>> the banking crisis is a crisis of the banking system. this was a banking system. >> it looks now we are certainly on the mend. >> the last thing the fed wants to do is suggest that their work is done when it may not yet be done. >> something has got to rebalance here. it is the fed rate hikes cooling the economy off. >> this is "bloomberg surveillance." jonathan: back in new york city for our audience worldwide.

equity futures on the s&p futures -- s&p 500 unchanged. looking ahead to more bank earnings tomorrow. bank of america. then it is on to the likes of goldman. then, regional. i think the regional banks will be the big focus after we learned friday these big banks on wall street have been a port in a chaotic storm in q1. tom: a wonderful story out of zürich this morning. switzerland credit suisse still say flow challenges. that makes it a different earnings season even as you get up to the small caps and those removed from this crisis. jonathan: two data points. i am talking about the borrowing data from the federal reserve thursday and the bank lending data friday. when you put those things together, do they signal not an all clear but stabilization? lisa: stability. this is the word soothing markets into a feeling of calm,

perhaps giving a sense of lift to equities. today we get charles schwab, him and t, other regionals. i am interested about regionals given the fact there is this concern big banks simply cannibalizing the business for smaller banks. that is where we are going to see restrictions in lending. jonathan: traditional economic indicators or work away from the acting stress of the last month -- i think a lot of people from the federal reserve may say it is too soon. that is the focus for economists on wall street right now. lisa: before this if we were talking about the university of michigan sentiment survey as being the main bellwether, and after the job openings, the jolts survey people had debunked as being highly ineffective at gauging the number of openings because a lot of people post openings they do not fill to get a net of applications. there are questions over what we are looking at. what narrative we are forming

and whether it is post fecteau anyway. tom: the point is, it is narratives. lisa: i am frustrated. jonathan: has this been building over the weekend? lisa: i am a mess. jonathan: good morning. tom: she is pounding the table over there. all in all, fidelity led off with his wonderful note. it is a i for k to take, a split market and it is not narrative. it is narratives, plural ready you can find 28 flavors of where we are coming out of this pandemic right now. jonathan: if you want to get gloomy, we can get gloomy quickly. inflation expectations, a range of the liquid sees reported by banks, credit card balances being rolled over to another month. those are the things people start to do when things get harder. lisa: sure. then you look at the actual jobless claims. the idea they are taking up higher, but people are still employed. earnings are not that pod -- bad

. tom: there is no slow time in the caribbean anymore. because the pandemic, everybody started going to the caribbean in the summer. you know how you are supposed to get slower, hotels slower. jonathan: you mean they have peaked. tom: our peak has gone. that is the -- jonathan: i was wondering where you were going with that. tom: it is a boom economy thing. jonathan: let me give you a flavor of the price action. equities not doing much. we get bank earnings through the week. lisa is going through the data, bank earnings any moment. 10 year yield 3,53 -- 3.53. lisa: 8:30 a.m., economic manufacturing survey. the real-time data aspect is going to be important. 10:00 a.m., in axp housing at x.

do we see homeowners get more optimistic because mortgage rates have gone down? this is the conundrum if you put the foot off the pedal with respect to restriction, do you end up with greater heat in the economy? christine lagarde and the council of foreign relations, and richmond fed president also. i want to note, we get him in tea and u.s. bancorp later this week. we get charles schwab coming up. how much are they continuing to see outflows at a time where it is not necessarily credibility? this is a question of, if you can get 4%, five percent on t-bills, why are you holding in cash? jonathan: not just about return on capital, but return of capital, which was the story of the stress of the last month. brad bauer was in the studio listening. wondering if he should hide under a rock and run away.

did any of this resonate with you? >> i think there is a ton of challenges out there in the market. i think this idea of a bifurcated market, things moving different directions, is why we find ourselves within unchanged market this morning. which is symptomatic of what we have seen the last week. very low, realized volatility market. jonathan: fed borrowing data, stable the last week. bank lending data on friday, picking up again. some positives. lisa talked about stabilization. is it too early to sound the all clear? lisa: i think maybe. >> we saw one of the first banks reports, the large banks, city, jp, we saw positive price action. typically when you look at sector trends surrounding season, you see the first names report, the bellwethers and the whole sector tends to move. writing was the opposite. we saw some bank etf's, kr b, representatives of the broader

industry. i think there is still signs of stress under the surface. we will hear more from some of those smaller midsize banks these -- this week. tom: i'm going to suggest narratives of the market is in search of persistent cash flow. if we get this going to occur, do those persistent cash flows break? greg: i think so. one of the things we have seen this year is a narrow rally in terms of what has driven the market. has been a handful of tech names , grossed stocks that have provided the index point impetus for the s&p. the question is, whether these names are going to continue to trade like bonds. or, whether they are actually more cyclical than the market is giving them credit to. that is one of the things i think is going to get tested. tom: i look at j.p. morgan, this is from keith horowitz at citigroup eared the revenue filled out of this company is not understood. $116 billion pre-pandemic revenue to $163 billion.

minting money. in the era that we are in, the french securities histories expert of this, do you just get almost a min alstom is stick -- is that where we are? greg: i think there is a trend at this stage in the cycle for balance sheet and quality to be a theme. i do not know if it is along a secular theme. if you are at a point where recessionary themes start to grow and funding costs are becoming higher, source of funding is becoming were challenging, you get a flight of quality that tends to be. jonathan: let's talk about regional banks. iman t bank. total deposits, the first quarter deposits 159.1 billion. that is a touch lighter than the estimate. what else do you see? lisa: the fact provisions for

credit losses were higher than expected. $120 million. the estimate was $118.3 million. they beat when it comes to net interest margin which came in at 4.04%. you also saw profits come in a touch higher than expected. does this give you comfort? that is one question i would like to get your thoughts. what point do you start getting more optimistic? what point you say, ok, this is the all clear? greg: i think we can get the sense we have maybe more comfort. i do not know if optimism is the right word. the question is, how much of this stress and the banking sector is reflected in the broader market? when we look at where the s&p is trading in terms of spot level, now versus where we are in the crisis, in terms of valuation, 18, 19 times, 2023 earnings, there is not a lot of stress for

the broader market. it is priced into the equity market. we have had a relief rally off the lows in terms of march. i'm not sure regional banks binding stability is enough to help the market flow. lisa: what is a bigger threat to you? the idea of stress in a financial system that might be pressured? i do not know about stress or credit crunch or other descriptions paired on the flipside, you have a federal reserve that may be willing to go in more gangbusters in respect to rate hikes. if= --is there that credit stress that affects the borrowing and the economy? greg: this is something that has affected the small banks and ways the balance sheet has been managed. this is symptomatic of central record rate tightening cycle. we are going to see these things explode into the equity world more broadly. a slowdown in the economy that is going to drag earnings down and create more volatile, bearish narrative for equities.

jonathan: this was great to catch up with you. sticking with the 3400 on the s&p. something has to give. seems to be the take for a lot of people regardless if you are in the equity mark. s&p 500, not the 4000. cpi with a five handle, pricing and rate cuts. can those three things continue? lisa: even people on both sides say the markets mispricing. what that risk is because it is binary. we either go into some sort of recession and that does send inflation lower and greater the economy. on the flipside, things keep chugging along and the market is totally off with this rate cut expectation. tom: i am going to go away from the macro. i am glad you brought up -- iman t bank. they are price to book in five years has gone from a peak of 1.08 price-to-book -- 1.80 price-to-book to .84.

that is stunning to see a bank of that prestige and you get these two markets, really underperforming. jonathan: i do not think many people are familiar with that name outside of the united states. incredibly well-run financial institution on the east coast. i think they are headquartered in buffalo. tom: mr. wilmer use listen to you and me. he was very supportive. jonathan: the stock is positive in the premarket. coming up 7:00 a.m. eastern time, we catch up with --of deutsche bank. ♪ lisa: keeping you up-to-date with news from around the world with the first word. gunfire and explosion rocked the sudanese capital for a third day is diplomats intensified efforts to salve clashes from escalating into a full-blown civil war.

a long simmering disrupt -- nearly 100 people are reported to have been killed. tensions over china will be as high in the agenda as top diplomats from a group of seven nations meet over the next two days in japan. a senior state department official says a focus will be on geopolitical challenges in asia now that japan holds a rotating g7 presidency. the meeting comes ahead of president biden and other leaders going to hiroshima for the annual leader summit. president macron has enacted his controversial pension reform. after clearing a constitutional hurdle, the move was made possible after france's constitutional council approve the core elements of the bill on friday. despite weeks of protests across the country. a law which increases the minimum retirement age by two years to 64 will take effect in september. buying romeo entertainment in a deal that values at 700 60

spread the finnish company's board has unanimously recommended shareholding set the upper -- accept the offer backed by 49% of shareholders. japan's seca doubling down on console and smartphone gaming as it seeks new ways to grow. another sign of mounting pressure on the baking industry. barclays responding to a slowdown in dealmaking and capital markets businesses by cutting about 100 roles in its investment making group. the london-based linder already let go of roughly 200 positions from the same division in november. global news powered by more than 2,700 journalists and analysts. i am lisa mateo and this is bloomberg. ♪ yeah, with 389 horsepower. ♪♪ and all-wheel drive. ♪♪ it's beautiful. it's a beast.

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>> we already saw some tightening of lending standards in the banking system. prior to that episode, and there

may be more to come. that does tend to lead to somewhat greater restriction in credit then could be a substitute for further pricing, further interest rate hikes that the fed needs to make. jonathan: janet yellen, the former fed chair sounding like the fed chair. i think verbatim straight out of the book of chairman powell. tom: stop the show. this is really important. i think she has had huge difficulty transferring to the language of a traditional secretary treasury. that may have been what the president one. you are dead on, the x number of quarters into this job, she still sounds like a central banker. which is ok when you're first classed economist, which everyone agrees, that is wet you get. jonathan: i was reading the

transcript of her interview. your equity market on the s&p 500 right now just about unchanged. futures not doing much. yields higher by a couple of basis points, not breaking levels that we have not seen for a long time. in the fx market, we did that on euro-dollar. want to get to one single name. came out about five minutes ago. in and bank. deposits a little lower than expected. nothing big here. i think that is what has come out and the last week or so, some signs of stabilization elsewhere encouraging a lot of people. it is early days. you will get a lot of regional banks reporting later this week. tom: this is early days. you mentioned the price

stability greater off the joy of for, five years ago. there joy of return is sub 5% per year. this is one of the better banks and the return is not acceptable. imagine what we're going to see from the other banks. jonathan: tomorrow, goldman sachs, bank of america, some bigger players. morgan stanley wednesday. tom: morgan stanley will be interesting. right now, a briefing off the imf world bank meetings. thank you to all in washington that helped us, particularly peggy newman running the ship for us in washington. julie norman joins us, codirector of ucl center in u.s. politics. as a broad stance, what i noticed at the imf world bank moving -- meetings were the unspoken. no one wanted to say china. you cannot say china. the other thing that was banned was the word allies. recalibrate for us the western allies. how allied are the allies?

