>> stocks up, big tech making up half of the index's move. is that sustainable? "bloomberg markets" starts right now. kriti: let's dive into those markets, because tech outperformance is just tech leading the entire benchmark higher. s&p 500 higher by .9%. to me, i think the bond market is interesting. we are looking at a 10-year yield of 341. two-year yield, you are stunned to see some movement. take a look at the dollar, down .6%. weaker, the euro-dollar, really interesting. the euro benefits better.

the commodities story continues to be a crucial one. we are looking at oil and gold, two big movers. brent crude at the 87 handle. gold getting closer and closer to the all-time record high. the record was 2060. do we get there? 2023 right now, ironically in the year 2023. all the talk is about the direction of the economy and what the latest data means for central banks. san francisco president mary daly seems to be taking a wait-and-see approach. >> looking ahead, there are good reasons to think that policy may have to tighten more to bring inflation down. but there are also good reasons to think that the economy may continue to slocum been without additional policy adjustments -- continue to slow, even without additional policy adjustments. kriti: joining us is vice chair -- hugh has made some pretty

daring because in the global financial crisis and the euro zone crisis, and has been right both times. let's start with where your call is right now. how doomsday is it and it comes to the effect of the banking races on the global economy -- banking crisis on the effect of the global economy? >> thanks for having me back on. it is complicated. we clearly have a credit squeeze and the only question is is it a credit crunch or credit crumble. we have seen the largest two-week decline in bank lending in u.s. history, and i think that the stresses on the makeup banks in america, where there are significant funding and capital pressures, meaning that banks are pulling their horns. for me, very sharp financial conditions will exacerbate what is ahead, but there are other factors. there are excesses in savings from the pandemic. i do think we are going into a much tighter set of conditions ahead. kriti: i'm glad you mention that because it seems to be the

consensus view, the idea that because of the banking crisis, a lot of the central bank's work is done for them. but to what extent is that still true if we are looking at a lot of corporate america and a lot of, i want to say european committees as well, sitting on massive piles of cash two or three years out from record euros of debt and equity issuance? doesn't that create a bit of a cushion when it comes to a credit crunch? huw: i think it does and that is why we are looking at where are the weak spots, who made poor investments with weak hands. errors around commercial real estate, particularly office areas can which have been funded by these banks, is an obvious area where we are looking over. there are offsets in terms of savings, but i think he does if interest rates went up a point to a point and a half. it is likely we are going to see a much greater slowdown into the second half. i went back to my history books over the last few weeks,

inevitably because of this crunch. if you go back to the 1980's, what you had a similar sharp increase in interest rates under volker computer the biggest bank failure at that stage. within six month of that failure, volker was cutting rates again. the odds are these sharper financial conditions may take six months, may take nine months, will follow through with a weaker economy. kriti: huw, you made that argument recently in an article in "the economist." "with the deregulation of midsized american banks in 2018, which exempted them from tough rules on capital and liquidity buffers brought in after the global financial crisis of 2007-200, will need to be reversed. thanks will need to be stress tested for interest-rate shocks, too. but while stronger shock absorbers will help, they can only go so far." what happens if these banks are

not stress tested for interest-great risks now that we have seen what it can do? huw: the best time to stress-test a system is before the accident rather than when you are in it. the fed has put out an action the generous and widespread system to try and fund thanks to the next 12 months. i would not be surprised if it gets rolled for another year or so given the nature of this instability. i think that what we need to see is there needs to be a roadmap for all of the mid-cap banks to become systemic. that could be through mergers, capital increases, mergers amongst themselves. but pretty much every bank needs to get that. the biden reforms proposed above $100 billion. if you think about europe, systemic bank is $50 billion. that set of banks is going to need to have much greater buffer of funding, as if you need to hold your breath for 30 days, but also more capital.

