>> the statement all but basically admits to this is a pause. >> the risks are that financial conditions and the regional banks will tighten. >> this is bloomberg surveillance, jonathan: we never left, live from new york city this morning, good morning, good morning for our audience worldwide, this is numbered surveillance on tv and radio. your equity market in the s&p

500 is broadly unchanged. pacwest in the premarket is negative 37%. it has been winning a range of strategic options including a sale. that stock is down hard. tom: matthew marks talked with jerome powell two hours afterwards. an historic day after the bloomberg reporting. it's in the camp that says you can't have one bank or two banks fail, the reason the banks or challenges it has to do with fed strategy and it has to do with prices with yields down and there is more coming. jonathan: this is the statement from pac west. they said our cash and available

liquidity remain solid. i want to talk about the deposits. this came from pacwest $28 billion as of may 2 with insured deposit totally 75% versus 71% at quarter end and 73% as of april 24. compare the 75% insured deposits with svb. svb had more than 90% of total deposits being uninsured. pacwest will come out and they can keep saying the same thing, we are a different bank. lisa: and it won't matter because this is the key distinction. you feel the angst with people trying to game out who the weakest player is and drive the shares lower because this is not just a solvency issue with respect to attracting deposits. it's just a simple math issue. when rates go higher, it's

harder for these banks to incentivize depositors to come to them especially when there are concerns about their existence going forward. they can try to talk with partners and say they are not in any kind of dire straits and though shares are significantly lower and not getting any kind of boost. jonathan: do we have a fear problem or a greedy problem? the former will only be addressed with a change to the fdic limit. the latter can only be addressed by the federal reserve moving something with interest rates and i did not get any indication -- any indication of that yesterday. >> drew mattis said what a missed opportunity by the fed to create more breathing room at a time when they are concerned about the balance of risk. was the 25 basis points pushing banks that are already vulnerable? tom: i will call it the

distortions thursday. we are looking at deposits and i think that's true for certain banks and maybe they will be more out there. maybe it's about real estate. in the wall street journal, brookfield's los angeles office company is roiled by default. that's where pac west is in beverly hills. this is a set of distortions out there that we see with the vengeance after the reporting yesterday. jonathan: the discussion that lisa and i are having is about a rate shock and how to respond. also his credit fear. with pacwest it's not for me to say of the stock should beat up or down. that's not our jobs. i think what happened yesterday was the wordspacwest and strategic options. we know the template for that.

you see a banking you see the words strategic options and you say this is played out before and i know how this ends and it ends badly. lisa: why would anyone have any deal with alone loss agreement withthte fdic. jonathan: a bit of news from td bank, mutually agreed to terminate a merger. they have's uncertainty around regulatory timing and first horizon shares are down in the premarket. here is the latest -- first horizon is down more than 40% in the premarket off the back of this and td bank is essentially unchanged. tom: that's toronto dominion we talk about the strategy and economics division. it's a canadian success story coming across the border and first horizon, 7000 people, much smaller.

we were at 15 and enjoying a centered tendency of $9.25 right now. jonathan: off the back of that, looking at the equity market, negative point zero percent. later this morning coming ecb rate decision in the news conference with president lagarde and onto apple earnings after the close and tomorrow, payrolls around the corner. joining is now is a global market strategist. so far, is it still just idiosyncratic? >> yes, it is but i've got to think that we should downplay it. we have all the ingredients for a new growth scare and i think equity in the short-term is probably a bit complacent. got the leg effect of these 5% interest rates and the bank scare which continues to smolder

and have that disproportionate impact on real estate and we have the debt ceiling slow down which is less than a month away. all that will accelerate the growth slowdown which has barely started yet. that's the bad news but i don't think it's necessarily bad for the market in the medium-term. it just accelerates everything. the growth has slowed down but also the inflation has slowed down and this stand up between the fed which has no interest rate cuts this year and the market i think will be right and we will see improvement this year. that should be good for the market. there is long-duration tech and health care are sensitive to this. jonathan: the time horizon is important. comparing what you said in the last safety sector to what you said repeatedly over the last few months, this is a shift for you? >> maybe in the short-term. we were always going to get this slow down with the fed hiking