>> i think you mentioned china. obviously, we have seen the last couple of weeks, i would say longer than that -- wobbling and what alliance means two different partners approached china in particular. i vesely, we see strong alliances in terms of the stance towards ukraine. we have seen that with european partners. with an issue like china, it gets different. there are interests at play as you know. we will still see alliances, but we see differences among that. there is a little bit more caution using that term when talking about these complicated issues. tom: the tension between washington, beijing to me is too simplistic. who are you watching among our allies to change the dynamic between washington and beijing? julie: i think -- there is obviously the look to europe first and foremost. the u.k. would say has submitted

its policy, notably in the last two years, even more so because of china's actions against hong kong more than anything else. he started seeing a tote in the u.k. policies, continental europe otherwise. i am watching other allies outside of western europe. india, in particular, states that are in -- allies with the u.s., but interests going on that do you have a big say and influence in what is happening in pacific, asia and other parts of the world. china we think it's bilateral relationship with washington, so much other power is outside of europe, it is in africa. it is in southern asia, across the world. those are the countries i am looking at. lisa: one thing that emerged from last week's imf meetings was a sense of not only fragmentation but an ability to have leadership to address it. come up with what the framework is in a modern, bipolar or multipolar era.

larry summers on friday said there is growing acceptance of fragmentation, a growing sense that hours may not be the best fragment to be associated with. china gives you an airport, we give you a lecture. how much is that your sense of what is going on? julie: i think you said it right, there is a lot of states that are finding it advantageous to partner with china because there is a receipt of no strings attached. there is not going to be pressure on democracy, human rights, it is transactional. that works for a lot of states and works very well for china. i would say in terms of summers comments, there is a lot at play. the u.s. is still trading at its highest levels ever with china. it does not like the u.s. is backing away from that. the u.s. is coupling that with strong arms buildup, strong, confrontational stance that other states are hesitant to get onto for their own interest. jonathan: top diplomats in the

g7 meeting over in japan over the next two days. here are the headlines from one u.s. official pg seven ministers agree on engagement and china, agree to stay coordinate it on ukraine and linking the two issues, g7 cooperation on ukraine leads to unity on china. headlines from a u.s. official as top diplomats meet over in japan. tom: they seem to be massaged. i think that is what you would expect to see. what is important is not a g8, russia used to be in the club and russia is not in the club anywhere. jonathan: they have got to massage issues from last week. we keep turning from comments from the french leader a couple of weeks ago. a lot of massaging to do. lisa: just ignoring. that is what happened with european officials, like, la, la, la. jonathan: i am glad you went there. hoping those comments didn't happen, pretending they did not happen? lisa: totally. tom: i stopped up on you street

for the chilly bowl. they are still calling them french fries. why don't you continue? jonathan: i am going to. we listen to u.s. and european officials, they are most pretending this tension does not exist. how much tension is there right now over trade, big foreign-policy issues? julie: obviously, there are tensions. i would say -- i do not want to overstate them. right now, the most immediate issue is ukraine. i think the u.s., france and other nato countries are -- that is where the alliance needs to stay tight and it has. china has always been complicated, there has always been a difference between european and u.s. approaches to china. even macron's comments are a bit more -- probably shared by others, even though people are

quick to critique him. i think a lot of european states as well as other states on the periphery are realistic about the fact china is going to take a more nuanced approach from any state where interests are. that is a reality. jonathan: thanks for the perspective and reality check, as always. just to recap some headlines from a u.s. official. following meetings that will continue in japan between top diplomats in the g7. g7 ministers angry -- agree on tensions with china. cooperation on ukraine leads to unity on china. lisa: these platitudes do not give justice to what is going on under the surface and the tensions people are not talking about. what i got from last week's meetings is somebody in the room needs to talk about the tensions, needs to hash it out and have leadership. otherwise, you are going to have fragmentation under a mantle of unity that will eventually end up with a broken system.

we talk about emmanuel macrone as an outlier. he is not. he represents frankly what we are hearing from every business executive that has a major business in china. this is one of the ultimate questions. jonathan: i think someone wrote in barron's over the weekend macron was tighter than a scarf -- lisa: exactly. it is the same story. this is the corporate interest. jonathan: didn't you say they need marriage therapy? lisa: they need to work out the tensions under the room. otherwise, it is going to be -- tom: thank you for that. go emerson software. go science people. go breakthrough meds and safe science. go space age welds for super silent cars. go big. or go home. from software that delivers new cures at warp speed, to technology that makes clean energy reliable,

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jonathan: live from new york city, welcome back to the program. this is bloomberg surveillance. equity futures look like this on the s&p 500. futures positive by 0.05%. on the nasdaq, unchanged last weekend this morning. down by not even a 1.1%. in the bond market, governor waller closing now the fed speak exceptionally hawkish. 4.13 on a two-year.

tom: two stints spreads, you've got to make note. 61 basis points, we are not going to do technicals on a monday. the answer is, whatever the trend is, you are either near support or resistance. in this case, the two tens spread is up against a support where it could break through to greater inversion. jonathan: let's talk about a level we did break friday. euro-dollar, a new intraday high for the year. on friday, you're intraday high for the year is 110.76. this morning, 1.0981. " most of our forward looking indicators suggest a higher euro ahead -- zero in q2 will likely achieve new highs for the year with 111 towards 114 and prospect, which is why we have raised our conviction to four out of five in long

euro-dollar." a range of currency pairs and they give you a conviction rating out of five. tom: it is interesting to see. joining us now, jordan rochester. what i find interesting is, if i triangulate and go to euro-yen, i've got euro-yen busters up against resistance at 147. it is unimaginable, stronger euro, week in. on the u.s. dollar pair is it about strong euro or is it the zeitgeist this weekend, is it about weak dollar? jordan: is it -- it is both. the dollar has moved the needle forward. with the banking section, it has allowed markets to price and the idea fed cuts. a lot of people would argue too many fed cuts are priced in. the irony is, there are price cut in and there is a dislocation between narratives

and actual market pricing. i think the good news for euro is not over. i think the growth take we have seen the first quarter of this year should carry on into the second quarter. that should keep the ecb at a more hawkish footing. the market is pricing very much to low terminal rate in our view for the ecb. we look for 4.25% by july. the market is somewhere around 3.6%. for the fed, they could do a rate hike of 25 basis points in may. our economics team thanks they are down with this rate hike cycle. after the banking situation. the market is pricing 21 basis points for that meeting. if the fed do go ahead and do 25, i do not see much upside for the dollar from that rate hike. where the ecb in market is not pricing in the 50 basis points we expect to see at the next meeting. from a monetary policy point of view and a growth point of view, there is more upside. 1.14 in euro the next three months. jonathan: you sound like

christine lagarde, optimistic over the weekend. i wonder if there is anything to be optimistic about. is this 4.25 on rates and the ecb because growth can handle it or growth is outperforming? jordan: last year was doom and gloom, one of the best traits we have had short euro-dollar, short cable from january, february onwards especially when ukraine was invaded by russia. this year, it has been different. it has been those negatives of last year turned around from headwinds into tail winds. last year, it was high energy prices weighing on the consumer, the government spending situation is corporate. energy prices have collapsed in terms of natural gas, below where they are before ukraine was invaded. there is a huge disposable income boost for consumers and firms producing their costs. from that side of things in terms of trade for euro would put euro-dollar between 1.15 and 1.20. for the euro area and monetary policy side, you've got

inflation from last year feeding into second-round effects. very tight labor market. there seeing wage hikes coming through, strike action in france. these stories and the labor market will keep the ecb in a hawkish setting until it becomes clear inflation is going towards 2%. in the u.s., the fed is more of a dovish setting because the banking crisis has seen credit conditions tighten for firms and we are seeing forward looking indicators suggest this inflation pressures are on the way. last week's cpi, not coming into hot, allows the market to carry on looking at those forward-looking signals inflation. the key difference is the fed is perhaps going to turn from looking just at real -- realizing inflation to maybe considering forecasting inflation when it comes to forecasting settings. ecb is not at that stage. we think they will keep raising rates through to july. jonathan: this is a conversation about the cycle.

euro-dollar goes from parity to 110. you see doom and gloom articles about the end of the u.s. dollar circulating everywhere. can we talk about the structural shifts that you are expecting from the green and whether you subscribe to this theory you are going to see this structural shift away from the u.s. dollar? jordan: the digitalization of trade is helping for example china's role in swift payments increase. the actual choice of currency in the past was tied to ease-of-use. that was one of the factors behind it. now, there is ease-of-use of using -- there is a structural tailwind for alternatives to the dollar, but also when there is a crisis, you need dollars. that is still the case for a long time. trusting those other currencies to hold their value will be difficult in times of stress, especially if it was a eurozone related crisis or elsewhere in the him that we had an alternative crisis. high levels of inflation and the other choice of currency would

have overruled the value of that. not a perfect well for alternatives for the dollar in terms of global trade, getting things across border payments done. in essence, they are shifting ties of helping alternatives to become more of an option. i think the dollar is going to remain the majority serve currency for probably the last -- rest of our lifetimes. lisa: i want to go back to something you said, the banking crisis in the u.s. will keep lending conditions tighter which will cap how far the fed can raise rates and how that can potentially pressure the dollar? let's say there is no banking crisis. the m&t results suggest they are not a problem. do you into up with a stronger dollar than otherwise assumed? jordan: the biggest risk to trade, that is the biggest risk.