that is why the stocks are still struggling to rebound because everyone realizes there is more work to be done. kriti: huw, you specifically mentioned mergers. we would be remiss not to talk about credit suisse. you work for oliver wyman and ubs has hired your firm to work on credit suites integration. you yourself worked for ubs. asked about mergers and acquisitions, ubs and credit suisse, specific issue, in europe, do you see more of that consolidation and the banking sector that is just now starting in switzerland? huw: look, it's a tough question. some of the weaknesses you saw in the u.s. from deregulation meant huge banks were not been tested for liquidity and capital in the way that they are in europe. i am not as worried about immediate funding and capital stresses amongst the banks. but i think what you discussed before is that there has become

an increased super league of banks, the winner takes most dynamics we saw in tech coming to financials as well, as technology becomes a greater part of what everyone spends on their operations. becoming one of the top five players, it would be surprising if we don't see some mergers come out of this. but i don't think we see it coming from weak points. this will be more from unfinished business but also continued need to scale up for investment for the years ahead. kriti: huw, stick with us as we pick your brain on the banking stuff. i want to bring in diane swonk of kpmg, a crucial part of our federal reserve coverage. diane, we have been talking about with huw the idea of how much turmoil, how much hangover this banking franchise on what the federal reserve and banking around the world.

but i have to ask him as we start to see a consensus basically said that the federal reserve is going to hike for the last time this cycle in may, what would it take in your view for them to hike going into the summer? diane: well, i think there is a lot of people who want to do it, although if they do, there will be dissents because of this unknown amount of additional credit cycle tightening that is in the pipeline and the fact that the staff itself has already forecast a recession in response to the tightening of credit conditions that are now in the pipeline due to recent financial market stresses. i think that is really important. my own view is that the fed could take a pause and assess where we are. they said they have wanted to create a mild recession. now they are saying the quiet part out loud in the fed staff analysis with an actual recession in it. "mild" is one of these -- it's a nice word. in reality, there is a lot of

nonlinearity when you get an economy that starts to contract. that is where we have to be very careful about what tightening is in the pipeline. heating the backbone of the economy where it is most resilient, in firms with less than 250 employees, 71.4% of all job openings at the end of february. firms over 5000 were declining in hirings and high-profile layoffs. that support network of the u.s. economy, the backbone of the labor market, is going to be hit hardest by the exact credit tightening that we see out there, and i think that has to go into the federal reserve's playbook. it is not data dependence, but it is thinking through the consequences, and i think there is reluctance among many on the fed to get ahead of a good narrative on inflation, which we are starting to get better news on inflation. they have been head-faked

before. they want to divorce rate hikes from financials debility tools. in reality, they are not divo rced, they are intertwined, and breaking up is very hard to do. kriti: i'm glad you mentioned the labor part of the equation as well. what i have to ask, hearing the idea of this resilience you mentioned about companies with less than 250,000 employees, that is a resilience we have seen go on for years. even two years ago, a lot of these big tech companies were saying there is a recession just around the corner. are you worried about not a deceleration necessarily, but a more dramatic drop? diane: we have three scenarios now. one is this immaculate disinflation that people are still hoping for out there. we have a very, very modest increase in unemployment, more due to hiring freezes and the increase in immigration that we are catching up on, then an

actual surge in playoffs. that is the benign scenario. what it is easy to get into a slowcession where this credit crunch has legs to it and slowly chokes off credit in the u.s. economy, which brings down many business models that really came of age during an environment of ultralow rates. i think that issue is really important as well, that we are challenging business models that have been in place for the better part of the last 25 years. kriti: huw,, back into this conversation, because we are talking about the united states with diane, but let's broaden this out to europe specifically, because as we talk about inflation and whether or not it is actually coming down as fast as we want it to, there are countries around the world are you are starting to see inflation take back up again. spain, brazil, france, other places around the world. are you worried that this isn't owing to be enough -- isn't going to be enough? huw: each country has its own

issues, but the nature of inflation in the states has been very strong wage growth. that has not been as pronounced in europe, but you are studding to see that come through u.k., spain. that means that financial conditions are likely to tighten further. but if i talk to the cfos of the banks, there is a real stealing is that the conditions are tightening quite sharply. i think that will be a drag on inflation. but as milton friedman said these might be longer variables. if i could come back to something diane said about the fed's toolkit, one area i focus on which i think is being aggravating the situation is the overnight reverse facility, introduced as a tool to enter into qe, qt. this means money market funds can impart their money overnight, earning basically fed funds rates. that has proved to be an accelerant and encouraging

