>> people are starting to have a little bit of fear of missing out. >> this is a story of who can maintain profit margins in a declining, nominal inflation environment. >> the entire banking system is going to see their deposits shrink. >> everyone had to space we will have this tightening of lending can -- lending and credit conditions. >> the longer you keep higher rates, >> this is bloomberg surveillance. jonathan: live from new york city for our audience worldwide, good morning, this is bloomberg surveillance on tv and radio. equity futures are -0.7%. three banks are reporting this -- later today. i have captured six different fed speakers and bramo will break down when they speak but sit -- six different fed

speakers today before the next meeting on may 2 and three for the federal reserve. from secretary yellen of the treasury on china -- she stated the security issues may trump economic concerns. this was the theme from the imf last week. lisa: it's the quiet part out loud which is that the number one thing is national security and that could mean potentially some implications for businesses that have a big china presence and have been expanding that may not be able to in the same way. how do we price this and when this is blooming but no one understands the consequences? jonathan: this is a more sophisticated way of describing what the previous administration was doing? lisa: to some degree but no administration is willing to go through the pain required to cut

off ties with china. that has been the readthrough again and again. is this time different at a time when the national security interests seems it has changed in terms of the nature of the pressure? jonathan: we will hear from secretary yellen later this morning. we will catch up with libby cantrell from pimco on the subject. we pulled back on the s&p 500 around 0.7%. crude oil is backing away from 18, 77 .71. euro-dollar is $1.09. lisa: we are getting a bunch of regional banks to today including truest financial. keycorp, fifth third, huntington bancshares and east west bancorp. most of those are in this hour

so a tremendous slope. what we have seen is shares have been pummeled today for all the regionals. fifth third is down more than 10-20% in some cases. the bigger result is we have not gotten any big surprises. the kbw regional bank in drakes -- index is not recovered. we are not out of the woods. we don't know. there was a shift but we haven't seen it reflected and we are watching it closely. 10:15 a.m., treasury secretary janet yellen is giving a speech at johns hopkins. james gorman at morgan stanley yesterday talked about the geopolitical risks hanging over their business and how it's the unknown they are watching closely because this could have a kind of seachange feel. when do we start to see it affect the earnings as some of these companies with big china presences have to move away?

here are the fed speakers, christopher waller, loretta mester, michelle bowman, raphael bostic and patrick harker are jamming it in before they have to be quiet. do they want the final word before we exit this -- into a quiet time where they are banned from it? what will they say? jonathan: did you run out of space on the graphic? i want to talk to michael mckee to break it down. lisa: the fact that john williams yesterday had the same kind of tone as austin goolsby of chicago was interesting. they don't know what kind of credit typing there will be but they are seeing signs that's the case in the fed beige book yesterday highlighted that that there's been a shift downward and a real tightening in lending conditions. they want to assess this but will it keep themonathan: we d'.

there is surviving and thriving. we are talking about the regional names giving us an indication they can survive and we've seen many indications they can't thrive. lisa: you've seen them losing deposits that don't bear -- pair -- bear interests. zions bank yesterday had shares that were lower in premarket earnings today and they lost 60% of deposits year-over-year. they are tightening some of their lending with respect to commercial real estate, exactly what you would expect in response to the credit situation. jonathan: joining us now is goldman sachs. wonderful to see you as always. i want to ask about the single names. from your perspective, what are you looking for at the surface level from the regional ranking

story that's developing in america -- from the regional banking story that's developing in america. >> you only seen the first stresses come through. obviously come you seen some of the regional banks fail in that was the big news. now you got the tightening of credit. we haven't really seen u.s. gross deteriorate that much yet. the first quarter is likely to be reasonable growth in u.s. growth we expect for the next few quarters to be slow. we are not forecasting a recession but we believe u.s. growth will not be strong for the next few quarters and that will hit the u.s. regional banks as well. we are not completely out of all the problems yet. lisa: has this all been priced in with respect to people flooding into european equities and the euro and the feeling that anywhere other than the u.s. is probably better? have we played out that trade

before it happened? >> to be fair, u.s. equity market started this year at a high valuation. u.s. equity market started high in europe was on a big discount and that's still the case. european equities have now performed so far this year but a lot of that was at the beginning of the year when we had gas prices come down a lot which was an amazing help to europe. now you're starting to see your outperform for different reasons. they look a little bit more resilient. maybe a little bit more to go for europe but i agree, the heights of performance in the u.s. and american equity markets have been good this year particular given the story on economic growth slowing down and revisions being quite weak. lisa: one story behind the strength people are seeing here is the reopening of china.

how do you factor in the words of janet yellen in the united states of the bifurcated nature of the european response and the u.s. response to some of these national security stresses coming from china which is a big tailwind for european growth? >> china has been in norma's factor but to be fair to companies that are global, they are exposed to the u.s. and europe and generally global travel and that's been an incredible support. with respect to the china story, a lot of companies exposed to china are obviously concerned. you've got the recovery trade in china. you seen the reopening come through and some of the data has improved. there are concerns about china like leveraging, aging population growth and there are geopolitical concerns.

all of those concerns at up and if you are very dependent on china growth, you are likely to be on a discount. jonathan: let's talk about discounted areas elsewhere. one feature has been the financials. the banks got into difficulty over the last couple of months so is that of trade your team still likes? >> there is difficulty in the last month and the u.s. regional banks, if the economy slows, that will still be a tricky environment. we like the banks in europe because we are expecting rate hikes in europe. we've added additional rate hikes with the idea that the -- that they have more work to do. economic growth in europe, we

are not expecting a recession. we think europe may avoid a recession. european banks are extremely cheap. for all those reasons, we still like the banks in europe. jonathan: do you mean eurozone and not u.k.? what is the dividing line there? >> there is a little bit of difference there but in a way, it's not huge. they trade on very similar multiples and the u.k. banks generally have higher yields than the european banks of the story for u.k. banks is somewhat similar. i'd another thing for u.k. and european banks, to the extent this is a sector which is slightly more domestic than other sectors, you are seeing sterling rise and you are seeing the euro rise and not every bank is domestic. the sectors in europe are hugely international.

if you've got domestic sectors, they tend to do better with stronger currencies. jonathan: if the trade is delivered in a big way, thank you for being with us. we will turn to the u.s. financials this hour in the 6:00 a.m. our in new york. a whole bunch of banks will be reporting and we will be busy this morning. lisa: we are getting an initial small bank earnings like bank of california. they've missed estimates on total deposits. this matters because it's one of the problem regions and this confirms the question of how much deposits are moving out of the smaller banks. it's still significant even if it's not catastrophic. we might not be talking about existential angst but what about

their profits? jonathan: surviving not thriving will be a theme this morning. first republic reporting monday and this will continue into next week. let's go through the fed speak again. lisa: it sounds like a song. jonathan: six fed speakers. tk would love that. we missed tom this morning. i hope he will be back with us tomorrow. in the next out -- our, the strategist at evercore joining us in about 50 minutes from now. from new york city, this is bloomberg. >> keeping you up-to-date with nusra around the world. lisa: democrats are rejecting house speaker kevin mccarthy's proposal to raise the debt limit for about a year and cut government spending. the plan would increase the debt ceiling by $1.5 trillion.

it would also cut discretionary spending by $30 billion. if the debt limit is not raise, the u.s. with default on payment obligations as soon as june. the u.s. supreme court has extended access to a widely used abortion pill on till friday. justices are considering whether to allow restrictions on the drug to take effect. a lower court in texas has ruled in favor of abortion opponents to roll back fda approval. secret recordings by a fox news producer helped push the network. the recordings made by abby gross bird and her testimony would be used against fox chairman rupert murdoch and other witnesses. a oxbow's phone calls the count of the recordings widely inaccurate. chinese banks kept their bench mike dez benchmark lending rates in tech today and held back from easing monetary policy this month as the economy rebounds. china's five-year rate on

mortgages remained steady at 4.3%. tesla will continue to cut praise it to spark demand for its electric vehicles. elon musk says he has good reason for doing so. he said tesla can withstand price cuts against rivals. investors are not so sure and the shares are lower in the premarket. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

>> i have been to probably 50 of these meetings over the years and i can't recall such a division between what the imf might talk about and you go out of this building and meet in private groups with private investors and private sector people and they talk about russia and china -- u.s.-china and the war in europe. they don't talk about the

elephant in the room, economic policy of the last 50 years is out the door. jonathan: he was fantastic at the imf meetings last week. the take away for many of us is we had these conversations on air and around the building of the imf. ultimately, national security concerns trump economic policy. you are getting some of that from secretary yellen this morning. you will hear from her a little bit later today. that will be 10:15 a.m. eastern time. it's a straightforward way of saying what we know already. lisa: they say these national

security issues are not for us to gain advantage but the big question is, how much is this priced into the market and what is the potential implication for businesses expanding in china rapidly including the financial sector and big tech at a time when this fissure will widen. jonathan: in the previous administration, we got a bunch of rhetoric. a lot of rhetoric here but what about the policy, what kind of shift are you expecting off of this language? lisa: we heard the proposals on tiktok to potentially eliminate some of the exports of chip technology which perhaps was not as significant as some people thought based on earnings from companies but there have been some tangible actions that have pushed the likes of apple to quietly shift away production from china. we don't know the scope of this because no company will say they are doing it until it's done.