interest rates to 5% but the two new agreements are the tightening of financial conditions with the small banks in this smoldering, never-ending crisis and the debt ceiling. that will tighten financial conditions today and i think it will slow the economy going forward we get the ultimate deal which involves less government spending. you put that together and i think that will slow the economy and introduce volatility in the vix is well below 20. equities are barely focused on the debt ceiling yet unlike income markets. some of them have priced in a bigger impact. i think there are signs of short-term complacency. what do you do about it? if the markets also appear in response to some of this, i think you buy it and you don't sell it in your position into it. ultimately, i think this is positive, not negative because

it accelerates the inflation slow down. lisa: i love listening to the different interpretations of the different series of events. you and mike wilson agree with the next couple of steps with the market response will be completely different in your abuse. why is that this market will fail to price in that growth recession and failed to decline meaningfully in the face of a lot of uncertainty and volatility and real concerns about profits? >> because we've been so resilient so far. just had 3.7% consumption in the first quarter, a less bad earnings season. we've been crying wolf on the growth slowdown for a year now and it hasn't happened. i don't think the halls of economics have completely broken down. the stars are realigning with interest rates and the banks. the vix is below 20 and i think the fixed income market is

telling you clearly that there are problems coming. i think you need to treat that with respect. i don't think the response to that is to head to the hills. the responses get ready and be aware of that in stock markets are not economies. what will suffer is commodities and industrials which are massively underrepresented in the stock market. tom: you will be in your coronation pajamas tonight when apple releases. what is the symbolism of the apple success in their use of cash? i look at the share buyback today, wow. what is the symbolism of apple given this turmoil in these distortions? >> three things -- the sort of fortress balance sheet, huge cash flows and big buybacks. these are defenses. number two, expectations are very low. we've had some relief but we are not seeing good earnings growth and we know that.

where does the growth come from this quarter, it comes from the cyclicals and that's what you shouldn't be selling because the slowdown is coming in the tech names which are reportedly less bad earnings but not great are very backward looking. those are the things you should be owning and thirdly, these of the classic long-duration assets. when you look for places to hide, we think inflation is coming down anything bond yields will stay well anchored. i'm concerned about the 30% premium evaluation to the market. jonathan: wonderful to get your perspective. a little bit cautious in the short-term term in your equity market despite this conversation, the growth risk and banking problems, the s&p is -0.2%. that's not a big move at all. lisa: maybe there's rationale as to why this can stand some of the shocks because it hasn't moved yet and it's been resilient so that's the reason why to going. tom: even with the angst that's

out there with six stocks leading the way, you have enjoyed a 62% lift in a 12% per year and the dog of dogs, standard & poor's flight. that's the bull market call. jonathan: i was with you in the booth. lisa: how much is this underestimating tech again and again? tom: i think that's a correct statement and weaken go into that as we have team coverage of apple. jonathan: you didn't mention the federal reserve at all. you obviously did a lot of reading after the close yesterday and nobody isa change their views following the fed meeting. if you think they are done or not, you still think they are not. negative 0.2% in the next hour, blackrock.

lisa: keeping you up-to-date with news from around the world with the first word -- federal reserve chair jerome powell has opened the door to a june pause for interest rate hikes. policymakers raise rates for the 10th time since early last year. howell hinted that might be the last one. he stopped short of declaring victory in the fight against inflation. the european central bank is poised to slow the pace of interest rate increases today after its preferred measure of inflation eased for the first time in 10 months. officials of the central bank are expected to raise the deposit rate by one quarter point. pacwest is trying to come markets after a 60% stock plunge that made the new focus of concern of regional banks. it says more deposits have increased since march. it also confirmed is talking with potential investors. shares plummeted yesterday after bloomberg reported pacwest was considering strategic options. in atlanta, please have a the

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>> there were three large banks really from the very beginning that were at the heart of the stress that we saw in early march. those have no all been resolved and all the depositors had been protected. i think the resolution sale of first republic kind of draws a line under that period, it's an important step of drawing the line of severe stress. jonathan: a lot of work for jay powell in contrast to the move with pacwest this morning.