people to move their money out of deposits. i'm not saying it is the only reason, but by subsidizing money market funds, 40% of all money market funds parked with the fed overnight, this has proven to be very unhelpful. i've actually with sheila bair that the fed fed should consider what is the right pricing for that. otherwise the banks will be away with money market funds. kriti: diane, your thoughts on what huw laid out? diane: that is very important point and something that secretary yellen said she is watching closely, money market mutual funds, sheila bair, the former fbi see chair, has flagged. i would add to that the liquidity in the treasury markets as we go into -- we don't want any volatility, brinkmanship around lifting of the debt ceiling, but that could be out of reach sooner than expected. any brinkmanship around that in

the environment we are in, even if we go to the brink and come up with the debt ceiling, which we expect, the volatility come further stress in the treasury bond market, as well as what is going on with money market mutual funds, adding stress into the system that is not productive for the overall stability of the financial system at this point in time. but you also stress the treasury bond market. if you down at the lowest liquidity since march 2020 in march, when we had all of the financial market disruption. but liquidity levels in the treasury bond market is the engine of that machine and if the liquidity dries up, the engine seizes. kriti: it is interesting that we are talking about just quantification almost of what we are going to see and the turmoil. diane and huw i want to put you guys on the spot. the stress you highlighted,

diane, how much work has that done for the fed? diane: we think it is at least half a percent if not a full percent, and the difference between the two on top of what the fed has already done gets you from a slopecessi-- s lowcession, where you get a little about 5%, to 6% unemployment, those are different scenarios and they are both not good. the immaculate disinflation scenario is your best scenario but not the most likely, given that credit tightening is in the pipeline. kriti: i half percentage point hike is the equivalent of stress, the take from diane swonk. huw, what do you think? diane: at least. huw: i'm probably too steeped in banks as a banks nerd, but probably a point to a point and a half. and it kind of depends because what we have got is a lot of these small midsized banks,

which represent over 40% of commercial real-estate lending, these banks are really becoming or dependent on fed facilities, which is never a great place for service manager to think of the sticking loans, and don't want to lock in losses. one of the key debates out there is how many more billions or hundreds of billions welcome of deposits into money market funds ? given that gap between earning a couple of basis points to 4.8, the incentive to keep moving his grade. you see it in market forecasts for another trillion and a half, that puts a number on a small bank. kriti: anywhere from 15 to 150 basis points, the potential pain that diane swonk and huw van steenis are seeing in the market. time for "first word" news with john hyland. >> the biden administration will ask the u.s. supreme court to intervene and issue an emergency

order respect to the availability of an abortion pill. the court said he could be dispensed by mail. u.s. is focusing on a 21-year-old air national guardsmen who may be linked to the league of highly classified documents including maps, intelligence updates command the assessment of russia's war with ukraine, according to a person familiar with the matter. he works with the massachusetts national air intelligence arm. he was the leader of a cap group where the classified documents first appeared. in asia, a run number of countries are reporting an uptick of covid-19 infections. singapore's infections doubled in the prior week to the highest of the year. indonesia's daily caseload is near a four-month high. so far it is not causing widespread severe illness. global news 20 for hours a day on bloomberg aaron bloomberg original.

i am john hyland, and this is bloomberg. ♪

kriti: this is "bloomberg markets." i'm kriti gupta. the s&p 500 is hitting a session high. investors betting that the fed may be approaching the end point, seems to be the macro narrative. one stock making up some of this loss, contributing is delta, reporting a first-quarter loss. simone foxman joins us with the details. you were here yesterday explaining why american isn't doing great. what is it with delta? simone: delta is the first major u.s. airlines report full results and what traders got were conflicting signals between this quarter and the last.