jonathan: they are making the moves from behind the scenes. libby joins us now. thanks for being with us. what kind of actions do you expect from this administration off of the back of comments like these? >> i think your earlier comments were spot on, the rhetoric of the previous administration was quite strong and we so that someone followed up by policy but this administration, the rhetoric has been maybe softer. they really emphasized strategic competition but also cooperation . i would argue that the policies have been worse for the biden administration and more punitive in many ways. we saw the export controls on semiconductors and we think that's the beginning of a broader process but importantly,

they should before coming in the next few weeks and months but by midsummer, there is this executive order on capital outflows that will reap wire at least disclosure if not prohibition of some capital outflows from the united states to china in specific sectors but it could have a spillover effect in other markets and this chill in general in terms of investment from the u.s. to china. lisa: how many investors you speak with appreciate what the implications of this are from up pricing and demand perspective, from reshaping the way markets traits? >> a lot of our clients realize the political risk of investing in china. maybe the economic benefit of investing in china is also not as much clear cut as it was several years ago. we are sort of seeing a

reticence especially in our u.s. clients of more of it till toward a bias. they appreciate diversification and they understand that china will be a source of global growth over a secular timeframe but realizing that some of these investments may be fraught and tied up in the political rhetoric but also some of these policies coming out of washington. lisa: it's one thing to avoid buying chinese bonds and stocks but it's another to question the values of apple or some of the other technology giants at a time when so much of their business relies on china. is frankly auto manufacturers, fast food companies, so many standbys that are tied to china growth. how much has that appreciated? >> it's not to say that the domestic market in china will not continue to grow in some of those companies are concerned

about the domestic market but being a u.s. investor which is who we talked to, they sort of see that this is more fraught in terms of actually investing u.s. dollars into chinese companies. it's not to say this will stop altogether but with this administration, it's a clear signal that they will at least require some disclosure and some oversight into how u.s. dollars are being allocated in china and willed -- and will they go to sectors that will increase the military and competitive might of china. jonathan: let's talk about the rest of the world looking to the united states. later this summer will be the debt ceiling. we've had tax day and many people are trying to use that to understand where that falls. do you have an understanding of when that day happens?

>> there was promising data the came out yesterday in terms of potentially getting past this june 15 tax filing day. that's been the open question. is there enough capacity for the treasury to get beyond this june 15 date, meaning they have more extraordinary measures to deploy in the next date will be end of july or august. there was question around that and concerned that they may not get past the june 15 date. yesterday in terms of treasury data is we may be able to get past that june 15 date. there are some folks in congress that wouldn't mind the date being more right around the corner because then that foe -- forces folks to come to the table and seek a resolution. jonathan: speaker mccarthy says

he has a plan but is there a plan out there that is realistic? >> well, he has a plan. now there is a bill actually so it was a planned monday when he was in new york and now it's in legislative text. the real open question is, can he get 218 members in the house of representatives which means he can only lose 4 to get through the house. the market should realize that whatever is passed, the build will not be signed into law. this is dead on arrival in the senate but it's important for speaker mccarthy because it would increase his leverage with the white house. all he does his have legislative text he doesn't necessarily have a bill that's been able to pass the house and that's the open question. if he is able to pass this, this will not get signed into law but then it starts these formal

negotiations and increases his positioning and negotiating power with the president. jonathan: you are one of the best and it was great to catch up with you. it's a frustrating topic for so many people on wall street still. people don't want to talk about it yet. lisa: the implications could be significant if the u.s. does default. they usually come through with a last-minute resolution. people wish this was sooner and not hanging out there. this time feels more fraught because it was made an actual election issues do not raise the budget on the side of certain republican so that makes it more difficult to pass. jonathan: it's incredibly frustrating for many people in this is spending they've agreed to spend and there is a battle because there was another topic which is debt sustainability and they put the two issues together.

lisa: you raised a good point, what does this do internationally as people look to the u.s.? why do we have to deal with this? jonathan: the u.s. has the luxury of not having an emerging market debt market so we treat markets differently. you can egg differently as a politician. lisa: jonathan: jonathan: it's very delicate. futures on the s&p 500 are negative. this is bloomberg. ♪

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jonathan: live from new york city, good morning, a tough morning so far for the equity market down so far. the nasdaq 100 down a little more than 1%. tesla is not doing so well this morning off the back of earnings yesterday. margins are taking a hit. inventories are climbing a little higher and they have price cuts. the push seems to be to go for volume over profitability. lisa: this means their profit margins will probably contract even more. we will get a series of earnings this morning from banks like smaller regional banks and get a sense of how much their margins are contracting. people have been waiting for this and every level with tesla front and center. jonathan: fifth third out right now -- $164 million in the

estimate was $118 million so they are lighter than expected in deposits. the net interest margin comes in that 3.29% in the estimate was 3.32. lisa: i'm also looking at keycorp. they increased their estimates. total deposits came in above expectations. i think that is the correct way of phrasing it, in line. what you see no goes to the theme of may be survive, not thrive, the question of margin can russian and the ashen of how much they have to pay to keep deposits and how much they have to pull back on their loans at a time when they really are compressed. jonathan: it's good news because there is no terrible news. there is no shocker where you

wonder if they can get through this. lisa: i don't know if i can even call it good news. you can see a real motley performance of the shares after these results. i go back to zions and that was one of the problem children and those shares lost a ton of value, almost 30% year to date. they missed on deposit so i don't know. it remains to be seen how much. people need to reassess the hollis take aspect of these earnings. jonathan: total average deposits , average deposits were flat compared to the fourth quarter at fifth third. average total deposits flat compared to the fourth quarter which is not terrible news for some of these guys. bear in mind the post svb world started march 15. we will come back to these earnings in a moment but let's

touch base with the bond market. yields have been backing over for the last couple of weeks and yields are coming in by five basis points on the two year. yields are down about four basis on the 10 year at 300-5527. a new intraday high for euro -dollar. we've gone through a slew of fed speak today so let's do it again. john williams of the new york fed will speak on the banking stressed saying this -- wells fargo joins us now. have we got the all clear to hike again in early may? >> i think the fed is comfortable to hike again.

it's more in terms of the guidance. we thought powell was concerned in terms of his rhetoric after the last meeting and now that things have cooled down a little bit on the banking front, we think the fed can continue to hike but -- but i think there is lingering concern over credit tightening. there is softness that we've seen and i think the fed will be more forward-looking in terms of their outlook on inflation. i think they will be cautious but not necessarily signaling an end to this tightening cycle. they will still dangle that front of the market but it seems the fed is pretty much done from our perspective. lisa: what is the message we have got from the regional banks? we've heard from a number of fed members concerned about credit tightening. has that been confirmed from what we've seen so far from the regionals? >> it's tough to say.

we had the beige book yesterday as well. some of the comments from some of the regions about declines or out light weakness in lending activity but we saw this prior to the banking crisis in credit conditions were getting tighter so it's not necessarily does not necessarily terribly surprising. if the fed looks at the holistic picture here, you add in the amount of tightening that's been done and some of the weakness whether it's construction or manufacturing jobs, it seems as though the fed is right to be getting close to a pause. lisa: one of the big debates is cuts against pausing. we are still pricing in almost 0.6% of rate cuts by the end of this year.

is that an accurate read on a situation that spells weakness but not the disinflationary push the fed wants? >> it i think it looked a little bit more offsides two or three weeks ago when we were looking at the forward rate down around 3% at the beginning of next year. it's hard to justify that without early we are in the labor market and the broader cycle. i think it will take more significant deterioration to vindicate that kind of cut pricing. now that we've seen some of the cuts priced in, we still expect a cut before the end of this year which is below consensus. the market is close to fair with where they are pricing this. jonathan: we went through fifth third about five minutes ago. let's talk about comerica right

now. the provision for credit losses was $30 million. the net interest margin was 3.57% in the estimate is 3.75. net interest income came and less. lisa: how much is the net interest margin and expression of how much they have to pay for deposits versus what they are earning on the loans? is that the sign that their profit margins are being squeezed in a meaningful way? jonathan: the difference between surviving and not thriving in the banks have done terribly over the last we're -- over the last year. it's been about stress on the financial system in the last month or so. over the last week, we found the shift through traditional indicators. over the last 12 months, this

seems to be a bias with inflation data, you gaze from that how fast central banks need to go and you say this currency will be strong and that one will be weaker. it is high inflation still good for gtech currencies? >> it's becoming more tricky. initially, sterling strengthened on the back of the report yesterday but has since come off and we are little flat over the past day so the bank of england will not respond if they say we're looking at forward-looking data. maybe private data wages will be rolling over. they will look for some of the high spot inflation and it's hard to see how high and stronger than expected inflation could be good for g10 currencies. that traditional relationship

may become more unreliable going forward. jonathan: what is the big fx call for you and the team? >> the yen looks most attractive for me. you look at where central banks are now and where they were a month or two ago and we are talking about 6% terminal rate and the ecb may have gotten above 4% on the terminal rape of the central banks are more cautious. we are looking at dollar-yen around where it was prior to the crisis. people are concerned about the economic cycle turning in central banks becoming more accommodative of inflation. the yen looks like it has the most again here over the next few months. jonathan: we've been concerned about the economic cycle turning for the last few months. the equity market this morning is down about zero point 7% on the s&p 500 with tesla having a

struggle after earnings yesterday after the close and the focus this morning is on the regional banks story. the smaller banks are reporting this morning. lisa: we are getting different reports in line with expectations but the profit margin we talked about, the net interest margin coming in later than expected at fifth third and comerica. how much does that speak to the story that we will see pressure on the loans they are willing to extend? we will get a report on industrials and utilities into next week. we got at&t any questions what is safe, what is a conservative stock to invest in? this stock is down significantly in premarket trading. how much on the margins do you start to get misses when expectations have been lowered that these mi have significancess for market expectations?