the bigger banks massively improves the doom and gloom goes away. let's say it is followed by inflation principle that comes in hot. let's say goods prices rebound. the dollar strengthens in that scenario. the update from friday show we did not have consumer credit tighten as much as the previous two weeks. we will have to keep an eye on the data. it massively rebounds, which will be shocking -- if it were to do that, you can see the fed carry on hiking. perhaps not 50 basis points that we saw last year, maybe just 25's until something else rates. it seems when you get to these levels of rates, things do break. what else, commercial real estate, other factors to consider. that is the biggest risk to trade. oil prices is the other one. oil rebounds get to $100 a barrel, inflation rebounds, the fed remains hawkish. inbound thing -- lisa: which raises this issue of

positioning and how fragile positioning is at a great of -- at a time of great uncertainty. how tenuous is positioning that creates big moves and currency pairs given some of these big risks? jordan: positioning data is clear that folks are on board with a short dollar trade. the euro seems to be where the consensus has built up given the bad news has turned into good news in terms of trade. the question is, if credit conditions tighten, can the euro rally? we saw that with svb, when we had financial conditions tighten. i -- the positioning is one thing in effects. yes, it is long euro. i think about last year, most of last year real money managers

invested away from european stocks because of the recession, ukraine and russia, higher energy prices. now, it is seeing continued inflows into the euro area rebalancing from u.s. equities towards european. we have had under weights european equities amongst investors for 10 years. all of the growth wasn't technology stocks in the u.s., that has now changed. i think it is on the fx features side suggest on euro is invoked, equity inflows in the euro area. i am looking at it from a transit trade perspective and when the china reopening perspective, two. china's data is coming in strong. china data surprises is at the highs. europe is three times more exposed to trade from china from the u.s. -- then the u.s.. those factors make it difficult for me right now. jonathan: thank you and

congratulations over the weekend to villa. you guys are not getting it done at all. [laughter] lisa: [laughter] jonathan: i know you mentioned -- it has nothing to do with me. tom: i am watching ted lasso. jonathan: i have not seen season three a. tom: they've got three guys on the desk. all i can think, i cannot imagine what they were like yesterday as the bournemouth? jonathan: bournemouth. tom: bournemouth cherries did it to the tots. unbelievable. jonathan: they cannot hold onto a lead. they've got to suffer. tom: their defense is not there. jonathan: we call it spurs e. things get spurs e. tom: it is fun, isn't it?

can liverpool come back or are they out of it? jonathan: i think they are trying to get top for, but it is going to be difficult. tom: the tots are going, we can look at relegation. jonathan: futures unchanged on the s&p 500. the number one risk to the pair, the euro-dollar. what if we get the all clear on financial side of things and you go back to this -- to discussing more rate hikes? i think the outstanding question remains, to what extent are the events over the last month a substitute for rate hikes going forward? i'm not sure we know the answer yet. lisa: there is an issue of, have the stocks moved on from the banking crisis and bonds have not? jonathan: i think markets will move on more quickly than policymakers. simon french, chief economist joins us next. ♪ lisa: keeping you up-to-date with news from around the world with the first word, i am lisa mateo.

the delaware judge overseeing a voting machine companies 1.6 billion dollar defamation lawsuit against fox news has announced a one-day delay. the start of the trial. jury selection and opening statements have been set for today. the case centers on whether fox famed dominion voting systems by spreading false claims the company rigged the 2020 presidential election. japanese prime minister resumed election campaigning over the weekend after a smoke bomb was allegedly thrown at an event he attended in central japan. he was evacuated unharmed from the site and a 24-year-old man is said to have been arrested. that attack comes weeks before he is set to host a group of seven world leaders summit. u.k. prime minister rishi sunak expected to receive a boost this week as inflation slips back into single digits. it is raising hopes the quickest series of interest rate increases in three decades is nearing an end. figures this week are expected to show inflation dipping below 10% for the first time since

august and it cooling in the labor market. merck is to buy biotech company prometheus biosciences for about $10.8 billion. the agreed price is a 75% premium to the targets clothing price friday. merck is looking to bolster its research pipeline and strengthen its portfolio of autoimmune drugs as it faces losing a key patent the to this decade. global news powered by more than 2,700 journalists and analysts in over 120 countries. i am lisa mateo and this is bloomberg. ♪

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>> whether you manage inflation using cpi or the fed's preferred measure, personal consumption

expenditures, it is still too high. my job is not done. i interpret these data as indicating we have not made much progress on our inflation goal. jonathan: pretty punchy stuff from governor waller of the federal reserve. i believe there is still more work to do, seems to be the message. that was the message on friday, that delivered the left at the front end of the yield curve. yields higher, a snapshot of things on the equity market. futures posited by three points on the s&p. higher by not even .1%. yields of a couple basis points on a 10 year. 3.53. jordan rowe chester moments ago talking about the prospect of going through 1.11, with conviction around that call on friday session. short of 1.11, 1.09. tom: ramone knows this, lvmh moments ago announces there is some form of bond deal, 9.4%

weighting in bonds. every time we go into tiffany's, our wallet gets lightened. if you are a bondholder of tiffany, you have been joined in a price of 44 with a 3% plus yield. 1.48 to 93, that is a bear market in bonds, isn't it? lisa: are you implying i know about lvmh is bonds because i am -- tom: what you have emphasized is we are going to see a bond frenzy. lisa: there is this issue, do you lock in rates here with the expectation they could rise further or do you not? do you end up with corporate executives, cfos siding with the bond market which suggests there could be lower yields going forward if you end up with some sort of recession? this is the tension point at a time you've got the likes of lvmh which could lock in a better rate because they are crushing it. jonathan: we need to be careful with lvmh. very infrequent visitor to the bond market.

i believe it has come to the credit market since spring of 2020, it came to the credit market for a good reason. there was a take over at tiffany's at the time, a lot of back and forth with the company. strong fundamentals for the company, tremendous profits announced the last week put on top of that, the fact they do not come to the bond market often, i am not sure the yield lvmh will offer is a great example of the broader credit market right now. tom: lisa: fair. lisa:i think that is correct. there is an increasing bifurcation the market is closed for a certain rate of issuers. this is a difficult moment the have scanned the -- can keep getting and the have nots keep losing. tom: going to be interesting to say the least. right now, we stay on the clarity of economics data that helps people make decisions on bonds, equity issuance. simon french is with us, i want to go to an absolutely scathing

part of your latest note. i do not know how to translate it. it is lost in translation for me. on the bank of england, how do they get it so wrong? i am fascinated by that. what did they screw up in the challenges post-pandemic? simon: good morning, tom. reeling from the idea of you and john going shopping in tiffany's. i'm going to have to try -- jonathan: to buy each other gifts. just to be clear, we exchange gifts. just charms for our bracelets. me and t.k. tom: dear god. lisa: please carry on. simon: there were events in both energy markets and capital markets which central banks particularly in europe, we think of bank of england and the ecb were as slaves to in q4 of last

year, the shape of the european gas energy curve, the shape of the credit curve, financial conditions. but, this is where the bank of england i believe made the wrong judgment. it made the wrong judgment regarding the resilience of the labor market at a time when there were record vacancies, record demand across the u.k. economy. also, they made the wrong judgment on precautionary saving. we have heard a lot about this story. almost every jurisdiction, the fact there was a lot pandemic savings that took laces. they have not yet been divested, particularly in u.k., it is a different story in the u.s. the judgment we will see our -- rather than divest, was a misreading that preceded this period. tom: where are we forward now? what is the central bank confidence in their belief going

forward coming out of imf bank world meetings? simon: when it comes to the bank of england, there is an upgrade coming. they convened again at the start of may with their quarterly on a terry policy report. they are going to have to reverse from what they perceived back in november of last year, a opinion framing forecast of an eight quarter recession, the longest in 100 years. when i speak to international investors looking at u.k. macro, that narrative framed expectations for 2023. we are going to see the reverse, not to a position of runaway economic growth and big divestment for households, but certainly where a technical recession is avoided and you get considerable growth upgrade in the context of all the challenges the imf made to bear in terms of structural challenges, low productivity in the u.k. economy, the ongoing challenges of brexit. compared to where we were last

november, it is a world away. lisa: are you concerned the economic models we followed the past number of decades have been thrown out with this increasing fragmentation in a way perhaps people were not talking honestly about last week, at least when it comes to official discussions at the imf? simon: excellent point. the privilege of coming on this show for a number of years, we have talked about the failure of those models and to different parts of the cycle during a lower forever, stagflationary or stagnation environment. now, in a stagnation airy and varmint, those models are not doing better. i think what you are alluding to correctly so is the imf talking in a much reported log on that reversal to the structural low interest rate environment do to the demographic impacts, high debt per impacts on keeping the natural rate low. i think there was another part of that block not -- that did not get nearly enough coverage.

choices over protectionism in global trade, choices over the transition, the energy transition towards net zero are going to radically dictate or materially dictate that interest-rate path. the fact the reporting was the imf think there is going to be a fate to complete when we return to low interest rates. lisa: do you think there is a political element that is making it difficult to have leadership in this that has economic ramifications if you have leaders that are unwilling to price in a new reality that does account for what you are talking about, really does effect where you're going to be when it comes to the inflation levels we said yeah to? simon: i think you are right. politicians over the last 12, 13 years have become as it has to be set also, the corporate environment have done, they have

become quite comfortable with refinancing and progressively rate financing ever lower, nominal interest rates. when you start to acknowledging your forecasting models, your long-term planning that may not be the path, the amount you can get away on current spending, the amount you can backstop, public-sector investment has to be reduced. those are tough fiscal decisions , outside the electric -- election cycle. we've got key elections coming up in the next 18 months. that embracing of reality of a different path for the natural rate is not going to come easily. jonathan: simon, wonderful as always to get your perspective. i went to simon on that blog post over the last week or so. if you do read through it, there is this line in there. i'm going to paraphrase. projections are only as dependent as the projections that underpin them. that is when they start to talk

about deglobalization, some underlying assumptions but acknowledging that could be a contributing factor to higher real yields going forward. lisa: the chances of that are not insignificant. that is the dispersion of potential outcomes, underpinning tensions of the market right now. why people are pricing in rate cuts at a time the economy looks strong. jonathan: there was a report from -- on the bank of england about changing the deposit guarantee scheme. in america, it is two hundred 50,000. i am not sure how many people are aware of this. in the u.k., only 85,000 sterling. some reports from the financial times they might be considering -- reconsidering that number. tom: your experience on brexit, john lived it more than anyone that morning. jonathan: because i also brexit it that month. tom: i was breakfasting while

you were. jonathan: i am well aware. 92% still active? seems high. seriously? it's just a bike. wait. they make a treadmill with an intuitive speed knob? yeah. want to try? 92% stick with it, so can you.

start a 30-day home trial today. terms apply. i screwed up. home trial today. mhm. i got us t-mobile home internet. now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house. i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck.