looking forward to the second quarter, the profit estimates guidance coming in well above wall street expectations, $2.25 to an estimated $1.61. what we are seeing is a much weaker substantially weaker than anticipated, first-quarter earnings. i think what we were drilling down to hear and what we talked about yesterday with american airlines and what united mentioned last month was higher non-fuel costs come up 4.7%. that is significantly higher than what the carrier was anticipating, and they do see those costs rising whether that is labor, parts, something else, that is what analysts will be drilling into, because this is something we are hearing from several airlines. kriti: something interesting from delta is what they are doing with their cargo program. explain to our audience why this is of significant. simone: cargo down 28% year on year. the interesting bit about this

is cargo was something that helped prop up airlines, frankly around the world, but u.s. airlines is welcome which are not known as much for their cargo during the pandemic. the messages that the pandemic, post-pandemic, this is all over, we are back to regular old delta, and this is adulthood reliant -- this is a delta reliant on peasant demand. the passenger demand stories something where we saw an 80% load factor, down from a 90% load factor this time last year. clearly there is some softness there, but the message from executives on the call this morning was that they are seeing extraordinary interest in bookings. who is right? that is what we will be watching as we head into the all-important summer travel season. kriti: ed bastian at delta's specific sink it if you are worried about weakness, you will not find it here. shares down 1% on the day. simone foxman, we thank u.s.

always. still ahead, a new survey forecasting a rise in corporate defaults this year. this is bloomberg. ♪ [office sounds] ♪upbeat music♪ ♪♪ ♪when the day that lies ahead of me♪ ♪♪ ♪seems impossible to face♪ ♪a lovely day (lovely day)♪ ♪(lovely day) (lovely day)♪ ♪(lovely day)♪ a bank that knows your business grows your business. bmo.

kriti: this is "bloomberg markets." i am kriti gupta. time for wall street beat. investors are worried about credit tightening. fears surrounding potential defaults have not gone away. this is the cost it takes to hedge against defaults. you see doubles for the north american investment grade index. cds levels remain elevated for 2023, although frankly off their peak. we are nowhere where we work during covid and the recession that led there. but we are starting to see it

come down and tick back higher as of last year. just today we learned of a new survey that showed credit portfolio managers forecasting a rise in corporate defaults in the coming year. the poll found that within 80% of managers see defaults picking up in the next 12 months. for north american corporates, 80% see defaults rising. 91% see defaults rising in europe. you are seeing that hedging really getting baked into the market. the question is about timing. if you ask any macro investor, they will time the recession from anywhere as soon as july of this year all the way out to 2025 which speaks to the uncertainty you are seeing reflected in the bond market, something we will ask our guests in the back half of the show. coming up, the deputy prime minister of spain live from the imf. this is not a conversation you want to miss. europe is at the center of this story. you are starting to see a lot more movement in markets. the s&p 500 really hitting

session highs and higher bite point 8%. this is bloomberg. ♪

john: i am john hyland with "first word" news. donald trump is back in manhattan to be deposed for a second time as part of the states $250 million civil lawsuit. it is unclear if trump will answer any questions. he is accused of manipulating the value of his assets to dupe insurers. it is his second trip to new york in two weeks. trump is charged with falsifying business records to hide hush-money payments to an adult film star. the common consider swapping -- the kremlin will consider swapping a "wall street journal" reporter for someone held by the u.s. moscow has not allowed to the west of's to visit him in jail for some no child date has been

set and he faces up to 20 years if he is -- no trial date has been set any faces up to 20 years if he is convicted u.k. economy stalled in january. stronger gdp reduces the risk of recession, but the uk's on track for an extended period of stagnation. and a heavy oil shortfall will grow as the year progresses. there may be under supply of 2 million barrels a day in the fourth quarter. global news powered by 2700 journalists and analysts in 101 the -- one of the 20 countries. i am john hyland. this is bloomberg. jon: i am jon erlichman. welcome to "bloomberg markets." kriti: i am kriti gupta. we have a rally on our hands.

s&p 500 higher bite 1%. session highs. anything can happen between now and the closing bell. the bond market is more interesting. to year yield is rekeyed just retreating from that level it bounced against yesterday. only lower by one basis point. where did the bond volatility go ? it translated into the fx market. the dollar considerably weaker as we talk about the federal reserve ending its tightening cycle. the beneficiary is all about the euro. 110 on the currency pair, stronger by .6%. the commodity market is crucial. we are going to not hit oil, although brent crude trading at the 87 handle. gold is more interesting because we are getting closer and closer to an all-time record high. the record is 2060. we are at 2041. how much longer until we get there? jon: that is getting plenty of

discussion today, and the weakness in the u.s. dollar leading into the gold story, kriti, and what's been byrde a lot of -- what kicked a lot of that off is the view that the fed is going to be closer to the end of its hiking cycle. producer inflation, you can see from the chart, the slowest growth in two years. this prizing headline number of half a percent decline in monthly figures. yes, some of that was gasoline. a lot of it, really. yes, there is no complications when it come -- there is still complications when it comes to the trickle-down into cpi. looking at the likely expectation that the rates are coming to an end based on these kinds of figures. kriti: something we will continue to keep and i on. the fight on inflation is far from over. bloomberg spoke to a manager about when it will finally end.