the equity market on the s&p 500 is doing ok, negative by 0.2% on the s&p 500 with higher yields and lower than yesterday session and the 10 year is 3.3655. 1.1054 on the euro-dollar. 7% of the s&p 500 down. tom: this is normal when you have angst and distortions, you end up with a concentration and a few ideas weather is good or bad. we looked at the cac 40 in france and 24% of the value of the french stock exchange or two stocks. lisa: it might be normal but the fact that microsoft and google mail account for 14% of the index is a record for those two names area it might be normal but it's an extreme version of

what normal looks like. tom: there was aggregation last night. it's everybody out there in journalism pushing against jerome powell in the beginning who says we are under control and it was three banks and we are under control and we've got things under control. anybody that's been through this stuff including our next guest, that's just baloney, they are not under control. they are managing it tick by tick. jonathan: they want to signal calm but what i was thinking about was trying the best to sound responsible, is he running the risk of being irresponsible? i wonder if we are at the tipping point now given what's developing and what the news conference sounded yesterday. tom: they say we are not going down to 2% and build dudley was on fire yesterday. what's important is that it's

not about verbiage, it's about action. what is the action in the pause language to start to calm the markets with price down and yield up? jonathan: he said we discussed the pause but didn't make a decision and we might be getting close to it. tom: we are in control, we have options. this silly choice set. pacwest and maybe first horizon, from 15 down to nine. jonathan: the td bank and first arising mutually agreed to terminate the merger. they're unable to obtain regulatory approvals. is that because the regulator is busy doing other things? it's an interesting comment to get from them. lisa: it's also that they want out of the deal. tom: real estate is a big mystery here as well.

our next guest joins us with mrv associates on managing the message and the reality in boardrooms. in your note, you have too big to fail in a too big to fail version 2023. what is too big to fail now versus when the classic book was written a few years back? >> we are certainly much more interconnected at every level of the united states and globally in this ties chair powell's hands to a certain extent. last year, you had 19 central banks raising rates and you still have the ecb raising rates and bank of others. the fed is dealing not just with the domestic inflation problem. this is global. key central banks are raising rates. the fed then runs the risk that it also does not keep up and will not be able to control

inflation and you could have capital outflows. there are no walls for investors. american investors can invest where there are higher rates. tom: do they need to be more aggressive in their language on pause to say we will set a pause for multiple meetings and monitor the data, etc. i sound like you will brenner. etc., etc., etc.. do they need to do the pause language? >> when i work for the federal reserve a couple of decades ago, there wasn't any of this signaling, the fomc press releases and even the pressers which are much briefer, now we are in in your work everybody is looking for all of those cues and clues even to the point of handholding. any federal reserve chair is in a no-win situation. if he were to say ladies and gentlemen, we will pause, he would immediately have people

say my gosh, things must be really terrible. on the other hand, if he says we will march forward and right rates, that will make a lot of borrowers especially those that are leveraged panicky and make the banks hold that kind of debt. they will be panicky because we have a lot of consumers that are very leveraged presently, almost at historic levels. the language was we are waiting for the data, we are still looking at all the factors and then we will consider a pause. i know it's frustrating and everybody wants to be told this is exactly what will happen but there is always been uncertainty in the markets and people have to have an historical perspective we are always in uncertain times. no one can guarantee what's going to happen tomorrow. look at what's been happening with the bank turmoil. we moved from big regional pac

west which is a much, much smaller bank but they too have been having interest rate mismanagement problem's and it's also the short-sellers. think of the market participants word benefiting from chasing after every bank they suspect could possibly have a problem and they make perceptions into reality. lisa: to build on that, there is a question of whether this angst and regional banks can be stopped with apollo root -- with a policy response whether it's cuts or shift in terms of ensuring a greater amount of deposits for a cheaper price. what is your view? can this be solved with some -- without some sort of policy response or will we continue to see this cascade of potential weak players? >> what's important is we need policy responses at this stage. if it is going to be to ensure a greater amount or different types of deposits, then that