es jonathan: is tech still defensive? the focus will shift to tech over the next month. we are going to catch up with rj gallo and that is coming up in the next hour. the fed residents will be speaking today. it's kind of ridiculous. lisa: i feel recently the fed speak has taken on less important because they say we don't know. jonathan: they genuinely don't. lisa: we are all watching the same data and people are coming to different conclusions. my take away from the regional banks and forgive me if i overstepped but it's clear, they are losing deposits and they are being more cautious with lending. that is the take away and that's what people were expecting.

jonathan: that's largely the consensus view at the moment with banks still stabilizing and that gives you some confidence relative to the doom and gloom a month ago but the fed is looking at the situation and suggesting they expect some tightening of financial conditions and credit standards. they have to calibrate policy and we still don't know to what extent the shock of the last month will do some of the work for them. lisa: and we will not get it from the 20 five fed speakers today. jonathan: we will get it from the data of the next few months. three quarters of 1% lower on the s&p 500, this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first word. house speaker kevin mccarthy's plan to increase the debt ceiling by $1.5 trillion has been rejected by democrats. it would have been enough to stave off the u.s. payments default until march of 2024 and

the proposal would raise the u.s. debt limit for about a year and cut spending by $130 billion. it also ends tax breaks for green power. the new rules for cryptocurrency will come into effect over the next two years in europe. they are welcomed by crypto executives who like the eu approach better than the u.s. tactic of enforcement actions and critics say the rules are outdated before they take place. space x hopes to launch its next generation starship rocket today. the problem with pressurization resulted in last week's planned launch being scrubbed. the test flight is seen as a key to spending humans to the moon and mars. the fight between hsbc and its biggest shareholder is heating up before the annual meeting next month. they want the bank to sign off on the ides lucrative business. hsbc said they misunderstand the

bank and would destroy share value and mean lower dividends. another sign the slump in the computer chips is not going away , taiwan semiconductor forecasts were sentenced -- then expect to revenue and they warned the demand for the industry would remain soft for now. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

>> i would imagine the banks will still be week. you've only seen the first hit, the first stresses come through over the last quarter so we are not forecasting a recession but we believe u.s. growth will not be far off from zero for the next sequential quarters and that will hit the u.s. regional banks. jonathan: sharon bell of goldman sachs looking for weakness. it is the latest on comerica.

they see the second interest net quarter income down to 13 versus the first quarter. this is their outlook, they see second-quarter net interest income and arrange down 11% to 13% versus the first quarter. they see 2023 interest up 6-7% versus 2022. still looking for a positive growth for this year but year to date, that stock is had some trouble. they are down about 29 percent. lisa: does this factor in rate expectations? normally people don't pay attention to the regional banks. will they see the fact that average deposits came down four-6% versus the fourth quarter? how much will they have to pay for those deposits? that's unknown. jonathan: we will come back to

the banks in a moment but let's talk to a big name in the broader equity market, tesla. it's a bit softer and has had a great year to date with the stock doing well but it's down today by almost 7%. the margins took a hit off the price cuts and it looks like we might see more of the same from them. we will talk about them later today day but with no rose-colored glasses, margins are now a delicate issue keeping tesla investors up at night. that's from one of the most bullish analysts out there. lisa: their margins were incredible and it's been clear that elon musk is not willing to demand that kind of premium in order to get that profit margin. suddenly, what are they seeking? if they continue to cut pricing, how much to people who bought cars at the original price feel cheated because they could have bought it at a lower price and its lost value? jonathan: you just wait a month.

lisa: except it's only tesla. jonathan: the stock is down by almost 7% and the broader equity markets are down 0.7% and equity futures are little softer this morning. not showing much sign of recovering. the broader story in the bond market is yields are lower by five basis points. the dollar is not showing strengthen the euro is showing a little bit. let's get back to the regional banking story with tons of banks reporting today. talk to me today about what you are looking for and what you will be focused on? >> we will be focused on commentary going forward on deposits and the pace of deposit attrition. you seen some banks generally

lose deposits in the first quarter given the fact that there's been ongoing uncertainty and the fact that interest rates are higher. there are lots of alternatives for the deposits to exit the banks. we are also looking at the pace of deposit costs. that builds contraction at the net interest margins and overall profitability. lisa: how do you characterize what we've gotten so far which is not been catastrophic but not great? >> things are just muddling through. the contagion risk that happen following the svb and signature failures has not affected the overall regional banking industry. liquidity and funding all look fairly stable from a balance sheets standpoint. this just an earnings issue going forward.

how much are revenues going to contract and how much are net margins going to fall given the fact that the pauses and funding cuts are right? lisa: if you had a conversation with john williams of the fed or austin goolsby, what would you tell them in terms of how quickly credit is contracting from one of the main expenditures of credit to main street in the united states? >> that's the issue because if deposits are going to the money centric banks, they are not funding the loans in the local community. the regional banks deal with that on a day-to-day basis so that will be the primary issue. we've seen some banks talk about the fact that demand has so often and capex spending declined. we've seen banks also talk about the supply of lending has fallen a bit because they are worried

about what the future holds and possible recession around the corner. jonathan: there seems to be no turning back now. the profitability of the regional banks, the smaller banks could be hindered permanently, do you see it that way? are we on a one-way road toward lower margins? >> you can expect margins to come down in the cycle where the benefits of interest rates rising has already happened and benefited the banks last year. this year, you will see a bit of dish a bit of a giveback in those margins given the fact that deposit rates are rising. from a profitability standpoint, there are headwinds because you will see higher expenses from the banks having to replenish the deposit insurance fund so

that will be a marginal cost for them and there will be more regulation. that will hurt profitability and returns. they are going to have to manage their balance sheet maybe a little differently than they did before with higher capital levels and higher debt levels. that means that profitability probably comes down. jonathan: to what degree does that apply to the major banks? >> the major banks already had to deal with these capital issues. they are the gold standard in terms of capital requirements. they are already there in the regional banks will have to catch up a little bit. it will be a more onerous regulatory regime going forward. lisa: you have a methodical way of going through it which goes against some of the catastrophic tones we hear with some people same regional banks will never survive in this is a new s&l

crisis. do you -- how do you push back? >> i would sate the issues surrounding the regional banks is idiosyncratic related to a couple of bad actors like svb and signature. they didn't appreciate the risk they put onto the balance sheet. the other regional banks we cover don't manage the balance sheet like that and are more conservative. that should help them bridge the gap between the uncertainty and a more normalized pattern of operation. that's what we expect and that's what our view was going into the crisis with svb failing in the first quarter results confirmed that lending tree is safe and on firm footing so it's more of an earnings issue. jonathan: brutal year to date looking at these names on the

screen. thank you for being with us today. you will hear more from the banks later. they are looking for 25 basis points the fed in may, go again in june and july. they have not backed away from that. lisa: i respect that especially given the fluctuations. it's important to delineate between the banking crisis in the domino effect of one failed bank and something that is a slower grind of tighter credit? at a certain point, the net charge of rates for people who

have sour credit start to hurt the bottom line. we haven't seen the capitulation. we haven't seen the equity market bears back away. they haven't change their view much like citibank. have the earnings confirmed what they're looking for but the prices have not? jonathan: we will get the latest from julian emmanuelle over at evercore coming up. equity futures are down about 0.7%. yields are a little bit lower, down for basis points. ♪ ♪

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>> people are starting to have a fear of missing out. >> this is a story of who can maintain profit margins in a declining, nominal inflation environment. >> the entire banking system will see their deposits street -- shrink. >> what got us into this issue to begin with was higher rates. the longer you keep them there, they will expose other fragility's. announcer: this is bloomberg surveillance with tom kean, jonathan farrow and lisa abramowitz. jonathan cogan morning. this is bloomberg surveillance alongside lisa abramowitz. i am jonathan farrow -- ferro.

s&p 500 -0.6%. lots of bank earnings this morning. we will go through the times, data and everything you need to know. so far, the financial is a theme. deposits, things may be stabilizing. we have seen that consistently over the last several days. when it goes to profitability, it seems to be a disappointment. lisa a: the net interest marsh -- margin is a miss, miss, miss. they are saying their net interest margin was 3.17%. the estimate was 3.27%. not catastrophic but you are seeing them have to pay of four deposits and it is not being offset by how much they can charge. jonathan: is there a broader macroeconomic signal about where this is going in the future? understand to some extent with some degree of clarity the stock of the last month.