>> our expectation is that inflation will be conquered over time. it will not happen immediately. if you go to 2024, you will see it and closer to central-bank targets. jon: ok, let's get some perspective from international economics and policy correspondent mike mckee, who has been in a d.c. focusing on the imf but also on what is happening with the iif. the headline that you shared when the data on ppi came out this morning was that we are headed in the right direction. plenty of uncertainty on where inflation will be as we move ahead next year, but the directional aspect seems to be what the market is keying in on. michael: the ppi report suggests we are headed in the right direction. a lot of things can change, and you mentioned energy is a big part of ppi, so we will have to

see how this plays out the next couple of months. here at the imf, the focus has turned to growth and the idea that we will see slower growth in the coming year because so many nations have raised interest rates so far, trying to keep up with what is going on with inflation and that should bring growth levels down. kriti: it feels like the best year -- the past year or two all we have talked about is inflation, and with the inevitable the -- inevitability following and most to talk about when it will hit, is it as early as july or as late as 2025? what is the consensus here? michael: there is no real consensus. the spread of bloomberg economics, as early as july, and generally people think the latter half of 2023. if we have a recession come that is when it will show up. what is interesting to see is the gdp figures at the end of

the month and how much momentum there was going into the second part of the year. so far so good. tomorrow we get retail sales. there are conflicting reports about whether we see the american consumer pulling back in march or not. kriti: that range is almost scary because how do you even trader that? you know i am a markets gal and it is very confusing and i have sympathy for folks putting money there and just talking about it michael mckee all over the imf story. maria tadeo stateside standing by with a very special guest from the beautiful country of spain. take it away. maria: well, she is very special because we are both spanish, i guess that is the point. we will do it in english. the spanish finance minister, deputy prime minister, you keep adding titles.

you are one of the very few countries that got a growth upgrade for this year at the imf. are you satisfied, or do you believe we can do better than the imf projections? >> our objective is not to out-beat the imf projections but you have strong growth. the spanish economy has had a very positive performance, 5.5 gdp growth in 2021 and 2022. during last year we saw constant upward revisions of the different institutions. and the reality outperformed the most optimistic forecasts. the beginning of this year has been very strong. job creation continues to go strong in april. i hope we fulfill the expectation is one of the most fastest growing countries in europe this year. maria: the number you have in mind would be what? dep. pm calviño: our forecast is above 2%, but i think that the most important siege is one of strong growth, strong job creation, and spain growing higher than our peers in europe

and other developed economies. maria: and the one thing i would note is when it comes to the next year, the imf sounded a little bit loony to me. just gloomy to me. they talked about everything to the downside. they say that spain continues to grow but maybe decelerate those of his the imf being -- is the imf being too gloomy? dep. pm calviño: i think the imf is trying to incorporate the increase of interest rates and financial volatility. most importantly, structural challenges derived from climate change. there is a need to undertake climate action to accelerate the transition to integrate the new technologies into our productive systems. i think this is a global challenge that we need to undertake if we want to continue to have strong growth going forward. maria: the imf mentions the turbulence in the banking sector, and we know the ecb -- this is not news to anyone -- it will continue to hike rates. do you worry about the tensions

that could manifest as this curve continues to go up in terms of rates? dep. pm calviño: the discussion we have had in the g20 is reassuring. supervisory and regulatory authorities have acted in a very fast, effective, and decisive manner. maria: are they better than the american regulator? dep. pm calviño: i think the three of them have done a good job in acting very fast, and after coordinated relatively -- they have coordinated relatively well. the building blocks we put in place the last 10 years commit 15 years, since the great financial crisis, have worked to provide a more effective response and stop contingent risks. maria: we have to ask a final question before we let you go. one his the communiqué. you have been very active in negotiations to get something over the line. the question is whether russia will block language around you. -- block language around ukraine specifically on inflation,