will have to come from the federal deposit insurance corporation and it should be the bigger banks that pay for that insurance. it should not be the community banks. that's going to be a problem. you will have the bank lobbyists fight against that. in terms of monetary policy, even if the federal reserve were to pause rates at the june meeting, we're still at rates that are at the highest in 15 years. it's not like you can turn off the spigot. my big fear is that we are already starting to turn from an interest rate risk story to a credit risk story. you had default rates that have been taking up since last fall, they are increasing now and you have telecom, retail, pharmaceuticals, those sectors are already at or above average default rates and of course, the

banks are the ones holding those loans. we are turning from an interest rate risk story to an asset quality story. jonathan: we got to leave it there but thank you for that. we've had the rate shock but is the credit shock around the corner in is that what we are playing with in some of these regional banks? june 14 is the next fed decision and i've got no idea where we are on june 14. where will things be? tom: i wasn't sure where we were yesterday. it was a crazy press conference. jonathan: jay foley is coming up next. ♪ something better? create something new? our dell technologies advisors can provide you with the tools and expertise you need to bring out the innovator in you.

1 jonathan: live jonathan: from new york city this morning, welcome to the program. equities are negative zero .1% on the s&p 500, one big names making up more than 7% of the s&p 500 and that reports earnings and that's apple with the nasdaq going into that positive 0.2% in the bond market. the two year, the tenure year and thirty-year looks like this -- yields are higher by five basis points on the two-year. this bond market has been all over the place the last couple of days. yields are up by more than 10 basis wins and tuesday, down more than 10 and wednesday,

repeat of tuesday and this morning higher once more. it's been like a roller coaster. tom: i look to the three month 10 year spread. we went out near to four percentage points in the difference in yields. we went out to 193 and i rounded up nine basis points. i've never seen that before. i've never thought about it. we are on a solid three standard deviations over three years and anyone who studies the mathematics of this would say there is massive stress within the system. jonathan: the pacwest stock is down in the premarket, negative off the back of that reporting yesterday evening. they been weighing a range of strategic options including a sale. this was a direct response to that from pac west.

the company said they been approached by several potential partners and investors in discussions are ongoing and the company will continue to weigh all options. they also offered some detail on core customer deposits. they've increased since march 31 with total deposits 28 billion as of may 2 with insured deposits totaling 75% versus 71% at quarter end and 73% as of april 24. the communication they gave us when they released earnings was that things were stable. deposits had improved. lisa: the share prices down more than 40% even with some of these disclosures as people try to gain out of someone comes in to buy, there is the issue of if the playbook is go down to zero before the fbi see basically says we will share the losses with you, why wouldn't somebody

wait for that? tom: i don't think the story is any different than the others. this is on the bloomberg. deposits went from 35 gazillion down to 28 gazillion. while they were doing that, they were loaning out money. maybe they weren't first republic on the loans go out and some of them are in bond equivalent or bond pricing where it's priced down. the loan value goes down and they've got to match that and they run out of capital. that's the way this works. that's basic accounting. jonathan: you were going to say something? lisa: no, no. we are speaking of two sides of the same story. this is an escalating problem in the bigger question is whether jay powell is on this and has a handle on what the issues are. also what kind of policy

response there needs to be and is it ok we see an s&l crisis or an issue and it will basically weed out the small players? tom: there is nothing nefarious here, they cannot call up the bank and say fix it, the bank has to fix it by themselves. there are strategic options. jonathan: i confused mybramo leads. lisa: you need a play-by-play. let's move on. tom: jane foley is here to break the stalemate. we are looking at american banking. how does the american banking crisis fold over into your foreign-exchange analysis or is it discrete and separate over there? >> i think many people certainly in europe are looking at this and hoping that it is discrete

and that this is idiosyncratic and we've heard that term a lot. i don't think it's that simple. there is other pressure points here come you talk about the stress exhibited by the bond market and i think the bond market is caught up in this financial crisis mindset of assuming we see these pressure points and the stress and the central bank will come in and cut interest rates. we are in a different environment now. we cannot assume that the fed will be cutting interest rates this year. we know the fed is still targeting inflation and inflation is very sticky and that's a problem. as long as they got the 2% inflation target, it suggests that we might have more of these pressure points and more of these crises as the global economy gets used to higher interest rate environment and means these crises may not just be about the u.s. regional banks in three or four or five months. jonathan: you believe the fed