we understand the process a lot of people think i started? lisa a: we do not understand the depth or how much that will accelerate recession. we do not know how much it will bring inflation lower. fed officials and economist he not understand it. it will have a material impact. there are so many unknowns in the meantime about the things in what is going on at a macro economic standpoint. jonathan: later today, is everything going to be solved? lisa a: i think you should be a story -- to a story about this. i do not think they will be able to tell us anything because they do not know more than we do. i think the take away so far from some smaller banks is yes, there has been a lots of bad news priced in but perhaps it was rightly so and perhaps we face more pain ahead. people are going to be talking about consolidation and the people who are going to be left unbaked or uncredited who will not be able to access credit in

the same way at a time when there is a higher premium on getting your money back. jonathan: keycorp down a little comerica downfifth third. -- fifth third is struggling. tesla having a difficult morning. we will mention that repeatedly this morning. yields come in around four basis points, defensive across the board. the 10 year yield is 3.55. lisa a: we are expecting the role of earnings to continue throughout the day. huntington bank shares to continue this morning. how much are we going to see this theme process after already so much pain has been priced in? if you take a look into the performance, dramatic underperformance. keycorp down almost one third on the year. tryst down almost 20%. now, building on those losses as there is a clear concern about

the profitability in the face of higher deposit rates. 2:15 am, janet yellen is giving a speech on u.s. economic relations. you pointed earlier this morning to quotes from her ahead of the speech talking about how national security is number one and this supersedes economic interests. a change in tone or an underscore new blood everyone has been talking about behind-the-scenes. jonathan: it is the latter, the underscoring of what we know. he said to anne-marie yesterday when we were discussing this speech which happens later this morning at 10:15 eastern time, when the economist start to sound the gay politician, used on this quote, the economists are going to sound like a politician -- start to sound like a politician. lisa a: the imf who are supposed to be the economists are not addressing the political overhang.

you cannot ignore the geopolitics when you try to game out the economic implications. that is a different wire to walk. this is what we are going to hear from janet yellen who will be accused of politics. jonathan: can we ignore this? the fed speak? lisa a: i want you to do that again. come on. jonathan: waller, bullard, master. [laughter] he is shaking his head from all of this. what do you make of this before the choir period? >> your ability to do tongue twisters is phenomenal. jonathan: i was an mc, a dj back in the day. [laughter] i was not. >> looking at this and the set of giving the earnings -- and the set up the earnings, let us recall the last time secretary yellen spoke alongside the fed which was jay powell.

we had an enormous amount of volatility. the fact that we are in all likelihood going to get two conflicting messages, a bunch of said speak hitting towards one and done which is our view, as opposed to the economy is now taking a second spot to political relations coming from the treasury secretary. there is a lot of confusion. something to one and done and then pause. some see the pause as bullish but others do not. i may include you in that. 23's's is likely to see a recession volatility spike before the inevitable mark again. carrie put numbers on that? >> if you look at it, the history of pauses tends to be on a 12 month basis quite positive. we expect that. but the problem is you still have to get through the recession. we have all been waiting for the

recession for a year now. there were two back-to-back negative gdp quarters to start 2022 so the watch is on. ultimately, part of the calculus as we have had so much more tightening since that time, it does not take away the concept of recession. the wash pot is going to boil. when we look at the last month, what is clear is the reason the market traded positively into the trough of the banking turmoil back in march is because it began discounting the pause prematurely. it is in the price now so it is not necessarily a bullish outcome. it has been our expectation as you know and this is a frustrating arcade for both bulls and bears. it has been our expectation that at some point ahead of us, one of the inter-indices will test the october lows. lisa a: if you were john

williams, you would probably be glued to your terminal looking at the small bank earnings and parsing through their balances to understand the credit creation. what would your conclusion be in terms of this -- is this just an a syncretic issue or is this something more? >> the whole concept of 80 syncretic across every -- idiosyncratic across every company reporting is a misnomer. this is a process. part of the fact we created so much liquidity through fiscal and monetary policy to fight the pandemic means the other side of this unwind is a process as opposed to a shot. this is all part of the process. when you look at the longer term, it is better it will take a wild than a near-death experience like last month. it does not mean that the stress is going to go away. it will just roll out over a longer period.

lisa a: this is the regional banks are on it and vegetable -- univestable or does this mean a survivor of the fittest? >> the question is -- of the issue we have is that you have such selloff on that month in the regional banks and the fact of the matter is when you sort of anticipate the news and i don't think anyone is surprised by the earning support we have seen the shares don't respond even after this massive selloff, that is not a great message. jon: is tesla idiosyncratic? >> no. jon: why not? >> the market has been trading

sideways. ed heitman has been optimistic. you will get a two handle on inflation -- we will get a two handle on inflation? the what you get to that is through a economic downturn. jon: when do we get that to handle --two handle? >> at the end of this year. jon: is that headline core? >> you can parse and parts. --parse. >> there have been plenty of disappointments. why has the market not come to the bearish views of the life of mike wilson? >> if you look at last year, we were upset with inflation -- we were so upset with inflation,

the fact that it has come down and the fact we have done a lot of typing but the liquidity provision is so extreme, m2 is contracting but the growth trend line is well below where we are so there is good -- residual liquidity in the system and positioning has been bearish for the most part. jon: you are at 4150 year and -- end. you see a lot of volatility between here and now, right? >> if everyone -- anyone things about convexity in their portfolios, it is time to think about convexity. jon: where are we going? lisa: on vacation. you would -- will go to a game. jon: i am trying to secure

tickets. i will get the tickets first and after the term, can you pay for the flights? something like that. sonali: you are turning --lisa: you're turning into tom. jon: definitely. he is trying to plan a road trip. lizzie on --liz young. we are trying to bounce from session lows. >> keep you up-to-date from news from around the world with the first world, -- word, i'm lisa matteo. yellen speaks and washington. she says the biden administration will not compromise with beijing on security concerns. democrats reject -- the plan

would increase a debt ceiling from -- by $1.5 trillion. it will cut discretionary spending by $130 billion. if the debt isn't raised, the u.s. would default. the u.s. supreme court has extended access to a widely used abortion pill until at least friday. the justices are all -- favor of the abortion -- bloomberg has learned that a fire fox news producer help push a network to a settlement by definition -- defamation lawsuit. a box --fox spokeswoman because the recordings -- because the recordings inaccurate. elon musk says he has good

reasons. he says tesla can withstand price cuts. investors are not sure. shares are lower than premarket trading. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa matteo and this is bloomberg. ♪

>> maga republican congressman turning to default on the national debt. they say they are going to the pot unless i agree with the things they have. >> we are introducing the limits, save, grow, back to 2023 stop president biden has a choice -- 2023. president biden has a choice.

come to the table and stop playing political games or cover his ears, refused to negotiate and risk bubbling his way into the first default in our nation's history. jon: talks between president biden and speaker mccarthy have gone pretty well. lisa: i would say -- i would have said the same thing. literally just children. we don't know. this back-and-forth and this political. -- political theater, there is a big consequence at stake. jon: major consequences. wall street is refusing to discuss based on the conversation i have had and what can they discussed? --discuss? lisa: they probably won't get there but we don't know and it is exhausting. to introduce this unknown is an

irritant. romaine: --jon: the fed'-- is an error to the equity market down 6/10 of 1%. the fx market, euro-dollar down -- a 10th of 1%. off the back of price cuts which you can expect more of from tesla. they have gone for volatile -- volume. later today, the conversation for elon musk will ship from tesla to spacex -- will shift from tesla to spacex. lisa: i would love to have a long conversation about traveling to mars. i want to emphasize what julian

emanuel was talking about. it is not an idiosyncratic story. this is the seeds of trying to generate volume and potentially sacrificing margins as a result and this is really going to be a theme, that we will see, that will participate -- precipitate a downturn. jon: i can talk to julian all day. i will talk to another guest. eco-close -- he cohosts and ask better questions than us. amory joins us now. great -- annmarie hordern joins us now. i want to go straight to the quote that you have read 10 different times. national securities have paramount importance what our relationship with china. she went on to say we will not compromise on these concerns people when they force trade-offs with our economic interests.

that is just one paragraph of one: -- one quote. what else are you expecting? >> is key because i think that is what has been going on. you have the treasury secretary with the expensive speech with china. mapping out how the u.s. continues to see the economic quality -- policy between u.s. and beijing resting. remember when the biden administration was struggling to deal with inflation? it was at that point when some of the economic forces within the biden administration talking about, maybe we left some of these trump -- we left some of these trump error tariffs. --era tariffs. she says we will be leaning into

the -- we have seen this time again with this administration, whether or not it is lifting or not lifting those tariffs, it is the export controls. it is making sure china does not have access to advanced technology and getting other countries to line up with them like netherlands and japan. i think she will outline that today and she will have to point to some areas of engagement, notably climate change. lisa: is there any significance as to why now? she has been at this position for some time. is there a significance to a point where we are talking about potential economic weakness but rationing -- ratcheting up concerns with spy balloon's in taiwan? >> biden and she sat together.

their teams were tasked to work together. the spy balloon derailed the plan because antony blinken was set to go and that trip was postponed. secretary ellen -- sect yellow -- secretary yellen is set to go. she will talk about the fact that she is going to be or the biden administration will be upfront with china with issues they have. she is laying them out. this would be hurt laying them out in this speech and preparing to go on a trip, making sure she is saying going to beijing, we are not looking week --weak to china. we want to find areas of engagement where we will be firm in issues. lisa: we have a sense how much

u.s. and this administration is willing to sacrifice economically to put forth these national security issues? >> we don't have a sense now but what we have seen based off their past provisions and policies, they are looking into the areas where china's military can have a build up so when you look at advanced technologies, it is these technologies china's military wants to get their hands on. one of the concerns with the biden administration, and we have heard from the pentagon, is china's assertiveness it comes to taiwan. there was a recent flashpoint. i was there when she met with speaker mccarthy in this unprecedented visit, the first time we had a taiwanese president meeting a high level official on u.s. soil. this is the concern they -- the administration has. jon: this is the relationship

between the united states, china and the rest of the world. let's talk about the relationship between the president of the united states and disregard the house kevin mccarthy -- and the speaker of the house kevin mccarthy. figure -- speaker mccarthy says the president has a choice, come to the table or refuse to negotiate and have the first default in the nation's history. who does speaker mccarthy need to negotiate with, the president or his own party? >> first, his own far -- party. he has to get to 18 votes and it has been outlined how difficult it is for him. he can only use four republican votes because not a single democrat will vote for this and you saw how difficult it was for him to become speaker.

how difficult will it -- will it be for his party to call last -- to coalesce around this idea? that is his first point of business, getting his ducks in a row. once he has that, he is going to the president for leverage. the president keep saying you have to show me a budget. i outline my priorities. the republican party needs outline. he will not have a budget but he will have a bill and what the mccarthy but he wants is to show the white house the bill and say you have to negotiate with us because we have the votes. the bill isn't going anywhere but it is leveraging. jon: watch for annmarie hordern later. they will cover "balance of power". have we narrowed the window for the --next date?

lisa: i but he could get fudged -- kind of but it could get fudged. jon: the market moment. close. no one wants to talk about it. rg gallo coming up. --rj gallo coming up.