a lot of people in the markets think of it as a forward-looking indicator, and it has been all over the place lately. dep. pm calviño: inflation got down by five points in five months, and it has almost halved in march. we are very close to 3%. maria: core inflation is sticky. dep. pm calviño: it is sticky. it is also a global challenge. we expect that the reduction in energy prices and input prices will pass through to retell prices in the coming months. we will have a volatility in this part of the year, but i think the level of inflation will be much lower than last year's, and that trend is confirmed in discussions we are having today. maria: finally on the communique, will there be one on ukraine or not? many people say what is the point of having institutions like the imf and the g20 where you cannot even call a war a war in a statement? dep. pm calviño: well, you are

right on spot in saying that the main divergence comes from the war and the geopolitical tensions. the good news is that there is a broad agreement on the core functions of these institutions, which is to ensure financial stability and support most vulnerable countries" and made our policies. i think that is good that we agree on the fundamental issues related to economic policies, but i do hope that we also get to agree on the more political issues and we have communiqué or else we will have a chair statement. maria: very briefly, that brings china into the equation. there has been talked about what is china for the european union. they are not really helping on ukraine. just very briefly, is it a partner, a rival at times? dep. pm calviño: we cannot turn our back on china. china is very important trading partner and economic partner. it is an important creditor to low income countries.

they were at the roundtable and we were discussing sovereign debt relief. they played a constructive part. i hope that china continues to be a constructive player and helps us find solutions for global challenges. we cannot just ignore china. we need to get them to engage constructively, also inputting an end as soon as possible to the war in ukraine. maria: which has been going on for a year. nadia calviño, thank you so much. muchas gracias. kriti, back to you in the studio. kriti: maria tadeo speaking at the imf with the deputy prime minister of spain, nadia calviño . apologies to the audience for the audio and bravo to maria for that interview with a concert going on. spain one of the countries dealing with an uptick in inflation. amazon joining microsoft in the race to ai. we will break down what this means when we return. this is bloomberg. ♪

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jon: this is "bloomberg markets ." i am jon erlichman with kriti gupta. time for our stock of the hour. how about stocks? a lot of focus on ai-related names, quite literally names with ai in their corporate name. with the run ups creates opportunity. big air under pressure after shelf registration filed, which means they can sell shares after the big run-up we have seen. speaking of big, you have amazon making its own notable move into the world of generative aitomers

with all of this ai that is been focusing on the market's attention recently. kriti: it is going to be pretty interesting, and the stock moves are insane. you mentioned bigbear. earlier in the market it was down 11%, now down 2. speaks to the idea that this is a space we are seeing a lot of volatility. we want to focus on the amazon story. joining us is caroline hyde, cohost of "bloomberg technology." we have been hearing about this in the broader tech space. what is new when it comes to amazon? caroline: actually if you listen to amazon's announcement, they will tell you they have been doing artificial intelligence and large language models for years. it is what helps power your amazon voice assistant come if you use an alexa. for the first time they are giving access to large language models that they built

internally. they are called to tighten and there is a couple of them that will help you to text conversion, maybe write a blog post using the aws computer power. you will be able to tap into a marketplace of other ai providers. it is an offering for those companies that use them for computer power, software tools that you get through aws. this is andy jassy's commitment to reinvesting in aws and showing that it is the profit driver it has been. jon: it is so interesting, there has been such an obsession around change ebt and open ai -- chatgpt and open ai's curiosity for consumers. with ai for chatgpt being shared, there are all these questions about how businesses are using it and presumably for a ws customers, the way that they could potentially use this generative ai for their businesses. carolyn: and also have amazon

charges for it. it seems to be horses horses in that respect. what this isn't, john, is a chabad. they are not doing that particular -- what this isn't, jon, is a chatbot. they are not doing that particular conversion. it is about companies being able to access these tools and build their own ai in it. everyone is trying to understand where the value lies. microsoft invested early in open ai and google is trying to catch up. google is always the name you associated with ai, and they are trying to unveil to mix degrees. china, you have a lot of those competitors developing their generative ai chatbots. amazon is sticking to generative ai. the company saying we are not just about computer power, not just about artificial intelligence. we are about everything else,