>> the banking crisis as a crisis of the banking system. this was a banking tremor. >> the worries about large banks is over, they are resilient. >> it looks like we are on the mend. >> the last thing the fed wants to do is suggest their work is done when it may not yet done. >> something has got to rebalance, it is the fed rate hikes cooling the economy off. >> this is bloomberg surveillance. jonathan: do not call a banking

crisis. he was fantastic. live from new york city, good morning. with the audience worldwide, this is bloomberg surveillance on tv and radio. equity futures are about positive at a 10th of 1% on the s&p 500, more bank earnings this week. goldman and bank of america tomorrow, morgan stanley on wednesday. a real regional flavor. arguably, that is where the tension would be in should be. tom: it is not just for big banks, super regionals, regionals, then itty-bitty banks. there are all sorts of nuances the banking pros -- we will have to sort that out. jonathan: i think we are already sorting it out. major banks friday reporting stellar results. then the regionals. m and t bank, east coast bank.

later this week, california, arizona, that makes. tom: we will see some of the footnotes involved. jonathan: the big banks, these major financial institutions ports in a storm. now, we need to deal with the second argument. whether we can say the coast is clear, based on the data from thursday, which is about borrowing data from the federal reserve and the data from friday, also from the federal reserve, but about bank lending data. lisa: which coast? we might get a collapse of a big banking institution or many smaller banking institutions, but you may see the ongoing grind and consequences of people moving their cash out of deposit accounts into something that delivers yield. this is the bigger risk. people sound all clear at a time

when you see stability in the banking sector, not necessarily accounting for how much credit could tighten? jonathan: that is a profits issue, j.p. morgan did a decent job on the call. there were talking about what they gained on the quarter from stress elsewhere. act i is worries about return of capital, you want your money back. you get away from regional banks. jp morgan, city. -- citi. act ii is about return on capital. we think it might dance off elsewhere in the coming weeks and months. tom: this monday and tuesday into next week, it could go into may. when do you catch up with 5%? it could be institutional, i am old school. i just look at three months, it is not 5%. it is 5.26%, which is not toward

6%. we move quickly on the old-school benchmark. when do they start paying people to give me your money? jonathan: a change over the last 12 months for sure. let us give you a snapshot of the price action, s&p positive by little more than a 10th of 1%. seeing a lot of price action on the euro against the dollar over the last week, 11076 was what it was i think on friday. lisa: we get mmt results earlier this morning, then we are getting charles schwab. any time before market open. this kicks off the earnings of smaller banks. they are going to be coming out, look at the underperformance. schwab shares are down, m&t down nearly 20%. how much do the latest results really speak to the profitability of these companies

, let alone the fact they will stick around and they are not in an existential crisis? empire manufacturing survey, i am interesting to see whether there is ongoing weakening in april. we also get the housing market index at 10:00 a.m. the indexes are traced about 80% of all of the tightening that we have seen since the svb collapse. what is this exactly? putting it to the market with respect to restriction that can offset with the fed has to do. the ecb president and the bank of england deputy governor and the richmond fed president, is there ongoing diversions from the ecv -- ecb being hawkish? jonathan: incredibly hawkish on friday. let us frame the debate in the equity market with a bowl and a bear. -- bull and a bear.

we think more negative surprises lie ahead for investors, goes on to say one that we think is in plain sight is earnings forecast that remain too optimistic. it has been the message from morgan stanley for months. it chief mobile strategist at deutsche bank joins us now. thanks for being with us. still long, still optimistic. >> in the near term, it is earnings. the things to keep in mind our the equity market almost always rallies during early things -- during earnings season. that would change the handle on the s&p to the mid-40 200s, closer to 4300. on earnings, the big picture issue is very simple. if you look at the top down macro drivers, we had upgrades

to growth in the u.s., europe, china and japan. we had the dollar come down. all of that argues for a rebound or a turn, basically, in earnings out. -- up. we are measuring earnings against the bottom up consensus, it has been falling since june of last year. down about 16%, 17%. when you take the top down drivers and plug them in to earnings models or frameworks, it is telling you you should get a significant rebound in earnings. you should get pretty average beat of about 5%. there is a narrative the bottom up consensus is forecasting the worst season ever, down 7%. we should be careful with the hypothetical. the earnings beat almost always

by 5%, so you were down to 1.5%. tom: the s&p has made it halfway back out of a green bear market. institutional portfolios may be made it halfway back is a basic statement. this is great that you take a longer timeline, more relaxed view. you talk about a passing of the baton from earnings to the next thing to keep your optimism going. what is after the earnings analysis? binky: it will depend on whether it is going to erupt into a severe rate fall of the u.s. recession. i would say basically, instead of looking at the aggregate all the time, we should differentiate goods and services.

you will see very clear picture and i would argue is now really comes the test. think about the trend line, services fell far below and had been rebounding. the growth rate is slowing toward trend. they do not slow very much, you did not get recessions and services. it has been on the good side, we got massively elevated relative to trend, depending on what metric we are talking about. up to 25% above trend levels. there is the covid speed cycle in summer 2021 and since then, what has happened is an incredibly resilient outcome. we've been going sideways in real terms for two years and the key question is, as we come back down to trend levels -- which we are near -- are we going to start growing or are we going to crash? lisa: as we talk about earnings

season, the expectations are all over the place. have a more bullish expectation, mike wilson a more bearish one. the overlay of a banking crisis, what are stocks currently pricing in? what are they pricing and with respect to contraction of credit? binky: i do not think the equity market is pricing in that much in terms of a credit downturn. if you look at what is the equity market pricing, it is pricing 46, which we have got. it is kind of right where it should be, in terms of the short-term, near-term drivers. nothing more than that. in terms of the banking stress, to the extent that it has captured the pni and ism, the market priced it in. jonathan: does make since we haven't s&p 500 we anticipate will get to 4300 and a rates market that is priced against serious rate cuts?

binky: you know, on the rate cuts issue, what i would say -- if we are talking about the 10 year yield, the difference of view between the fed when you open it, the first thing you see is rates are coming down massively. the question is about six months over a 10 year period, maybe nine months. the bigger issue for rates is all of the forward guidance that convinced the market to go massively short kind of blew up. is it going to come back? i am skeptical. jonathan: does the s&p 500 at 4300 and cpi at 5%, does that encourage the federal reserve to cut interest rates? binky: our house view is we will cut interest rates next year. do not want to get over hung up

on what is a very fluid calendar and precise calendar times all out there in the future. i'd be careful on that. jonathan: thank you, sir. instructive for earnings season for a potential move to 4300. 3800, 4200. tom: what is important is they do not have a rigid timeline, they are looking at framework. somewhere out there, they get to the bull market. jonathan: coming up, city global wealth. a conversation in about 50 minutes away. equity futures positive by more than a few tenths of 1%, the bank earnings keep rolling in. lisa m.: keeping you up-to-date with news from around the world. spacex is set to launch its massive deep space rocket starship into space this morning.

if successful, the test flight will be a critical milestone in the company's ambitions for manned missions to mars. nasa plans to use the same spacecraft to return to the moon. once operational, starship will be the most powerful rocket ever built. gunfire and explosions rocked the sudanese capital for the third day as they try to stop efforts -- stop clashes from escalating to a full-blown similar war -- civil war. nearly 100 people are reported to have been killed. the french president has enacted his controversial pension reform after clearing a constitutional hurdle. the move was made possible after france's constitutional council approved the core elements of the bill. despite weeks of protest, the law increases the minimum retirement age by two years and will take effect in september. the ecb president says she does

not foresee the u.s. defaulting on its debt. in an interview with cbs, she said she is confident the u.s. will not allow that to happen. save it would have a negative impact globally. the biden administration is locked at an impasse with republicans over government borrowing and related spending cuts. global news, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

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debt. this is not possible, i cannot believe that it will happen. if it did happen, it would have very negative impact not just for this country, where confidence be challenged, but around the world. jonathan: almost unthinkable for so many people, that was the ecb president over the weekend. back in new york after some really interesting imf world bank spring meetings in d.c. over the last week, we return to price action in the equity market. equity futures are up a little more than a 10th of 1%, we had m&t early this morning. we will get schwab numbers later this morning. on to tomorrow, we will hear from other big financial institutions including goldman and bank of america. wednesday, morgan. a lot of regional banks in the mix, western alliance is one of them. outside the equity market, yields are higher by three basis points on a 10 year.

the euro-dollar just after 110, we had a break of 110 last week. 11076 is the new intraday high. just a touch of euro weakness, little more than a 10th of 1%. tom: 2021 on gold, gold is elevated. jonathan: just short. tom: just short of a record. does gold breakthrough, given the news flow? may be a safe haven state. on a jumbled monday morning, it is good to speak with the hostess in washington, did a wonderful job. chief scandal crisis story correspondent. i do not know where to begin this morning. but i think i've got to make clear the national shock the

21-year-old could do all this damage -- like others on twitter, i take issue with the word leak. theft of government secrets, what is next for the 21-year-old? annmarie: there is a massive investigation going on at the department of justice and of course at the pentagon. the next big question that is facing the government, there will be hearings in congress. you heard over the weekend and all of last week, members of congress coming out and wanting precise questions and answers about how this could happen. potentially then, this would lead to may be new categorizations on how certain people have asked a certain data. at the moment, this is a huge investigation. there are still more questions than answers. tom: what happens to him? is this like a novel where he

goes away forever? i do not see enough written about what is going to actually happen in this alleged criminal event. annmarie: i do not think we know yet. he was arraigned and arrested, then he will go on trial. then a jury will decide. i imagine. lisa: a question about the distribution of some of the information that was stolen, that was leaked. there's been some connection to online russian bloggers and online russian personalities that have perpetuated and gone way below the radar of a lot of the intelligence. what do we know in terms of the proliferation of that type of disinformation? annmarie: there is one interesting lead this morning in the washington post, which plays to the story and amasses concern for the pentagon and national security in washington, was any of this infiltrated or

propagated by russians? we know that russians send the individuals, into individuals, to places like this, to these gaming apps, etc. in one of the weeks, the russians in the document were saying how only 1% of these "hackers" or influencers are found by the u.s. government. there is potential concern there could be more of these individuals out there that the u.s. government does not know about. lisa: just to shift gears, we have the unfolding at the same time as ambassadors from the g7 nations are meeting in tokyo ahead of the meetings. i'm wondering what you are looking for. you've been to meetings like this, you seen the communicates that have come out. how are the g7 nations coming together to deal with the threat of china and why is important it is being held in japan? annmarie: i think what is interesting now is falling on

the heels of the french president's visit to china, what comes out of this communicate will speak volumes. he won zero its own autonomy, what the u.s. is doing is the complete opposite. they want a multilateral approach when it comes to china, whether that is export controls, outbound investing, when it comes to making sure there are shipments of arms to taiwan. they want to make sure they have all their ducks in a row with the european allies to combat china, very different from what we heard from emmanuel macron. that is where the consensus is and where the u.s. potentially needs to do more work with allies. tom: i believe the secretary of state was scheduled to go to china, it was canceled, etc. do we still want to send him there and do the chinese don't want to greet him? -- chinese still want to greet him?