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jon: welcome to the program. good morning to you. the equity market is and struggling here. down 6/10 of 1% on the s&p 500 and the nasdaq down 9/10 of 1%. you can talk about the banks and tesla -- we can talk about the banks and tesla in just a moment. the 10-year yield down three basis points. the curve is a tiny beat -- bit steeper. in the fx market, euro-dollar is positive, a 10th of 1%. doing too much there. -- not doing too much there.

we got through the fed speak and he will hear from six fed officials today along. i will not do it again. going into the quiet period this weekend before the reserve meeting decides. that make their decision, most people assume a 25 basis point hike -- that fed meeting, most people assume a 25 basis point hike. lisa: what matters more to you, whether they hike rates after that or whether they hold rates through the year at those levels? jon: what matters to me is whether the guidance changes. have i pledged that --fudged that? lisa: the fed is falling what we are following in the markets which is regional banks and they are not doing great. it has been a tremendous decline in share prices and they are going lower and as julio --

julian emanuel was saying, it tells you so much. there is pain price in and you are seeing what is going on under the hood, tells you something. taking a look at zions bank. first republic down 2.5% and truest --truist down almost 1%. the story is next interest income. you are seeing it struggle. considering how much they have to pay for deposits at a time when that matters. to me, i feel like this story has changed. jon: i agree. the profitability story is one to focus on. you want to know if things have stabilized. you look at the stress of the next month, you want stability first and then you work through the next phase. the first phase is shock.

the next phase is a better understanding of where coffins are going and what it means for lending standards -- where profits are going as -- and what it means for lending standards? lisa: we should take a look at tesla shares that have lord by 7%. -- have lowered by 7%. they will keep cutting prices. the prophet margin likely to -- profit margin likely to deteriorate further. raising concerns about demand. jon: that stock is downjon: 7%. they are not minutes but accounts. less detail. they say things like this. a large majority agreed to raise rates by 50 basis points at the last meeting. do you remember we asked all our guests who would make more this year, the ecb and the fed and

everyone said the ecb. it seems it is going that way. lisa: he inflation part -- prop -- the inflation problem is stickier. when it comes to the u.s. jon: may 4, you will hear from the presidential bank and lagarde. i know you have to do in and have listened to the program and you heard the word, the word people use with they see something they don't like, it doesn't fit into the broader idea they got, they say it is idiosyncratic. is this idiosyncratic? rj: there were has been repeated quite a bit. -- the word has been repeatedly -- repeated quite a bit. you start to look for theme. with respect to the banks, a lot

of bank earnings coming out and there are themes here. it is undeniable that large largest -- losses on fixed income created a poisonous mixture at svb. we are seeing be affected in the bank earning and deposit loss and the need to raise deposit loss. the theme is out there and i believe that will be a headwind in the economy. the crisis never fully immersed because of quick action on official washington and moves by banks that didn't take the same measures as the others but we are dealing with the echoes of the crisis so we will slow the economy and hit the banking sector and make the recession more likely. lisa: what does this theme that is emerging mean in terms of how you are positioning your portfolio and yourself for the rest of the year? rj: it has been a heck of a year.

volatility in a all caps, describes 2022 and a bonds. -- 2022 and 2023 in bonds. in 2023, most indices are at 2.5%. that is part of the theme, the cost of last year in terms of big losses opens up the door for bond returns to improve. we started the year for neutral and at times long-duration. we are a neutral now. we were as surprised as anyone by the banking stress and the issues of distress on the part of a few. we think the thesis of being long and looking for bonds to be a positive considered -- contributing -- contributor to your investment or folio is only positive for the banking sector. less credit creation, so -- slower economic growth, renewed

disinflation, those are bond friendly factors and we are positioning neutral and looking for opportunities. we are underweight high-yield, investment-grade corporate as well. overweight merges and holding treasuries because we think a recession is likely? lisa: we heard from investors that are waiting for regional banks to invest. the results came in. how much do you see this as a potential opportunity versus an ongoing signal of distress that edifies your feeling? rj: focusing on the banks, the equity investor's view and that fixed investor's view might converge -- the --diverge. you will notice that the equities didn't bounce back

because of profitability ramifications of what has gone on where only highlighted and has amplified by what is going on so it does not surprise me the stocks have not bounced back too much. from a fixed income investor's standpoint, it reinforces the broader themes. we do believe that the worst of the stress is behind us and it is it condition. it is like when a cold snap hits new york. it affects everyone. everyone retreats to their apartments and homes. the homeless struggle are -- when it is five degrees -- minus five degrees in new york city. the bad weather is affecting everyone. jon: you talked about the up in quality. can we talk about that in the

credit market? the dividing line between investment-grade and high-yield, there is that line. when people say up in quality, sometimes they mean investment grade over high-yield. a lot of these banks were ig. they got into trouble over the last month and i am wondering how you are looking that -- at that in investment-grade. rj: number one, when i mentioned up in quality, we are over eight -- overweight by securities. that is very up in quality. we remain underweight investment-grade although we did reduce are underweight as spreads widen on the banking stress as an opportunity the two get closer -- opportunity to get closer to neutral. we are more underweight than most credit intensive low rate securities.

a place where recession will produce wider spreads and will actually increase the risk of default. our number of -- a number of distress cases will go up. we think -- we are not expecting a bunch of downgrades. in our picking order, we are more underweight than high-yield than ig. the dividing line, it is more of a spectrum in terms of how we are looking at multisector portfolios. jon: i want an additional question on the high-yield. the pushback we are confronted with, with people who are constructive on high-yield, they say we haven't had a pretty cycling the same way. we haven't builds up the leverage through the pandemic. -- companies have religion. we have saying -- the same

arguments. what do you say to people? lisa: --rj: we think the economic cycle will have the same character as other economic cycles. the cash flows relative to debt, the risk around about outcome. those have now been removed -- have not been removed or insulated by some of the positive things in terms of corporate management. in picking order -- in a pecking order sense, -- it will be a case for relative performance where high-yield will on for -- underperform other elements of the portfolio and that is the expectation you have. -- we have. it doesn't mean it will be a severe credit crunch or a default wave as we have seen in

other periods. jon: rj gallo a federated hermes. if you hear the word idiosyncratic enough, maybe it is not is -- idiosyncratic. on the regional banks coming next, we are looking forward to our conversation. equity future down 7/10 of 1%. >> keeping you up-to-date with news from around the world, i am lisa matteo. protesters angry over french reforms stormed the entrance hall of euronexy. --euronext.

anger over president macron's decision to raise the pension age remain strong. it would have been enough to stave off a u.s. pavement 2 -- the march 2020 four. it will raise the u.s. debt may limit for a year and cut spending on $130 billion. it has tax breaks for cleaning energy projects. european union lawmakers have okayed the first rule to govern the crypto industry. it will come into effect over the next two years. they are being welcomed by crypto executives who like the eu approach better than the u.s. tactic. critics say the will are outdated before they even take effect. spacex hopes to launch their next-generation starship rocket today. a problem with pressure ration -- with pressurization resulted

in the last four being scrubbed. i mixed bag of results for at&t, the phone giant reported free clash -- cash flow that missed expectations. the company added more phone subscribers than expected. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa matteo and this is bloomberg. ♪ this is ge aerospace, advancing flight for future generations. ♪