will keep rates at 5% even as we go through painful adjustment? >> i think that's quite likely. either that or we have to ask the question -- are the inflation targets too high? i think the answer is quite possibly yes because i think we are in a different environment for inflation relative to the cold war up to trump and the pandemic time. i think we are in a different environment now. we've got a couple of weeks talking about geopolitical faultlines in different trading environments. that adds on inflation and supply chain adjustments all around us. because of covid or because of climate change as well. we've got labor market shortages . we are in a different inflationary environment so we can't assume the central banks will just cut interest rates because that's what they've done

before. that means we could have more of these pressures. we know the central banks could say we will change the inflation targets with the fed might not do that. you can't do that easily so i think we will have more stress across the markets in the coming months. lisa: basically, this year can be written with the title hiking into weakness and that seems to be the theme across the board. that's potentially in certain pockets in europe. the ecb is expected to raise rates in two hours time. are you expecting them to comment at all about the officer survey, the lenders surveyed the just went out where you can see a real credit contraction in the euro region in a way that people are concerned about in the united states? >> yeah, i think that is pertinent. we are seeing the tightness of credit conditions coming through in europe. if you look at the data so far,

you can look at the gdp for the euro zone friday and say it's not bad but its growth and we avoided recession and the eurozone over the winter. into the second half of this year, it's very likely we will see a lot of that tightness now in the credit conditions being reflected in economic data. we think the economy will stagnate and the second half of the year. if that's the case, what will the euro do? it's quite likely that it's as good as it gets for the euro right now. tom: you guys are helping businesses worldwide with the speculative trade. what is the pacific rim look like and china in particular? are you seeing a reopening after the covid disaster? >> there is a reopening and perhaps a place that's disappointing many people but

one thing that we are seeing especially in australia, the trait data is pretty strong. there is a lifting of some tensions there so there is a reopening but i think the pace which perhaps it is is slower than people expected around the turn of the year when we saw we saw that trade really get going. it's happening but there is a slowed in anticipated and recession anticipated for the u.s. at the end of the year in the euros and will probably stagnate and the growth in china probably disappoints. if you look at the oil market, overnight, we see a lot of that disappointment reflected about the outlook for the global economy. jonathan: great to catch up, going to the ecb a little later this morning. estee lauder yesterday came out with earnings and that stock got obliterated yesterday by close to 20%.

the beauty company had to come out and cut its forecast for the third time in six months and that's a company that gets a lot of revenue out of china they said as travel recovers more slowly than expected in this key market, that doesn't speak to the narrative of the last couple of months. tom: i have no knowledge other than to say i don't think you conflate them with luxury. i would love for people to email and ask if estee lauder goes to the middle-market of the fancy market and i'm not sure which? lisa: there is a question of strategy of this larger geopolitical development and the question of whether they are marooned between luxury and more every day type of make purchases at a time when there is a huge shift in that entire industry and has been consumed. jonathan: i'm going to the website to get you some cream. tom: i've looked at that.

lisa: why that in particular? jonathan: it's supreme plus moisturizer at $120. lisa: people are spending more on all of this. tom: after a 14 hour day yesterday, the estee lauder night repair serum at $120, that's stirred and not shaken. jonathan: maybe pure color matt lipstick. tom: i understand this. lipstick at $36 as a giveaway. that's not priced as you see in the basement of bergdorf goodman. jonathan: there's a man whose note -- noses lipstick. tom: if you can't pronounce the name it's probably french and expensive. it's something i can't pronounce. jonathan: is that swiss or french?

bramo was left alone with me and we were talking about a bunch of companies like that. lisa: people wrote in about that. tom: they take u.s. dollars, that's what i know whether they are swiss or french. lisa: is that china narrative the new currency fluctuation? at what point is it the catchall? tom: i listen to the experts on my want to talk to leland miller. jonathan: i don't think we should talk about this product category any time in on the show ever again. apple earnings later today. tom: the brightening routine. it's a five piece collection. lisa: now we know tom keene's secrets. keeping up-to-date with nusra around the world's -- federal reserve chaired jerome

powell did the latest 25 basis point interest rate increase says it may be the last which may mean they pause their tightening in june he pushed back against expectations the fed will cut rates by the end of the year. and poses almost half of adults in the u.s. worried about deposits are not safe. that's a level of concern as high or higher than the 2008 financial crisis and it was conducted last month. following failures of silicon valley bank and signature bank. td bank and first arise never agreed to terminate their $13.4 billion merger agreement. the two banks said there was uncertainty if and when regulatory approvals could be obtained. td bank will pay first horizon $200 million to terminate. shares of first horizon plunged more than 30%. the u.s. senate voted to reinstate tariffs as high as