annmarie: they plan on sending him at some point, we also heard from janet yellen who set at some point she is going to go. we heard from gina raimondo who said she wants to go. none of these have been fully detailed in terms of the dates that we know these individuals are set to go. interesting, another -- both these stories, the leak in china -- over the weekend, the washington post talked about they found for other spy balloon's-- four other spy balloons. jonathan: i've heard so much about the leaker over the weekend, did not hear nearly enough about what was leaked over the last month or so. what have we learned about that in the last couple of days? annmarie: over the weekend, there was the one story about more chinese spy balloon's, not just the one that many people

saw with their naked eye over the continental united states. there is another story about concerning the u.s. has about taiwan being able to defend itself in an event of the chinese army invading the island. those are two big stories coming out of the leak and, obviously, causing some concern. not all of this is mind blowing to a lot of people, they expected to happen. now you are seeing in black-and-white. the dod or national security or the white house are going to have a lot of answers, have to have a lot of answers to these questions. jonathan: very sensitive issues, thank you. i have not heard nearly enough on what was leaked, i imagine we are still finding out. tom: i do not think they want to tell us. someone mentioned there will be a court case. what can you say in a public court of law about some of the sensitive stuff?

i take the point, was it a leak or did he steal it and give it onto his friends? i am not qualified to answer that question. lisa: one of the debate is whether this is an issue from an ally perspective, whether they will not give the u.s. the same level of information interest, or if there is a jeopardy station of some of the tactical battles on ukraine's part or what we know in terms of what is coming out. also, what annmarie was talking about, reports the u.s. gauged that china could win out in airspace superiority when it comes to taiwan, what that implication would be. they could not occupy the territory. these are all the kinds of sensitive information you do not want to be reading about, yet here we are. jonathan: the details are still pouring out. the story is only a couple of weeks old. equity markets are shaping up as follows, just about positive by a 10th of 1%. in a moment, we will talk about

the bond market. yields are higher by a couple of basis points to 353. we will catch up with the cio of global fixed income, timely conversation. tom: timely on a number of levels. to me, what it is about is the bond issue. what corporations, what the sovereigns do worldwide, given the shift to higher yields. jonathan: we went from zero to close to 5% in 12 months, that is arguably what was behind the massive profit story. from new york city, this is bloomberg. ♪ if you wake up thinking about the market and want to make the right moves fast...

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jonathan: a brand-new week on wall street, good morning. equity futures are positive almost a 10th of one person on the s&p. unchanged this morning on the nasdaq, -0.02%. that is nothing. let us get to treasuries and see if we have got something. yields are higher across the curve. by three basis points on the two-year, 4.1329. real encouraged by the federal reserve, sounded pretty hawkish. i would say very hawkish, with

regards to what we have seen so far. basically saying he has not seen enough improvement on inflation and they have got more work to do. does that mean more than 25 basis points? i imagine somewhere above the median in the s&p. the finish on foreign exchange, seem real euro strength over the last several weeks. we saw 110 76 on the euro-dollar. negative a little more than a 10th of 1%. lisa: you talk about the governor's comments, that is a good place to start. he was talking about how the work is not done. at a time when you have got three full rate cuts priced in, how much does the banking crisis averted really go into the story of rates staying higher if there is no banking crisis? what you see this morning is not

the sign of a banking crisis. up more than 4% in free market trading. basically in line with expectations, 159 billion is the estimate of 161 billion, so slightly lower at the end of the quarter. nothing significant. earnings-per-share beat expectations. schwab we are expecting any minute to come down about 2% ahead of the market expectations , because they pioneered the trading strategy. does that end up coming to bite them in a way it did in march with the first month since 1987? we talk about the big numbers and how much they are the behemoths and untouchable. you start talking about

artificial intelligence and chat gpt, there was a report over the weekend that said microsoft being might replace google -- bing might replace google as the default search on samsung devices. there is a question around whether other competitors could do it better and cheaper with a more updated version of artificial intelligence. you are seeing the shares down about 3%. jonathan: interesting. lisa: microsoft, the setting is being-- bing. people do not realize it. jonathan: everyone knows they're going to bing. lisa: i like google. is that going to change if they have more sophisticated technology? [laughter] tom: the underestimation of google search powers something -- apple safari --

lisa: have not heard that in a long time. tom: apple maps are trying to fix it, it is still not google maps. but bing is bing. jonathan: let us go back to rates and play it safe. [laughter] $ has --andrew balls has this to say. bank failures and rising cost of capital raise the prospect of a significant tightening of credit conditions, particularly in the u.s.. therefore the risk of a sooner and deeper recession. we've seen signs of stabilization over the last week. but this is a key risk for a lot of people. tom: one of the joys is andrew balls is one of the big thinkers who has been in the trenches of portfolio management. he took the trophy for a income manager of the year 8, 9, 10 years ago. he has beautiful experience at

dovetailing the investment world into that of the broader economics. credit conditions tightening is about inflation, citigroup published moments ago that the german union sector and renegotiations will have 12% wage growth in the next 24 months. that is a stunning number. have we turned inflation around as we consider credit conditions ? andrew: i think it remains a big uncertainty. that is an impressive number for german type wage agreements. inflation has been very high there, almost as high in the u.s.. it is a couple of quarters behind the u.s. the picture is that inflation is coming down across the world, driven by energy prices. underlying inflation, you've got

some evidence it is starting to edge down. the difficult thing is, where is it going to settle? it seems likely to us that it will settle a little bit above the central bank target zone. how comfortable they will be is the big question. at the same time, you have improvement, as you were just talking in terms of u.s. banking system in terms of financial market volatility. still, we think there is going to be a big impact in terms of credit conditions. tightening credit conditions, but still sticky inflation. it is a difficult combination for central banks in europe. tom: nominal gdp, this is an important point. we get some kind of real gdp and the call is inflation comes in sooner. pimco saying later.

are they saying this is secular stagflation? andrew: i have lost them. tom: i think we've got technical problems with andrew, i was going to the idea guys that the great debate is real gdp, whatever that will be. inflation quickly or not quickly, which is what we're hearing from andrew. that nudges toward secular stagflation. jonathan: the next question is, how quickly do they ease? the federal reserve starts to suggest it in the outlook, the market is easing. that is the new tension. it is not that new, it was the tension we were talking about at the start of the year. the market is coming up toward the fed and after the banking chaos of the last month, it opened back up.

the federal reserve is trying to communicate we have got more work to do. we are not going to be cutting this year. this is tension that will resolve with time and data over the coming months. tom: based -- lisa: they seem to be -- tremor, however you phrase it. the bond market seems to be reflecting that, stocks do not. the tension needs to get resolved, because the fed has a much lower threshold for cutting rates or the issues are going to be more sustainable and impact the equity side of things. jonathan: 4300 on the s&p, cpi at 5%. something has got to give out of those three, right? lisa: which is the issue we continue to see that people do not seem to be resolving, they

do not have a sense of what the actual situation is. jonathan: and is back with us. let us go back to where we were, we can build on what we were talking about. the tension between the market pricing cuts and the federal reserve signaling a pause after one more rate hike. how do you expect the separation to be resolved? andrew: it is tricky, equity prices for fixed income is a little bit confusing. the best way to think about is the bond market, in terms of what we are pricing for fed cuts , is the average outcome. you've got a good chance of the fed being on hold for some time, given the sticky inflation. then, you have the wrist the credit crunch gets a lot worse.

the fed may be back down to 1% again. you average those out, you can explain what is being priced in. maybe the equity market is priced more for the modal, fixed income, a little more reflecting. the range of possibilities. it is not easy to do, given where inflation is. it is certainly possible. the best guess is we will come into a recession in the u.s.. lisa: our bonds reliable? -- are bonds reliable? andrew: i think -- we are changing information, you priced this very quickly. there are times where it was

very uncertain if you're in the federal reserve, there is a great deal of uncertainty. trying to price the range of outcomes around the uncertainty. we will see, it is perfectly likely we will see the fed on hold through the rest of this year. this is our expectation. there are the risk cases around that. the market prices out the fed rate cuts, i do not think that needs to be to destabilizing. this is confirmation of avoiding the worst kind of economic outcomes. i think it is perfectly plausible. i also think credit markets, fixed income markets, you are pricing more of the recession risk less probably in terms of

our team's analysis. jonathan: thanks for that. fixed income right now with really important points at the end. to what extent with the financial stress be a substitute for rate hikes? that was part of the story, but you get a big's bill overthrew the financial system. that would mean the fed may have to ease, not just fall back on more hikes, but ease. lisa: which is why he was saying equities are not pricing in a banking crisis. jonathan: fantastic lined up on the bond market this morning. and about 50 minutes, steve major here in new york. that is very cool. yields are higher on the 10 year , yields higher by a couple of basis points. the equity market is unchanged. ♪ lisa m.: keeping you up-to-date

with news from around the world, i am lisa mateo. gunfire and explosions rocked the sudanese capital for a third day as they tried to stop clashes from escalating into a full-blown civil war. a long simmering dispute a raptor this past weekend into a battle for control of the nation. nearly 100 people are reported to have been killed. the delaware judges overseeing a voting machine companies defamation lawsuit against fox news and announced a one-day delay in the start of the trial. jury selection had been set for today. it centers on whether fox defamed dominion voting systems i spreading false claims the company rigged the 2020 presidential election. the japanese prime minister resumed election campaigning over the weekend as a smoke bomb was allegedly thrown at any event in central japan.

he was evacuated unharmed and a 24-year-old man is said to be arrested. the attack comes just weeks before he said to host a group of seven world leaders summit. the u.k. prime minister is expected to receive a boost as inflation slips back into single digits. it is raising hopes the interest rate increases is nearing an end. figures are expected to show inflation dipping below 10% for the first time since august and a cooling in the labor market. global news powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪