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>> our expectation is they have to become more investable. we have to 25 basis points of cuts between q1 and q3 of next year. there is no doubt a gap between

us and where the fed is with the market at the end of the year but the gap has been diminished. jon: the federal reserve getting closer to matt's view of the world rather than matt getting closer to the fed view of the world. lisa: it has become a slow-moving game of faith where you can stick with your viewpoint and you're not going to have a confirmed for months. jon: the next move from the federal reserve expected to be 25 basis points and they have this senior loan opinion survey and hand. maybe they can share some of that with this because that is the clarity around blending we want. -- around bank lending we want. lisa: this is what everyone wants to know, do they have the insight into how poorly things are changing? i note tom doesn't read it and that is not the reason why he is out today. i do think it is not a for how

much of a stagnation you saw any growth, how much of a slowdown in inflation use are reflected in a number of different reasons -- regions. jon: there is division within the fed, they are saying recession. fed up -- officials are not saying recession. lisa: they are saying it is a possibility and the staff is saying it is likely. jon: you think it speaks to some of that? lisa: the staff is looking what the feige book is looking at. jon: tons of earnings and lots of banks and fed officials through the weekend. let's talk about banks and we can do that with christopher marinac. wonderful to catch up with you. i know you have been busy. going through bank after bank. what jumps out at you? >> the banks are profitable and

you see mark b growing so we are happy about that and deposits have been mixed in some company deposits are off slightly. deposit outflows are a lot less problematic. the real numbers suggest that the positives are coming down at a measured pace. liquidity is high and banks are putting out a bunch of information about the uninsured deposits and deposit brandi levy. that starts to build confidence. we have credit quality good for the quarter. no major change and maybe small upticks and charge-offs but the banks are preparing for a recession. capital is moving in the right direction. lisa: if this is positive, then why are the shares negative even after the losses we have seen this year. --? >> the banks have climbed the wall of worry of recession and many investors remember what that was.

we have to get through this period no different from the uncertainty of covid in 2020. i am afraid that might be the case this year and we are hoping it is more like three or four months and not six but banks still have a lot of unrealized to carry buses -- unrealized security losses. we have investors haircutting capital for losses and i think we have to get through that and see better securities values. credit is stable. we think the banks will stay profitable and the fears about big deposit outflows have not proven to be true. lisa: we are seeing next interest margins coming below estimates. one reported and they came out were better than expected deposits and fewer than inspected provisions for credit losses. here we are, interest margins coming in lower than expected,

3.43%. is to take away just that the profitability case for these banks has been challenged and will be challenged going forward? christopher: it is not severely challenged but modestly challenged and that is a catch up on the cost of funds. most pet deposit is behind the fed fund -- fed deposits is behind the fed funds rates. they catch up has heard margins but there will be pricing ability of new loans. a lot of new loans are coming on in baha'i sixes. -- on the high sixes. i think there is more of them on the second quarter but the downside risk is not as bad as investors. but we have to prove this. jon: it is about upside potential. you have alluded to some of this. the threat of regulation from

here, do you think that threat of regulation will keep people away from these banks despite whatever happens with the fundamentals? christopher: sure and the reality is and we do not know what will happen with fdic deposit premiums. that -- the fed and ftse are slow to approve deals. -- and that fdic are slow to approve deals. there are a fair amount of investors who have to have the supposition they cannot be at zero. you will see nibbling at stocks but there are a lot of folks on the sidelines. jon: there are a lot of economists looking for the data coming in may. i wonder if we confront one that based on what we ever from banks -- i wonder if we confront run that based on what we have heard from banks.

are you hearing that from executives in the banks? christopher: we have heard in january before all this happened. it is a reality. they will continue to get tighter. there are companies who have to borrow and banks want to lend. they will be tougher on standards and that bodes well on credit quality through the cycle. i think though rates that people -- the rates that people accept from banks is higher. it is a tighter credit market out there and would have been in the past six weeks but an excellent nation -- exclamation point on that. lisa: consolidation to become a larger regional bank. christopher: there are winners and losers in the banks space and consolidation will continue even if regulators take their

time to approve deals. we will see consolidation over time. i am looking for the strongest company starting to raise capital to prove they can. that will differentiate them. that will lead to consolidation. there will be a difference between buyers and sellers on valuations. i think that differentiator will start to happen. jon: i know you're super busy so thanks for coming as you pour through bank earnings. christopher marinac there on the latest with the financials. how much do you think these banks need clarity around the regulatory issues for they make deals? lisa: i don't know what kind of political pressure there will be to increase regulations on banks that are pressured already on other levels with respect to competition from big banks. who is going to want to give a cold shower to bear regional bank that caters to their constituency?

that will be political fireworks and dynamite. jon: you have heard from politicians over the last month, they want to preserve regionals. they are worried about creating a two-tiered system. it has already happened. lisa: that is why i found it interesting. there was a column about the fed report they will put out on what happened with svb. he said he wants to hear from the fed and how they kept rates low for so long and then they raised them quickly and that threatened the model. that was one big reason why that undermined a specific subset of financial institutions. i wonder if we will hear more of that nature from politicians rather than regulating further some regional banks that are in the districts. jon: i am smiling because the successor, john williams at the new york fed, don't look at us.

it wasn't because we were late. we were front loading. lisa: this will be in the history books. nonetheless, the fact that banks were pushed to own the safest assets, which were treasuries and treasuries dramatically change in valuation, created a pressure that was not modeled and had not been anticipated. the fact that banks did not hedge against some of the losses in treasury books and took hedges off heading into the end of last year tells you everything you need to more -- no --know. jon: regulatory failure repeatedly -- as some said repeatedly. this young of --liz young of sofi.

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the fed has already told us that tightening lending standards will subsidy type for rent

hikes. for now the consumer is resilient and can process 5% rates. we have been skeptical about inflation getting back to 2%. this is bloomberg surveillance with tom keene jonathan ferro and lisa abramowicz. jonathan: fed speak through today into the quiet period. bank earnings earlier this morning. we need to to those still to come, at 10:15 you will hear from the treasury secretary janet yellen. she has things to say about china and national security. this is what she has to say, national security is of paramount importance we will not

compromise on these concerns. even when they force trade-offs with our economic interests. the code of the morning goes to the secretary treasury. lisa: this will pressure this fragmentation, we talk about the soup and the exhaustion of the nursery rhyme of fed names. we don't know the paradigm we are entering into if we have these geopolitical fissures. jonathan: they don't know either. they are saying one more hike and then hold. look at the range for next year and the fed forecast? the fed range is wide. lisa: they don't know, we don't know. looking at the bank earnings we thought we would get a clearer read.

regional banks deposits are costing more, net interest margins are going down and there is a real question about how much this will restrict credit and substitute for some of those rate hikes. jonathan: thus the number one question for last month. you have not had terrible news around the small banks, we have moved on from that phase of stress from a month or so ago. the disinflationary bust we've backed away from. the pre-svb hi was over 5% and now it's 350 on two year yield. and we are somewhere in between now. lisa: our next guest wrote in her note that the more you try to find some fundamental reason for the meltdown in stocks the more you are at a loss. all of the negative earnings

surprises, it is all there. you can pick your narrative but you can show what people were expecting and here we are with the resilience that i don't understand it. it's leading into malaise. jonathan: one hour and 27 minutes from the opening bell. what matters? is that a question about life? deeply philosophical, truly what matters. liz, it's great to have you with us. is this the calm before the storm or a durable momentum to the upside? liz: i thought we could talk about the meaning of life. i was excited about that conversation. i do not think this is durable

momentum to the upside but i want to recognize that there has been decent momentum all year in stocks despite all of the headwinds and backdrop of this uncertainty and negative news that has happened since january 1. what i think is happening right now and what happened before this was we saw a big move down and rates in the two year and 10 year. we saw the inversion between the two and 10 but then bounced back to a flatter curve if we can call it flat at 50 basis points inverted. we see this march back up and rates that is pressuring stocks. if the rally was predicated on rates down means good things for stocks then we are probably giving some of that back in there some fragility to that story. the other pieces that earnings season is underway and we started off with some calmness

from the big bank earnings and the fact that they did not report anything negative and that is a nice way to start earnings season. what we hear from smaller regional banks, no one expects that news to be positive but the biggest part of earnings season will be the tech reports. we know tech companies have done a lot of cutting since the end of last year. this is when we find out if they cut enough to preserve their margins and offset the declines in revenue that we expect. jonathan: apple in early may, microsoft april 20 fifth, amazon april 27. what are you anticipating? what's the answer to that and with the risk based on what we priced? liz: those companies have been

rewarded for cutting. those are fundamental reasons for looking at a stock and saying it has some moved to -- room to move upward. they have also been rewarded by falling rates. if we go into a period of falling rates in revenue has pressured their margins that is where the risks to evaluations comes in. if you look at the broad index trading at 18.2 times forward earning that's above the 10, 15 year average. five years were spent at zero interest rates, we are obviously in a different environment now. the other thing i would say to people is that if you are looking at this and thinking could it be a new bull market that is coupled with the new

economic expansion? you want certain signals to be sending out positive alarms and we are not seeing that yet. the copper to gold ratio, you want to see that rising if this is an expansionary environment and that is not happening. you want small caps participating in a market rally and that is also not happening. there are not signals sending off early bull market signal which is why i can't get to that side and get positive on this. lisa: do you have any trade secrets you get from the other side of the sophia business which extends credit to individuals. how much of that can be constrained, how much people are failing to pay their bills are continuing to do so? liz: for compliance and legal reason there are firewalls between me and other parts of the business. credit was tightening before we

had the regional bank headlines of march. you should expect it to tighten more as the year goes on. this piece about commercial real estate and defaults that have happened in the expectations for further defaults this year is not something to be ignored. it is something that is not quite making it into the consumer narrative. people don't talk about commercial realist a and that is business-to-business lending but that will continue to put stress on the system and i would expect credit spreads in the high-yield side and investment-grade corporate side to get wider and start to match up with what we expect to see is a stress to the system. lisa: where do you part money if you're going to be conservative? liz: if you are cautious in this environment you get accused of not being invested in that's not true. you should be invested in things

that don't sound as exciting and things you don't talk about an a regular environment. i would still have money in equities i just would not be overweight equities or overweight economic sensitive. short-term treasuries, you get another opportunity to put money in short treasuries. anything shorter than three years. you have the opportunity to put money into gold. there is still interest-bearing cash accounts like money market funds. utilities are still an ok place to be something that will pay a dividend so you can get paid while we wait out this uncertainty. jonathan: thank you. some kind of landing.