254% on solar panels from southeast asia. the bill now goes to the president who has promised to veto it and this underscores a deep clash over continued u.s. reliance on foreign imports to drive renewable energy development. bmw posted first-quarter earnings that were better than expected. strong sales of its most expensive cars were involved with the german luxury automaker left its outlook for the full year unchanged. they softening test they talked about softening demand around the world. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

>> i think the fed broadly missed the fact that this interest rate risk they created by being late, they created by flowing -- flooding the banquet deposits, that they created part

of this mess in the banking system when they had to tighten monetary policy by 5%. the federal reserve has some culpability here. jonathan: and fed official can say that because the current fed officials don't want to go there, that was filled dudley. elate some of the blame at the feet of this federal reserve for hiking rates so quickly from zero to 5% and a little more than 12 months. let's give you a snapshot in the equity market. we are negative on the s&p 500 slightly. i think you know where we are going, pac west in the free market with negative 47%. yesterday evening, matthew marks pointed out that the bank was weighing a range of strategic options including a sale in the company itself said in a statement which came through overnight into this morning the company's been approached by several potential partners and investors and discussion is

ongoing and they will continue to evaluate all options to maximize shareholder value. tom: we just made a new low in the bid. we are looking at $3.37. i think it's important and i would suggest that you go on from one failure or two or three, the urgency by executives to get this fixed fast is dramatically heightened. i can't imagine with the good people on rodeo driver doing in beverly hills this morning. jonathan: according to the company deposits are not moving quickly. i think we need to read out this line -- they have not experienced out of the ordinary deposit flows since the svb failure. they said deposits of actually increased since the beginning of the first quarter. tom: let's review it again.

from 35 million or 35 million down to 28 million is fine but in that time, they did lots of loans and real estate and this and that. mr. powell has moved rates up and bond prices are coming down, real estate mortgage value is coming down. as your deposits are stable, that's great but on the others of the ledger, what has happened. jonathan: that's a really good point. there are many things go on that contribute to nervousness around the names. sometimes it's somewhat self-fulfilling and you see these moves and they fuel themselves. tom: the ceos begin to act differently as well. let's talk about something optimistic. jonathan: apple? tom: let's switch to apple, 28% per year return over the last 10 years is different than the banks.

i know there is lots of strategic ideas out there. i went back on the bloomberg and the screen and the bloomberg is stunning. the shares look like intel but apple is venting money. this share buybacks over the last number of years have an extraordinary. will they drop a bombshell today on use of cash and dividend further new share buybacks? >> it will be reminder that apple generates a ton of free cash flow and if you don't buy the stock and warren buffett doesn't, apple will buy the stock. i expect another increase in their share repurchase plan. you couple that with their dividend and the dividend yield looks modest, they will generate value back to shareholders nets contribute -- contribute into

this strong performance for the stock. tom: what is your glide path on revenue? they had a big pandemic boom a few years ago when everyone had to have a computer at home. what is the single digit revenue glide path of apple forward? >> if you think about apple on a near-term basis, they should then affect from the reopening of china and the end of the covid zero policy to the extent that 10% of their sales are through chinese consumers. they have seen some softness in their economically sensitive revenue including advertising. think of it as advertising especially in mobile gaming but there is reason to expect that as the economy improves and continued strength of the iphone and the 5g network upgrade, apple may be able to sustain double-digit topline growth. the good news is that there is easing of a significant headwind in fx.