>> the banking crisis as a crisis of a banking system, this is a banking tremor. a few that were badly supervised.

big banks are just fine. big banks are benefiting because they have two things. they are viewed as safe and have diversified business models. jonathan: the numbers at the big banks absolutely incredible. the numbers are interesting, jp morgan up more than 40%. citi up more than 20%. last year, 12 months ago in the first quarter of 2022, rates were effectively at zero. now, they are closer to five. the banks are benefiting big time. tom: they are benefiting from the trends. are they going to massage the message? are they going to go down to congress, get hauled in front about a banking crisis? how do they handle they are minting money. i mentioned earlier jp morgan

pre-pandemic, they move way past be on this with power in strength. jonathan: they clearly attracted some deposits, i say they push back against the nature of those deposits when the ceo of jp morgan starts talking about the flighting this potential of the deposits that derived in recent weeks. lisa: it will be and how much they raise their interest, how much they offered to depositors. they can say what they want. are they ponying up to keep depositors, or do they not have to? that will be what will show whether that is true. jonathan: do they need to? lisa: that is the issue. they are lower than the smaller banks, only three quarters of a percent for $200,000 or $100,000. jonathan: then you have got profit headwinds that are very different to the headwinds that will face major players on wall street. tom: that is the dynamics out there right now, it is an error of capitalism in baking -- era

of capitalism in banking. some of these banking exercises are marketing plans wrapped around the guise of a bank. this morning in a brutal story, a put out a definitive story for bloomberg on the real estate ballet of troubled banks, piecing it together. this goes from the zip codes of beverly hills out to the hamptons, then maps are were devastating. explain not pecan job, but the free launch -- the con job, but the free launch. you have a house you want to buy, is there a bank there to help you. >> first republic is going to

jump in and offer you interest-only loans. you remember back in the global financial crisis, 2008, your member the kind of loans that were speculate of loans that were offered for purchase is being made. those were risky lenders, that is a different namic. first republic is a bank that knocked a niche for itself by catering to the wealthy. they went after interest-only loans, were you paid interest for the first 10 years and not recouping principle for a third of your regular mortgage period of 30 years. what has changed from 2020, 2021, gone from zero interest rate of 5% interest rates. the loans of lost value. unlike silicon valley and signature bank, where the security portfolio was the real trouble -- look at something else. it is their real estate mortgage, the jumbo loans they were making about 20 million plus just on these types of

loans. that is a problem and why we have not seen an easy solution for first republic yet. tom: i've got $7.7 million property in southhampton, i will get an interest-free loan and mortgage from the bank. do understand the reporting is principal repayment on that was delayed 10 years? sridhar: correct, that is one way to attract customers. got some of the biggest names on wall street to bank with them, including bankers from other prominent institutions choosing to take up their mortgage with first republic. they were trying to make sure they could save the extra penny and invested. tom: the first national bank of abramowicz is coming to pick up the portfolio. sridhar: when you have that hole in your balance sheet twice the size of your equity, you are looking to anyone even coming in paying zero dollars per share still having to take a $13

billion right down. why would you do that unless there is sweetness added in there by the government? jonathan: state street right now, net flows disappoint. the stock is getting hammered. it down about 7% in the premarket. that came in a little later than expected. it is an interesting headline that i would love for you to translate. the deposit resulted in a 29 million dollar provision for state street. can you translate what has been going on over the last month with these financial institutions getting together and trying to support first republic? sridhar: we had 11 of the largest banks in the country including state street and jp morgan them together 30 billion in deposits and saying we will park it with first republic, it was supposed to be a sign of confidence. how accounting rules work is it is not just on loans you have to take provision, you have to be willing to take provisions for

any place where you can see a possibility of loss. even though this is not a signal that first republic will not return their money, the rules are such that most banks who took part in the exercise had to take a roughly 2% provision. it sounds like about $30 million, at others it is closer to 100, a little more. this is not a sign first republic will not be able to return their money, but at the same time, it is an acknowledgment the move of public relations exercise, the confidence building exercise, was not entirely risk-free. lisa: there are a couple different issues coming out of earnings. some are saying -- we were talking about the interesting mortgage scheme, the number of poorly managed banks or those that took an undue risk have not been worked out of the weeds yet. then you have the profitability issue we are seeing with state street. from your assessment, which is the more pressing narrative you think accurately reflects

whatever kind of banking situation we are in right now? sridhar: it certainly still is the issue with regional banks. the way we are describing the scenario that panned over the last few weeks, we've gone from calling it the banking crisis to crisis for some banks. that is the case, we seen a couple banks. we will most certainly see a wave that will follow after we get certain clarity and as jamie dimon and others have said, there will most likely be a few other banks that will still fail. investors are trying to figure out which banks those will be. they are probably going out and trying to find rescue solutions or inject liquidity into their balance sheet so they can ride it out. there is trouble on that front. everyone seems convinced the domino effect that could affect the entire system -- the risk of that has lessened. that does not mean they are not some banks that will still go through a world of pain. jonathan: final question, what

are the banks this week you are focused on? sridhar: it is incredible. every bank earnings season, you are looking at the biggest banks in the country. whether it is goldman sachs or morgan stanley, or jp morgan to get a pulse on the consumer. this year, unfortunately, we are paying attention to bank earnings, everyone is interested in regional bank earnings that we will see in the days after the big banks report. that is where the problem remains and that is where the attention is focused on. jonathan: a name like western alliance, is that something you will look at? sridhar: we will definitely look at a name like that and republic might have lost 90% of market value this year. most of that in march alone. there are several other banks that are severely off their mark from the start of march. jonathan: first republic i

believe a week from today. some really interesting stories, we've got to work our way through. the big banks are doing great, we can see that in the numbers on friday. going to hear from bank of america tomorrow, we have got it clear, message received. lisa: that is why the reason you mentioned state street was so interesting, interest margins were not as high as expected. provisions for loan losses higher than expected. jonathan: still seeing the buyback program of up to $4 billion for 2020 three, no changes at first to capital return. tom: i did for big consolidation. he is only working a 35 hour work week, we can cut it down to 32. jonathan: i hear the same thing. equity futures on the s&p positive a 10th of 1% on the s&p 500, citi is joining us next.

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>> the market has been climbing this wall of worry. >> when you change the interest rate paradigm as quickly as you did, you will catch people by surprise. >> things will slow down the second half of the year. >> in the u.s., policymakers are

still grappling in terms of growth inflation. >> economic policy is not in the driver seat anymore. >> this is bloomberg surveillance. tom: good morning, everyone. not a boring monday. deeper into the bank earnings season and with that come issued snapshot this week on the just under 7% mortgage. there is a lot of housing data and credit conditions are tightening and you wonder where that dynamic will fold in with the banking dynamic as well commercial real estate. jonathan: we are following the data on the banks. it's not cpi and payroll but let's go to the federal reserve. they have data on how many banks are coming them to get funds and that gives you an idea of how

much stress is in the system. that was thursday them friday, bank lending data from the federal reserve and we are starting to see some growth there which is good news and you put that together with the big banks, they look super profitable now i want to know about lending standards and small banks and then we get data in early may, the officer opinion survey. then we returned back to the question right now -- to what extent is the stress of the last month substitute for rate hikes for the federal reserve? we will find out the answer to that slowly. tom: it's back and forth between financial stability and monetary policy. all of it is the tea leaves and where we are. lisa looks at charles schwab, san francisco. lisa: it's sort of a motley picture because on one hand, the earnings-per-share beat in the came up with first quarter

adjusted eps of $.93 versus the estimate of $.90. a lot of positives and yet their deposits came in under. they also decided to pause active share buyback programs and that's in the shares significantly lower in real-time. out of some of these firms manage at a time when people are skeptical of whether they get a -- are getting the best bang for the buck. they want the interest but it's not clear where they can get it. tom: the shareholders have a dividend increase and they didn't argue about that. i've got a five year net dividend growth of 21% per year so that's a schwab saying we have use of cash and will distribute to shareholders given this turmoil. jonathan: the stock has been

hammered, 37% down year to date. it didn't really make much sense on some days where they got hammered but the stock is hammered today and we are down 0.2% in the premarket. lisa: it's been bouncing all over. are we going to see these -- this bifurcation between the haves and the have-nots? are we seeing that in real-time? we go to blackrock versus state street with state street shares down in the blackrock assets are climbing to $15 trillion over the next couple of years. at what point is this survival of the largest throughout the banking sector? jonathan: we saw that with j.p. morgan friday and wells fargo and citibank. i imagine we will see it from bank of america later this week area for the broader economy,

goes beyond big names. are we going to see a severe tightening of lending standards at the smaller regional banks which will have an outsized effect on the broader economy? that remains to be seen and not just because of good numbers on the big banks but the coast is clear on that front but there are a number regional banks reporting this week and next week which will offer us a clearer picture. tom: part of it is rate of change. we are modeling off the bloomberg pre-pandemic where they did $5 billion in operating income and they are doing a double on that out to 2024. this is a profitable company. the operating income margin is $.40 on the dollar. jamie dimon would love to do that.

i'm not so worried about schwab but some of the less visible banks there is a real mystery. jonathan: the people that dependent on the regional banks have to worry as they borrow money. we will see how that develops in the coming months. tom: we've got an important guest with us so let me look at the data and start off with the resiliency in the dollar. jonathan: futures are positive by a little more than 0.1%. lots of bank earnings and fed speak this weekend lisa will guide you through that over the next couple of days. the 10 year is a little bit higher in the euro against the u.s. dollar is breaking the one dollar 10 level friday. tom: one of the great voices of wall street counseling patients is david bailin global head of investments at city global wealth.