lisa: soft crash, crash lightly. jonathan: liz mention gold, is clinging to 2000. lisa: people have talked about the divergence of gold and bitcoin. interesting to see my other commodity sectors that should get a boom from china's reopening. oil prices have declined on the heels of an expected decline in activity in the united states even though you have that reopening and there are some shoots in europe. jonathan: tesla is down more than 7%, earnings after the close with margins lower than

anticipated. expected directionally to head this way, the magnitude of the move lower is bigger than anticipated. i will catch up with dan ives with no rose-colored glasses, margins are a delicate issue and keeping tesla investors overnight. coming up, seth carpenter of morgan stanley. looking forward to that conversation as we get jobless claims 20 minutes away. >> keeping you up-to-date with news from around the world. the u.s. and other allies of ukraine may ramp up the economic pressure on vladimir putin they have learned they are considering a near total ban of

commodities from russia. the aim would be to include eu nations. outside paris protesters are angry over pension reform storm the entrance hall of the stock exchange. workers waved union flags. operations were not effective. president macron's decision to raise the retirement age from 60 to 264. republicans are rejecting kevin mccarthy's proposal to raise a development limit for a year. it would raise it by 1.5 trillion and cut discretionary spending by 130 billion. if the debt limit is not raised the u.s. with the fall as june. secret recording spite of fox new producer helped push the network to a settlement.

fox layers felt the recordings and testimony would be used against rupert murdoch. homebuilder horton has better sales than expected. d.r. horton orders drop 5% they were 73% higher than the previous quarter. global news and 100 20 countries, i am lisa mateo and this is bloomberg. ♪

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>> the fed has already told us that tightening lending standards in their opinion will subsidize rent hikes. those two-year yield highs came

hot on the heels of jerome powell suggesting that they might go back to hiking by 50 basis points. jonathan: this is a calibration question. let's get you some price action going into jobless claims. we get some economic data and 15 minutes. jobless claims have started to climb recently and something to keep an eye on. futures are down near session loves -- low. tesla is down by 7.7% and in the bond market the 10 year is down.

lisa: these regional bank earnings have been fascinating and it tells you so much paired with the tesla news, this earning season may be different. i wonder how many people are coming around to that idea? jonathan: there's a difference between saying this is a one off event or that this is the beginning of a process. the consensus beliefs this the beginning of a process. we can leave the shock behind, but there is a process started here and we need clarity. lisa: which they are asking for and they acknowledge they don't have the clarity. i wonder on the risk-taking

side, people are saying it has not happened yet and things look ok so why not keep buying? i sense that there is this divergence between stock and bond markets. jonathan: michael mckee there is data coming in about 10 minutes time. tax day was earlier this week and that usually means we should get a better idea of when the treasury will run out of money. when does it run out of money? mike: the treasury has set around june 5 and tax collections came in week. 180 billion was added. that's not enough to get us past that next day. they may be able to push it back until august but this brings forward planning on trading desks, it brings forward

questions about what the fed will do and will raise questions about what treasury will do. we have to wait through the end of april to see what other kinds of revenue common but we are hearing from analysts that we should have a good idea by the first of may. jonathan: does the fed have levers to push that off? lisa: there's a few things they can do starting in june. mike: if they can get to june 15, that's the important question. one thing people don't realize, and x date is not a day. it's when the treasury feels that it can't pay the bills in the next couple days. it is a moving target. they will not say june 5 but it could be that weak if that what they're worried about. lisa: before we get to our next guest. from an economics perspective,

what's the implication of the debt ceiling debate? the fiscal drag that people talk about that some say has not been fully appreciated? mike: there will be a fiscal drag but how much do they take away from spending? republicans suggest a 1% cap on spending going forward. thus not as bad as a balanced budget plan. they want to cut back on the investment budget act which is the green stuff put into that bill and that would be a significant drag as that the spent out. the thing about the republican plan, mccarthy was talking about how much this would save. nobody has scored that yet. this bill has to go to the cbo and joint tax committee and we will see what they say about what it would save if anything.

jonathan: i have since that the public is misled on this issue. this is about spending already agreed. i know you find it frustrating. just because you make the point around the debt ceiling does not mean that sustainability is not an issue that should be discussed. that's where this conversation goes. if you say you should lift the debt ceiling you set off people saying you don't care about that sustainability. you need to separate those two issues. we struggled to do that in this country. mike: both sides have to give up the political effort to gain advantage. lisa: thus i can happen. mike: the administration says they're willing to talk about it. it is not sustainable growth and we will have problems with entitlement programs and the

shorter period than what people anticipated. do you sit down and hash out an actual plan. i go back to 1993, i'm sorry 89 george h w bush sitting down with the republicans at andrews air force base coming up with the plan. that was the no new taxes backtrack he did. they came up with the budget plan in 2011 they came up with the sequestration plan. there are things they can do but they have to stop blackmailing each other. jonathan: is not going to stop lisa? lisa: i love your optimism. jonathan: i'm not optimistic

about changing it i just think we need to reframe the issue. mike, stay close. jobless claims minutes away. right now such a from morgan stanley. claims are climbing a little bit higher. there is a trend that you and the team have identified. seth: you always want to pay attention to data. you need to look at the trending but at the level. the level stays low. the labor market is still tight. the jobless claims keep this upward trend but so far, the level is more important. lisa: we heard from the beige book that there was a softening in the labor market. where are they seeing that if it's not in the jobless claims that we keep getting? seth: the beige book speaks to people in regional banks and

folks in their district to make sure they have their fingers on the pulse in the districts. i think we are going to want to keep looking at payrolls coming out each month. those have been slowing. they are still robust but the direction of travel is pretty clear that things are slowing down. jonathan: that data is five minutes away. michael mckee will be with us as well. my, what are you looking for from claims? mike: we are looking at it to raise a little bit. the level is what matters. we had a jump up because of seasonal adjustment but does not flatten out? jonathan: on bloomberg tv and radio we will break that number down in about five minutes. here is your lineup, mohamed

brian weinstein, and dan ives. lisa: what a great lineup. tesla is a macroeconomic story as well as a specific one and i am sure you will parse it out with some incredible guests. jonathan: looking forward to mohamed el-erian so i can take a little break. futures are down by .8 percent. jobless claims in america are coming up next. ♪

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lisa: welcome back this is bloomberg. moments away from jobless claims. not a lot of drama but a softer tone and markets. the nasdaq is down 75 basis points. s&p futures underperforming as well as the russell. you can see dollar strength, the hero 1.049. michael mckee is with us.

what we see? mike: we see a rise in jobless claims, 245,000 from a prior relay's -- release of 241,000. it's important that we talk about the level. we had a jump up in jobless claims a few weeks ago and we are seeing some move upward but not a big move. the continuing claims numbers come in a little bit higher at one million 865,000. the philadelphia fed business outlook is interesting because it comes in at -31.3 which is down from -23.2.

the new orders index is at negative 22.7 from -22. employment is negative .2 versus negative 10.3. the prices paid index is a .2 versus 23.5. that has to be a low for quite some time. some good inflation news as the philadelphia fed points to the idea of the economy slowing. lisa: we are seeing reactions in two-year yields following 2.4 percent. you are seeing it equity markets keeping some of the lot -- losses.

seth, was a reaction to these numbers. seth: there is a bit a softening, everyone has been looking for some softening in the economy is the year progresses. the level is important, it still quite low. it's not like we fallen off a cliff. we have one more rate hike at the may meeting and then after that. i think the market will have to sort out what the fed is going to say. the softening is there, enough softening without it being too much softening. lisa: we got earlier this morning the regional banking results. it pointed to some withdraw from

credit. how do you factor that into employment? seth: it tightens financial conditions and credit but we have to keep in mind that tightening access to care -- crowded is what the fed has been trying to do. the hard part is how much is this? chairman powell said at the last meaning said may be 1, 2 rate hikes worth of tightening. i am not sure we have gotten much data since. it clearly matters and increase cost of funding but we haven't seen it look like things going off the cliff. it's marginally more tightening which for us, tightening makes more sense but we don't need to go back to the places where the markets were pricing in six.

lisa: do you have a sense of how controlled this increase could be. seth: it's impossible to believe that they have had precision over these things. they will be feeling their way. they could cut a little bit and hold rates high for several years after that.

that kind of calibration is possible precisely because there will not be a lot of precision over the real economy. lisa: as we talk about the destination, this is what people it imf said we are going back to pre-pandemic based on these additional views with respect to credit tightening an overshooting with the pace of unemployment creeping higher, do you think that is the highest likelihood that we are going to high inflation lowrise situation? seth: i'm not convinced that's the most likely outcome. is there a possibility of a recession? the risks are higher than they are before. however, i am old enough to remember when we had recessions without the funds rate going back to zero.