trying to make e-commerce that much more efficient when you and i use it. maybe they are doubling down on the world of groceries and doubling down in the world of health care as well. this is a company that is sprawling and andy jassy wants to remind us that even in the downturns of '01, '08, this is a company that continues to reinvest itself at the same time letting go of 27,000 people. jon: helpful context on these changes. i assume ai will be picking my groceries soon. caroline hyde, thankful as always, "bloomberg technology" cohost. we will move from technology to the big banks in the u.s. they are such a report quarterly results. we will get insight and analysis from betsy graseck, longtime banking analyst at morgan stanley. ♪

jon: this is "bloomberg markets

." i am jon erlichman with kriti gupta. as the s&p 500 hit the session high, we are turning our attention to u.s. banks and the earnings picture which will start to unfold tomorrow. for insight on what to be watching for, we are joined by betsy graseck, managing director and head of banks and diversified finance research at morgan stanley. always great to have you with us. everyone wants to know what happened this quarter, but the bigger question you have been thinking about is what does the outlook look like. betsy: absolutely. it is going to be a ride we haven't been in since 2008, in the sense that the world is watching bank stocks starting tomorrow. our expectation is that we are going to get a lot of very interesting updates and insights on what managements are thinking and give you a sense of what we are looking for. which is to expect an acceleration of pickup in deposit costs and slowdown in loan growth going forward.

kriti: a lot of focus is also on the banking from what we are seeing in the regional banks as well. -- banking trauma we are seeing in the regional banks as well. what is the region in the larger banks? is there one? betsy: i know there this question on deposits. usually we walk into earnings day looking for the interest margin and loan growth, and this time the first thing we will be looking at is what is the deposit change has been. we'll have some growth, we'll have some shrinkage. our expectation is a lot of the movement in deposits that happened at the very end of the quarter is not going to be driving the bus on the earnings profile on q23. but the outlook on how much you will have to pay for deposits going forward. our expectation is that there will be some modest share shift, but frankly, we are not looking for a material amount of share shift in the earnings that come out tomorrow. jon: betsy, as you have already

pointed out, when we are talking about whether it is a soft landing or some other economic scenario ahead, you have to think about how that will impact the bottom-line performance. with all these regulatory questions emerging right now, i wonder what that means in terms of some of the shareholder tools. we have been talking for so long about stock buybacks. what does that storyline look like longer-term? betsy: this will be different for different types of banks. bottom line, our expectation is that the regulatory sponsors that we will get to the silicon valley bank shut down he is going to really be aimed at banks that are sized between $100 billion in assets to $700 billion in assets. that has to do with the dodd-frank rules and what the regulars are allowed to do with regard to the tailoring act that came through in 2018. these new rules, we expect, will be requiring banks of that size

to hold more debt so that they can have extra liquidity on balance sheet, kind of like the big banks the g6 have already. i would not be surprised to see -- i mean, i'm going to get a little technical here, but the aoci hits that come from securities feed into regulatory capital. these things i do expect will be weighing on bank earnings really more skewed to that size the bank as opposed to the larger g6. kriti: certainly something we are keeping an eye on. managing director and global head of banks at morgan stanley, thank you as always for joining the show. busy day ahead of her for bank earnings coming up tomorrow. jp morgan taking it off, unchanged at the moment. jon, these broader markets are rolling. s&p higher by 1.2% and nasdaq just shy of 2%.

3.41 yield on the 10-year. more markets coverage ahead. this is bloomberg. ♪

romaine: software economic data equals a stronger equity market here on this thursday afternoon. romaine bostick alongside katie greifeld kicking you off to the close. katie: that ppi data is telling the same story that we got from cpr yesterday. much bigger action in the bond market. romaine: this gets to the divergence that we continue to see in markets. maybe that is telling the same story, just different sides of it. for equity investors, they seem to be thinking this might be exactly what they need for the fed to slow its role. katie: apparently that's good ,