you lead your essay that it's not easy to be an investor now. how do i have confidence to stay in stocks? >> right now, we are 2/3 inside the bear market. our coverage is the recognition of what earnings will be on what the level of recession the fed anticipates actually occurring. we think earnings will go down probably between seven and 10% which is less than what analysts are expecting. they are expecting growth and you and your team just talked about the fact that we already see further tightening due to bank lending standards and we see it across several data sources. we see banks are lending less than the amount to outstanding loans and we see the reporting by companies on the fact that lending standards are already tighter and we will actually see

the ability and capacity of small and medium-sized banks, that will go down by half $1 trillion of deposits moving into treasuries and money market funds over the last three months. these are already constraints on an economy that is already slowing. lisa: we've been talking about the dispersion between bonds and stocks. stock traders are shrugging this off. who do you think is right? >> the bond market looks to be right for the moment. bonds have rallied extraordinarily. the two-year and the tenure have moved with yields moving dramatically lower. the stock market is anticipating and saying the discount rate for stocks is gone down. the bond market is saying we have to be much more vigilant about where the earnings will go

down and where they will go up. companies have different technology companies and industries where you can see margin growth and revenue growth that should be rewarded. bank stocks in particular like the ones you've been discussing have done poorly in the industry average has been largely range bound since october of last year. we have to see the digesting of what will really happen with earnings in order to be able to look into 24 and 25 and then you will see substantially recovery but we are two thirds of the way through a bear market. lisa: people were talking about going outside the u.s. earlier this year because the ecb was raising rates more than the fed. do you still see that as the narrative that could drive investment vc's or is the u.s. a better place to park because it's a better place to hike

rates? >> emerging market exposure, non-us exposure will become extremely important. we are near the third highest dollar peak ever and valuations for non-u.s. stocks and especially emerging markets are at an all-time low. if you are a u.s. investor today and would like to buy companies or industries outside the u.s. to take advantage of the disproportionate devaluation of those shares as well as the fact that the dollar will fall, i think it will be a major source of income for profits for us over the course of the next two or three years. jonathan: you are not alone, we have heard that a lot. look at the energy names last week. you got great numbers from them off of the great reopening of china. there is a tightly defined range

on the s&p 500. 3800ish at the low end and 4200 at the top and and close to the upper end now that tightly defined range. lisa: the battle underneath for leadership is so intense. how long can tech lead in will the fed benefit some of the interest rate sensitive areas by cutting or will this be different? jonathan: that's quite a promo. you should do a voiceover. lisa: i'm auditioning. tom: lisa's newsletter talks about that. jonathan: how is toxic brew going? lisa: the battle for leadership. it's going well. jonathan: should we promote the daily newsletter now? subscribe bloomberg.com/surveillance. tom: can i sell this thing?

i don't have any equity in this thing but it's got great links. it's like look at this, look at that, it's important. lisa: there are themes that go through our discussions with our guests that are fantastic and highlight the main debate so that's why it's important. jonathan: you are finding rhyme and reason in this chaos. we just saw steve major walk into the office. he will join us in about 20 minutes from now. we will also touch base with ed ludlow on the west coast. we will get this deep space rocket starship from spacex. tom: it is complex, the complexity of this rocket deep into space is not like apollo. jonathan: we will make time for next on bloomberg. >> lisa: keeping you up-to-date

with news from around the world with the first word. let's get to that rocket, spacex will launch its massive deep space rocket starship into space this morning and these are live pictures and if successful, the test flight will be a critical milestone in their ambitions for manned missions to mars and they plan to use the same spacecraft to return to the moon. the starship will be the most powerful rocket ever built. first republic bank has lost nearly 90% of its market value this year. the stockpile of low loans is being blamed. many of them have been to wealthy homebuyers and property investors with high incomes and good credit scores who have years to start paying them down. mortgages are performing well but the low rates have delayed repayments. analysts are estimating a big drop in deposits. another sign of mounting pressure on the banking industry -- barclays is responding to a slowdown in dealmaking and capital markets businesses by cutting about 100 roles in its

banking group. they already let go of roughly 200 positions in the same -- in the same division in november and mark is set to buy prometheus for $2.8 billion. the agreed price is a 75% premium. merck is looking to bolster his research pipeline as it faces a losing patent later this decade. global news, powered by more than 2400 journalists in more than 127 countries. this is bloomberg. ♪

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we would rather die. that was their initial response. ed: you actually said you didn't want to buy it. >> then they said you must buy it, gun to the head. are you the same people who said you would rather die? jonathan:jonathan: that was elon musk and that $44 billion offer look more attractive as the year progressed. that exchange between elon musk last week was must watch television. you have to find that interview and watch the whole thing. welcome to the program, he did a series of interviews the last week in the attention this morning is away from twitter. it's on to spacex which is doing some phenomenally interesting things. tom: i have to be careful here. there is a lot of citizens up in space and then there is the science of this which is what propulsion do you need to get

comfortably to the moon. and then on to mars? this thing today is taller than the statue of liberty and it has 30x number of rockets separate on it. this is a giant norma's candle that is going into space. it's an portable flight. there are no men or women on board. this is the science that when you hear rich guys say elon musk technology, this is what they are talking about, not the rumors about what they are doing with their employees. jonathan: it's about deep space exploration? tom: to mars. jonathan: the focus had shifted away in the last few decades. tom: you don't go in a straight line. it's not like in cartoons where you go to mars. you have to get out there and -- and do a long curve. matt damon did it and no one

else. it takes huge propulsion to move that weight up. if you go up in a pup tent, that's easy. this one has to carry a lot of stuff. lisa: it underlines the space ex-president that said this is truly a flight test in the real goal is to not blow up the launchpad. that is a success. tom: my childhood was fractured. your dad had slides of my father would have slides of the family and 10 minutes in, he put in and explore rocket blowing up in the launchpad any thought that was fun. i'm sorry, there is real tension to this liftoff today. this is not normal. jonathan: ed will tell you this is a test attempt so we will see potentially a lot of action this morning. i think may beat 9:20 a.m. eastern this is happening? tom: we have to wait for ed to

wake up and have his coffee. he is with us now. he is on astronaut watch today. what is the risk to this launch? ed: it's a very expensive test. it proves that the technology works as a launch system. you talked about saturn five and is most complete form has twice the thrust, 16.7 million pounds to the saturn five 7.6 million. you guys nailed it, they want to know if it can get off the ground without melting the launch tower. tom: 30 years ago, it was assumed to go to mars, we needed some form of fusion launch, a nuclear propulsion engine. that's not the case here, is it? ed: it's methane mixed with oxygen and you make an interesting point.

elon musk did a twitter last night for subscribers only where he spent an hour trying to set the bar very low. all they want to know is whether the system can get off the ground, detach and they will not try to recover the booster or the spacecraft. the booster will fall into the gulf of mexico if it gets off the ground and sink. the starship spacecraft will hopefully reach orbit but when it falls back down to earth, it will splash 140 miles off the coast of hawaii and not be recovered. this is a system that's been worked on since 2005 and goes back to the idea that elon musk is not always accurate with his timelines but he gets there in the end. this is a big proof of concept moment. lisa: traditionally, this was the territory of a federally funded program. suddenly, we have a private company doing this. what is the business case to get a rocket to go to mars?

ed: the elon musk goal is to make mankind a multi-planetary species. you discussed mars but that is a goal and then the business model is not clear. spacex has change the economics. this took $5 billion to develop an saturn five and 2020 dollar terms took $50 billion to develop. the business model is interesting because in the first instance, there is an asset contract of three billion dollars spacex to use starship to get to the moon. it's a moon landing system and that dollar comes from the public. internally for spacex, the idea is that the payload capacity is so much greater. it's a more efficient means of getting starling into orbit and get it deployed at a cost that's much cheaper than they are currently doing. lisa: for those who like science fiction, the big challenge was

always getting back from mars. if you got there, you couldn't carry enough fuel to get off of mars to get back to earth. has that been discussed in terms of returning or is this let's see what we can do and that -- and that might help? ed: i was bracing for tom keene to ask me that question, not you. even post orbit, the long-term plan is for spacex to launch starship, refuel in orbit and have a vehicle already in orbit to couple with an refuel it and get it to mars. to your question, they have to launch with such capacity that whatever they are sending to mars has to be given the infrastructure that localized fueling can be established for the return journey. elon musk wants to dial mars, not on impact with you also don't wanted to be a one-way ticket. that's part of the strategy

where we are years away from. even last night, elon musk said we are many years away from starship making regular orbital flights outside the atmospheres of mars is a distant goal at this point. jonathan: you and i will catch up on this again at about 9:20 a.m. eastern when we expect the test to take place. e$d: maybe. jonathan: you asked a tk question. lisa: it's so interesting because the one-way ticket idea isn't very lucrative. you're basically sending people to never return. tom: it's like looking at j.p. morgan's balance sheet, you don't understand the scope and scale. what so under porton is the moon hangs up in the sky and you wish we had two moons like star wars. mars is 150 million miles away.

the scope and scale, all of us really can't imagine that's a starting point for how far away saturn and jupiter are. jonathan: refueling in the air, i'm impressed by that and that's been going on for a long time so imagine doing that in space. lisa: it's so cool. it takes like nine months at the current speeds to get to mars to be able to get that amount of fuel in space and come up with the infrastructure to refuel? it's pie-in-the-sky but it's very intriguing. tom: the important thing is you have to get home. that's the hard part. on the apollo mission, everything was focused on getting there. they had to get them home and that was really what they focused on. jonathan: in the next hour, we

will do the market for you, counting you down to the opening bell in an hour for no -- from now. we are going to talk markets and it feels like a downer after what we just talked about. equity futures on the s&p 500 or about unchanged with yields slightly higher. the 10 year is 3.54. good to be back in new york, this is bloomberg. ♪

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tom: bloomberg surveillance, good morning, everyone. jonathan ferro is preparing for space our at 9:00. thanks for the feedback. n they call it aerd out we were doing. lisa: there is no other way to describe it. tom: we will do that in the 9:00 hour with some really good perspective with ed ludlow on a technological basis. right now, we were look at bloomberg economics with michael mckee. why does a guy like you waste law just waste time in a tertiary statistic?

it's a big move on the empire manufacturing data. the headline number rises 35 points to the first positive reading in five months from negative 24.6. a very rapid increase or improvement in the empire index. prices paid dropped nine points down to 33.0. the work week is up but still negative the number of employee improvements but much better outlook from new york manufacturing. tom: the two year yield is 4.6% that catches my attention. 10 years ago, the horror at the boston marathon and today, there is a celebration of the boston

marathon which is late this time around the red sox will go up against possibly the greatest unknown picture of our lifetime. tell our international audience how unique this guy is? probably most people in the world have heard of ohtani as perhaps the best pitcher in the american but perhaps the best hitter in the american league. nobody plays both ways unless it's him. you would go to fenway on patriots' day anyway way to sneak out of work but this would be a great thing and you are forgetting tonight. tom: they have almost been as successful as west ham. a constructive positive number on empire manufacturing.