lisa: janet yellen is set to speak in less than two hours and talk about how they will put national security before economic influence. how much does that factor the fragmentation in the higher inflationary regime going forward? seth: it just as another layer of complex -- any surge in demand will not be met with his many suppliers. it could lead to more bouts of inflation. i don't know that it means we shifted to a permanent higher inflationary regime. it will depend on whether the fed can control the economy to keep inflation from staying high. it will make things more

volatile. more macroeconomic volatility. lisa: we've been talking about the fed speak, what do you hope to learn from the fed speakers? seth: i have had the view that they're trying to slow the economy and the question is the softening in the labor market with the claims data, is that softening enough for them to say we will stay roughly where we are. our base case is one more hike. are we seeing enough downward momentum of economic slowing to get back to target? lisa: thank you so much for being with us. it's fantastic to get your insight on a day that's highly confusing and the clarity is greatly appreciated. we have been talking about their earnings and potential stress in

the banking sector. sonali: thank you for joining us. you have such a large part to play in the story. let's start with your results. when you look at the numbers, assets under management. we have been waiting quarter after quarter, you have said things are slowing out there in the environment. at what point do things start to turn around and push back in this environment? jon: we are incredibly proud of the quarter, we protected investor capital and that performance will propel us forward to raise more capital. we did see 40 billion of

inflows, more than 200 billion in the last year. for our shareholders we delivered nearly -- we think we have the right model. we have staying power where we can hold assets in a difficult period. we just keep executing for our investors in the assets will take care of themselves over time. sonali: blackstone is one of the biggest private landlords in the country. i am wondering if you take out your crystal ball and look across the economy, what are people not seeing about the real estate market? jon: on real estate, the issue is people are looking through a narrow lens and they are thinking about real estate is one thing. the reality is, where you invest matters.

if you look at office buildings which are less than 2% of our portfolio. we are seeing unprecedented weakness. rates are 20%, rents are under pressure and valuations are under pressure. if you look a global logistics which is 40% of what we own, there things look very different. unprecedented strength, vacancy rates are less than 3%. you have rents growing double digits. lease rates 40%. hotels continue to exhibit strength. data centers, student housing but commercial real estate in the office sector's challenge and we expect that will continue for quite some time.

lisa: has that weakness been fully priced and when it comes to office space? jon: you see it in the stocks publicly. the public office companies are off 50-75%. in private market valuation and limited trades are down significantly. some folks in terms of private funds may not have marked the lead to what has been happening. we tend to be ahead of the curve on this things. the good news is, i know there's a lot of focus on the banking sector. leverage sectors were pretty slow. banks probably lent against office buildings at 60% of value so they should have a pretty good cushion. office buildings as a percentage are pretty small. a scenario where there will be

real headwinds. equity owners will take some hints but the broader real estate market look stronger. lisa: how confident are you about the issues in the small banks knowing that they own commercial real estate across industries? jon: credit will be tighter to commercial real estate. the government agencies lead the way and multi-family lending. there is strength in other areas. real estate is broader than just banks because insurance companies, mortgage-backed securities, mortgage reits are out there. there are multiple sources of capital. i think credit will be tighter in commercial real estate. the one benefit to existing owners is construction lending

is getting tighter. i think we will see less capital available in dampen things a bit. fundamentals around supply and demand are what drives value and that's why confidence is open most sectors. sonali: performance has been stellar over three years, more than 70% but negative this year. what is the pitch to invest this year when performance is more muted? jon: the performance has been hurt by the interest rate hedges we put in place to protect the fund which helped us last year. the historic decline in margin rates impacted. if you looked at the performance pre-those hedges you would have had positive performance in the quarter. rates have moved down a fair

amount. the other thing i would point to his cash flow growth. in the first quarter, for be read was led by hotels, student housing, logistics which we talked about. the underlying cash flow growth is good. looks like inflation is getting under control. the 10 year has moved down which is positive for this portfolio. rental house in logistics and the sun belt, it's exactly what you want to own. once you get through this followed of market period people will focus on fundamentals. sonali: we talked about the banking market in commercial real estate, blackstone had been in talks to buy assets from silicon valley bank.

what is your ambition and the spanking tumble. -- this banking tumble? jon: interestingly of the 40 billion we raised in the quarter, 60% of a came in our credit, insurance and credit insurance areas. we have $350 billion. i think there is a real opportunity. we are in discussions with the number of regional banks to partner with them. they have valuable relationships with borrowers out there across the country. we have long-term capital so in consumer financing, small and medium business financing in the asset-backed area we think there is an opportunity to deploy more capital.

as one of the strengths of the alternatives business. this you suggest be about private equity but what we do today is much broader in the private credit area is out a golden moment. we see tightening but we have this large pool of capital to deploy. you will see has become much more active. lisa: do you think private credit will come into golden error while private equity is fading or valuations make less sense and offset some of the equity valuation? jon: i think we see cycles. private equity has had endurance performance premiums. our group is done a terrific job deploying capital. what you are seeing is a cyclical slow down transaction activity. that happens in moments when people are cautious. but ultimately this recovers.

the ability to find great businesses to interview -- intervene with those companies, that still exist. we announced public to private of c event in the online and event management space for $4 billion. it just says that things are slower but they will come back in that business will do well. sonali: i'm curious about your thoughts on rates and inflation. you've heard people say may be the market is not prepared for the eventuality of higher rate and may because are not on the horizon. what is the thing that the market is not seeing about their direction of travel? jon: on the inflation front, i will give you some optimism.

we see inflation moving into the rearview mirror. i say that because across our portfolio the statistics are really encouraging. our procurement managers are saying that inflation in terms of input costs was only up to percent. shipping costs have come back to 2019 levels. even wages which were up as as high as 7% are now at 5.6% and the availability of workers has gotten better for our portfolio companies. if you look at the cpi number last month it was 5% that if you exclude shelter, it was up 3.4%. the more challenging news to your question on rates is the fed is going to want to make sure that this inflation really gets down. the idea that they will prevent his mistake.

i think they are much more likely to pause, hold rates at an elevated level and continue to see the economy decelerate. when you add in regional banks, that will create further tightening. credit is becoming less available, more expensive. it's the blood flow through the circulatory engine of the economy and i think that will lead to a sequential slowdown in the economy. the good news for investors, for consumer is that inflation is coming down and we think that's positive. lisa: how long is a before dealmaking comes back? jon: i think it will take stability and markets. getting past this inflation, people having more confidence. hopefully it happens in the back half of the year. lisa: john gray of blackstone. thank you so much for being

here. we have been parsing through their earnings and the readthrough has been somewhat negative. when we take a look at regional banks with russell underperforming. then mastec is down .9%. yields are lower on the heels of the jobless claims coming out. the philadelphia index came out this morning, to year yields are down at 4148. crude turning somewhat negative but we see the fixed turning somewhat positive. let's look through what we can understand from the banking result we have seen so far. sridhar natarajan joining us from bloomberg.

how much was this anticipated in the earnings from the big banks . sridhar: they were hopeful it would pick up by the end of the year and there are a lot of encouraging conversations happening. everyone is pulling out strategy maps and figuring out the road back ahead. they don't want to execute on anything. there is still a lot of volatility and you don't want to jump in the middle of that. this is the time to plan and an increase will arrive by the end of the year. lisa: one of the difference between the haves and have-nots is fixed income profitability. some funds are taking out risk.

how much was that a driver of the winners and losers? sridhar: a clearly helps some of the big banks. all these firms that have fixed income trading footprint that benefited from the rates volatility. citigroup, j.p. morgan, bank of america are comfortably beating expectation which tells you that was a trial for them. they can still offer a fairly healthy consumer and net interest income going forward. lisa: have you ever come in an earning system where people cared less about the big banks and instead favor the regionals? sridhar: with all the big banks,

no one cared. we usually look to them to get a sense of the positive consumer. everything came in as expected and everyone has turned attention to regional banks. the good news, we have seen regional bank earnings and things are not dire. earnings will be a challenge for a lot of them but it is not an existential threat for the majority. lisa: do you have a sense of some of the regionals have to pay substantially more to keep deposits? sridhar: every single regional bank has reported some level of deposit decline. not to the extent that you have to worry about their ability to survive but you have to be worried about their ability to thrive. they will have to raise rates to attract deposits. it will bring about a lot of

opportunities for mergers in that space. not necessarily the biggest banks, but the tr twos buying the tr threes. lisa: what will we learn on monday? sridhar: thus the one bank everyone is scared about. there is no obvious solution on the horizon. whether the government makes tweaks to what is allowed and not allowed or whether it is a large institution that can withstand the 30 million hold because of the exposure to real estate. we have seen a big flight of advisors from first republic. we have seen a few headlines but has not led to a trickle down and what effect does that have

on deposits? that's what will be watching for on monday evening. lisa: today at 4:30 you will give the update on the fence balance sheet and the deposit window and emergency lending program. people look for this data at the end of each week. on balance of power, angela stent has an interesting conversation about russia at the brookings institute. as we hear about some restrictions on what the u.s. plans to export to russia. we are seeing softness and markets as investors parse through what we got just now out of some of the banking earnings. the s&p is down .72% one point 09 for the euro. this is bloomberg. ♪

>> live from new york city, good morning, tons of earnings. then it on a fed speak with equity futures negative .7%, the countdown to the open starts right now. announcer: everything you need to get started for the start -- get set for the start of u.s. trading, this is bloomberg the open with jonathan ferro. [bell ringing] jonathan: live from new york, coming up, squeezing in a ton of fed speak before the quiet period. tesla pushing for more volume, sacrificing profitability, and yellen on china, security worries