costs. passenger demand is so incredibly key. there are warning signs that we are seeing a slowdown potentially in weekly bookings. we have not seen fares go up, they are roughly the same place they were last june. but on those fronts, we should remember that american roughly came in line with its previous guidance. when we look ahead to delta perhaps tomorrow, that is one positive sign even though on the cost side, we are seeing more pressure. kriti: those shares down about 9%, simone foxman is all over that story. coming up, we get the world bank spring meeting in washington, our guest is the governor of the south african reserve bank. the inflation story is going

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kriti: this is bloomberg markets. the south african reserve bank surprised markets with a bigger than expected 50 basis point hike last month, is it enough to stop inflation driven by severe power outages? shery ahn is at the meetings in washington, where the governor of the south african reserve bank is. take it away. shery: you said it, it is an economy facing unique challenges. borrowing costs are the highest in more than a decade. let us bring in the central bank governor lesetja kganyago, thank you for joining us. i have to start off with how high the borrowing costs are, 7.75%.

are you concerned about growth? gov. kganyago: that is only 75 basis points in the real terms, this is an important word that people need to understand that for central banks, we preach policy rates at the level to contain inflation. our inflation is 7%. so, 0.75 percent on returns. what matters is what is inflation going for what, but even with inflation going forward, we expect an average of 5.4% and we will still be below what we would see. shery: what do you expect the impact on the lag effects from monetary tightening? gov. kganyago: it is a different way. 18 months, we've had a series of

tightening's. again, the adjustments we have made depend very much on the data and on the growth and inflation outlook. what risks are attended to those outlooks. shery: we have seen inflation in the u.s. assuring another rate hike coming from the federal reserve, does that take away your freedom when it comes to monetary policies? gov. kganyago: we started addressing the rate of africa in 21, and are adjustments have to do with what do we see as being the state of the south african economy and what we see is the outlook for inflation. how does the fed affect us, because their actions tighten global financial conditions. that leads to a realignment of

exchange rates, including the south african brand. he watched movement in the rand fit through into it. shery: the rand has rallied, does that help you in what you are trying to achieve in your country? gov. kganyago: i would not call the hike outsized, because in general, we had a great position. members of the committee argued for 50 basis points and members argued for 25 basis points, it was the same in march. except in march, it swung from those who argued for 25 basis points to those who argued for 50. shery: in hindsight, do you feel you should have gone faster at 50 basis points back in january instead of 25 and frontloaded that? gov. kganyago: no, we take every

meeting separately. the inflation outlook deteriorated in march, compared to the inflation outlook in general. you are facing the inflation outlook that was different and you are facing an environment where the risks of the inflation outlook weigh on the upside. that necessitated a bigger adjustment. shery: you are advocating for a longer -- lower target of inflation. why is that? do you think that can be implemented before elections next year? gov. kganyago: our inflation target is higher than that of our peers. there had been a previous agreement anyway between the treasury and the reserve bank on a lower inflation target.

the target rate is still 30 26, nothing stops us framing for the lower part. if we decide we are aiming for that, it will still be within the target range of three to si x. inflation expectations, getting into the covid pandemic, we were able to provide the necessary support. shery: let me get your thoughts on the regional economy and your african neighbors, we are seeing a lot of debt issues in those economies. do you expect china to come around and be more collaborative this week? gov. kganyago: the framework that is used for debt relief is the common framework, i think

that's got to be consistent. shery: thank you for your time today, that was south africa central bank governor at the imf spring meetings, back to you. kriti: we thank you covering every angle of the emerging-market story. but as bring it back stateside. in about five minutes, we get the minutes from the last fed day. what is crucial is the banking sector, even though some of the chaos and turmoil may be over, the hangover is still very much a part of the conversation. jon: it is, that is one of the reasons that some have wondered whether or not the fed might join the bank of canada. looking at the market reaction right now after the cpi data this morning, you are left with the feeling there are signs of

easing inflation. still a course of folks who think next month we will see another rate hike by the u.s. federal reserve. kriti: then you have contrarians saying the hiking will go into the summer. joe davis rethinking their june hike prediction. the variables are crucial. the crypto billionaire also said to talk to any mac or economist and the calls vary from 25 to 50, and the timing varies. i do not know what the federal reserve does with that. jon: maybe that is one of the reasons you've seen interest in bitcoin and gold, then seen people hedging their bets in other parts of the asset story, as well. the trade overall today suggesting we are going to have to weigh the minutes with the cpi data today. as we heard earlier, a flood of earnings as we roll through the rest of the week. kriti: which is the biggest factor?

we might find out. s&p 500 higher by 3/10 of 1%, 10 year yield of 343, dollar weakness down about 5/10 of 1%. that does it for us, stick with us. this is bloomberg. ♪

romaine: a glimpse at disinflation, glimmer of hope for a soft landing. the data is coming in and the market verdict is yet to be decided. and look forward to the next fed meeting may 3, a look back to the meeting we just had. the fed minutes from that meeting are out right now, let us go to michael mckee in washington. michael: three weeks ago, the fed meant and a downbeat meeting it was for policymakers.