4.16% on the two-year yields? lisa: the fact that the bond market moves as much is it doesn't this tertiary statistic is interesting player two-year yields are popping up from as low as three point 51% this morning. there is this feeling that the underlying strength of inflationary force. is greater than some people previously thought. tom: a huge debate and our theme is the many narratives out there. stephen majors is the global head of fixed income research at hsbc joins us. you are iconic for a lower yield call. there is a camp aggressively looking for lower yields led by the imf in a stunning five year gdp projection globally. reaffirmed the low yield call. >> the imf have also identified the lowest numbers. i know you're not a big fan of them. tom: on friday, i had to be.

>> the reason you have to be a fan is you need an anchor in your process. the anchor is sometimes taken negatively. i look at it as a calloused to the thinking process. we are anchored around this low start because we believe it. we believe the debt levels in the system and the demographics are key drivers of this destination point. most people seem to spend all of their time following the policy rate today but you need both. it's completely reasonable to have that debate. tom:ian lingen aggressively said the 10 year, 3.56%, if it gets to 3.65 percent, that's a buying opportunity with yield down in price up.

do you have that nuance? >> i think people look at me in the read this stuff and they think i'm one way. i guess you guys have done that to me as well over the years. we have forecast lower yields consistently. we want to buy at cheaper levels. somewhere between here and 3.75% is a good level. if someone says 3.65, you would go in at 3.64. it's difficult to imagine us getting back to 4% on the 10 year. lisa: i'm more interested in the larger destination call. i have never seen such a disagreement on this until now are so many people say this is a new era and the fragmentation we see with china and the u.s. and europe will lead to higher costs and we will see some sort of

more persistent inflation so why do you push back against that? >> i respect these views we have to consider all of them. intuitively, it's quite logical what you said so defense spending, the transition to net zero, there are questions about the behavior of the aging population so that could change so there is all sorts of pushback to the longer view. i didn't see much science in any of this. i've got an observation that goes back for decades that says that there is a trend in place in the higher debt has been associated with lower yields. until we can overcome that and it goes the other way, i think that is the central tenet of the hypothesis. in science, you had to be able to reject that.

there is a lack of rigor around the whole thing. lisa: you could say this is a quickly moving story and before the last four decades was a different inflation regime. the fact that we've seen resilience as evidenced by the early new york factory information that shows that perhaps there is more steam behind this recovery and behind the inflation growth that people people previously gave credit for. >> fair enough, inflation is high and sticky and will not get better anytime soon. we've got so many other things to consider in the common denominator behind a lot of the themes that run through the market is the debt. you spend a lot of time talking about the bank stress. that's one sector of this economy, not just the global economy but this economy. the common denominator that runs through these inflection point

seems to be debt. it happened to crypto and the u.k. pension industry and it will keep happening. lisa: it will also pressure fiscal spending so there won't be the same ability to spend on these things because of that overhang of the debt. we have an idea that people don't necessarily say they agree with you in the right back but they are trading as though they will see rates get cut significantly. do you agree? >> this right or wrong doesn't really matter. the most frustrating thing is meeting people who totally agree with me but you want the confirmation and others completely disagree and there doesn't seem to be much in the middle. it's not about right or wrong. it's a process and it's the thing behind it. tom: the wall of money that's out there, sir john templeton told me that there would be a shortage of bones.

there is a wall of money out there and a shortage of bonds which is the major belief ofb a broader view. lanchard agrees with you that is price up, yield down? how much? much off the 10 year benchmark can you model a sub 3% yield from here? >> quite easily, or forecast is 2.5%. the lack of safe asset to me is a paradox. after all these years of qed, trillions and trillions, surely there is plenty of safe assets out there. there is too much of the wrong kind of safe assets. the excess reserves created by central banks to buy the bonds are not something that you and i can access. that's for banks only. what you want are t-bills.

there is a lack of those. there is not enough t-bills around. globally, there is a lack of liquid, safe assets and that's still the case. why are people surprised that the two year yield can move 100 basis points? because it's factor in the average policy rate for the next two years and saying it could be five for eight months were for but it could be three for the next eight months. the average of those three numbers i believe are for. it's quite possible. tom: we will come back and we want to focus on an overview of the rate structure with the idea of some form of stagnation. he is in hong kong where there is no gloom. there is a burgeoning in opening of china that's important so what's your observation? lisa: the big debate is where we are heading. you have the people arguing that

it is getting louder and louder and that this fed may cut rates and they might necessarily adopt a more accommodative stance but that will be with the consequence of higher inflation for longer and then you have stephen major and the imf saying debt in an of itself at these levels can be disinflationary and can be a on growth. why are you going to deny what we have seen for the past four decades? tom: it's the heart of the panel i did at the imf friday, the underlying factors. they are in place including technological change and including the asian experiment. lisa: we have not been able to get this data right and that's the angst of how you go about this and we cannot throw a dart in a dartboard. tom: me and shelley went over to west ham. lisa: do you actually think i've gone there?

tom: we will come back and talk to steve major about his beloved west ham. green on the screen is more persistent. i haven't even mentioned the bull market vicks. lisa: it's back down to levels we have not seen since 2022. tom: bitdog is down 800 some. stay with us with stephen major of hsbc. this is on radio and television, bloomberg surveillance. 2 lisa: keeping you up-to-date with news from around the world with the first word. congress is concerned about who should have access to sensitive national security information and now that's 21-year-old airman with the junior job is been charged with and intelligently, one lawmakers

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>> i do think there is a path to bring down inflation while maintaining what i think all of us with regard as a strong labor market.

the evidence i am seeing suggests we are on that path. tom: the secretary of the treasury on friday with an important conversation, the dynamics and some of that is did. the speaker of the house enters new york city today to talk some form of debt ceiling discussion. lisa: we will get a good read on how much we are running up against the debt ceiling limit probably after tomorrow. then we will have a real sense of just how close we are to some sort of default. tom: i was up until 2:00 a.m. doing that bills. with us is stephen major, the global head of in some research and for those of you on wall street, we will do into some economic technicalities in the spirit of asia living.

olivier blanchard and others see the neutral goldilocks, the perfect read. they don't have the inflation panic out there. how does the asian experiment fit into that? we've had covid china and you had lived this more than anyone i know. you lived quarantines and all that so how does the asia opening fit into a substitute -- into a subdued start? >> its short-term optimism but it's long-term realism.

look what's been happening the last few years, a buildup of debt, shrinking population, policy pushback against speculative activity especially in the property market. there have been some long-term changes in china that i don't think are consistent with the levels of growth use of pre-covid. look at the inflation numbers. inflation is subdued. it seems that you could convincingly argue that the policy rate is going down as well as you could argue it going up. it looks like the trend is stable. tom: there is real research toward this. this falls into india effortlessly.

>> india is interesting because most local analysts, if you asked me on the u.k., i would probably be terrible. there is that home bias in the wrong way. from india, you see critical uncertainty, fiscal uncertainty and high inflation pressures. rates will going to go up. that is the opposite of what's been happening. that view based on the simple narrative around inflation would have got you the wrong way around on bonds. that's been one of the best-performing markets recently. i go back to the longer run trend, what is the india situation? it reflects the beijing population with a reduced birth rate and the debt overhangs.

it is through the u.s. in over a decade if you look at the imf projections. there is a big yield gap. lisa: there is some interesting questions that emerge from this. doesn't matter how quickly it takes for inflation and the economy to return to that lower start or will we get there so you can buy bonds now? >> it does matter but i'm saying we have to balance the two. i see a lack of waiting for the longer term anchor of the natural rate. i think slowly people are getting around to this. is part of the explanation as to why bond yields can be lower today than many people had expected. lisa: if that's the case, then we end up in a world that is potentially more stagflationary for a while and leads to a slower growth area this is bad

for corporate credit. are we pricing in that scenario at the same time people are piling into long-term bonds? would be more expensive for the companies to borrow? >> with credit, you can look at the history and previous cycles and you know the spreads tends not to widen out until the first cuts are in place. that plays out again, credit investors know they can put their sales in the wind and hold on for a few more months. why is it that the spread is wide on the first cut? because normally the rate cuts come with a hard landing. the idea of soft landing is unlikely. the probabilities favor harder than softer based on historical fact. that's why the spreads widen when the cut is done because the

cuts are in response to a hard landing. you can stay neutral to long credit up to the first cut. that may be cute but it seems the first rate cut will not be this week. tom: partitioned the dynamic of real gdp and the dynamic of inflation. i don't call that secular stagnation. i call that a global growth, a british growth in china growth slowed down. how do you respond to secular stagflation? >> that's quite reasonable to look at the nominal gdp and maybe we are trying to be too clever. the idea that you have this real rate that would somehow fit into a chart on real gdp is pretty fallacious in the same weight

the nominal yield doesn't fit with nominal gdp. it must be at least 20 years ago since the last time i could see a chart where nominal gdp and nominal inflation were together in the eye -- and the ideas you can have real gdp and real yield has not been together. you have to look at what's happening in the here and now an aggregate it in the next few years. tom: of got like 45 seconds and i purposely watched west him highlights yesterday. while that was exciting, how does west him rebuild for the threat -- from the threat of relegation? >> they are almost safe at the moment. it's a shame you don't watch the whole game because the highlights don't do it justice. tom: i'm not going to watch a whole game. >> it was seven or 8-0.

tom: there is no chance we will understand know but it's exciting. >> it's partly my fault but try to watch the whole match sometime. lisa: thank you so much. tom: stephen major, thank you so much. this is such a rich conversation. it can go for five ways. lisa: the science underpinning our assumptions is my take away. people make proclamations based on logic but how do we look to some sort of science at a time of such great uncertainty? people are coming up with different parameters and making different arguments and getting different data points. if you look at the debt overhang, it complicates it but you could say if everybody piles

into bonds, that will increase the ability to spend fiscally. it's a lot to wrap your head around. tom: will you watch the whole soccer game with me? lisa: i used to play soccer so i would love to watch the game. tom: we will have to schedule one lisa: in 2027. tom: red and green on the screen but coming up, jonathan ferro will have good coverage with ed ludlow of this rocketship. it's an april day and this is a piece of hardware that america has never seen. i cannot emphasize enough how original this rocket launch will be. we will see that in the next half hour. we have a vicks of 7.7 -- of 17.7 so maybe it was a bear market ending in october. stay with us through the morning, this is bloomberg. ♪

jonathan: a quiet start to an otherwise busy week. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open with jonathan ferro. live from new york, coming up, secretary ellen remains cautiously optimistic and a diplomatic meeting in japan. we begin with the big issue abroad.