the dollar weaken materially in the march quarter versus the december quarter. they're reasonably optimistic the revenue growth can improve from here. lisa: we've written some stories that talk about the stealth move away from china and away from how big the apple footprint is. do you expect to hear anything about costs incurred in that transition away from the second largest economy in the world? > the answer is yes. tim cook an amazing ceo. i refer to him as the ceo by day and diplomat at night but he has a challenge in that he has to broaden his supply chain and move out of china to some degree. the good news is that as he expands in india, he has a footprint of what he did in china where the game plan there and mirror that for india. yes, i think they have to move by stealth to diversify their

supply chain so they're less reliant on china and that will be a challenge. lisa: companies seem to be rewarded for saying chat gpt or artificial intelligence when it's just moving things around the world. is there anything in the latest hot trend that apple can hang onto for future growth or are they tied to an old economy reality that's very much tied in the physical world? >> tim cook talked about ai as being a horizontal technology, not a vertical one. when you think about apple and ai, they are using ai on many levels. i think of siri.i am of the belief that longer-term they can totally create a car versus just having the consumer operating system like car play. that would leverage artificial intelligence.

there are opportunities in the metaverse as well and apple is quietly using artificial intelligence on many levels. microsoft is better at p.r. and apple is better at technology. jonathan: that comment at the end is not the first time i've heard that. are you suggesting that you think the company we are all looking after some kind of ai revolution is just the one doing a better p.r. job now? >> i absolutely feel that way although it is hard to debate who's better at p.r., apple versus anybody. apple is amazing at p.r. but i'm of the belief that when it comes to ai and you compare microsoft and apple and google, microsoft is doing the best job. tom: i didn't think we would have this conversation, that's brilliant. what's the glide path of the chip? go back to thea series of chips. is there room for important

tests is the room for improvement over the next two or three iterations? >> the answer is yes to the beauty of apple is the next device is always the fastest and the best. when you set them take their chip production and ship design in-house, that enabled them to promote how this product is better. i think the glide path is a good one there. jonathan: great to catch up, thank you so much. going into apple earnings a little later. i heard those precise words about google from an analyst last week. it essentially said they think that microsoft is doing a better p.r. job right now then google when it comes to artificial intelligence. tom: why are you laughing at me? if i said it, i would be in the timeout chair but you say it and it's charming. lisa: who is binging? jonathan: i still don't know

anyone that goes on being lisa: lisa:. it's the default search engine default that comes up on certain laptops. can they make bing better than chrome? tom: this is like looking at the cloud in five or 10 years. with apple it's the a-15 chip. is there an a-16 chip? why do i like this to eight? the battery last longer, it's that stupid. jonathan: we need to slow it all down. tom: this is known. jonathan: it's a thing. blackrock is coming up next with equities down by 0.3% on the s&p 500. no one on this -- at this table slept. this is bloomberg. ♪

we moved out of the city so our little sophie could appreciate nature. but then he got us t-mobile home internet. i was just trying to improve our signal, so some of the trees had to go. i might've taken it a step too far. (chainsaw revs) (tree crashes) (chainsaw continues) (daughter screams) let's pretend for a second that you didn't let down your entire family. what would that reality look like? well i guess i would've gotten us xfinity... and we'd have a better view. do you need mulch? what, we have a ton of mulch.

>> we have laois and that looks like it is moving sideways read that is not enough for the federal reserve. >> we don't know that we are entirely done. we can't rule out the action june. >> it is in action to hike in the june meeting. >> the statement is all but basically admitting to a pause. the risk on the financial conditions and regional conditions will tighten great >> this is bloomberg surveillance with tom keene, lisa abramowicz and jonathan ferro. , good morning.

this is bloomberg surveillance. alongside tom keene and lisa abramowicz, i am jonathan ferro. let's get straight to the market where we are 0.3% negative on the s&p. 45% and getting absolutely hammered. that was reported by our colleague, pointing out that pac west has a range of strategic options in the company overnight into the morning. pointing out that the company has been approached by several partners, investors, ongoing. it will continue to evaluate all options. they are very keen to point out what is happening with deposits. they say they have not experienced out of the ordinary deposit flows from first republic bank and other news. >> i am looking at the banks, and it has been completely pushed aside by the bid on first horizon in the last 10 ms. -- minutes. these are all different stories. first horizon is where they

walkway. that's all there is to it. but the outcome is the same. it is occurring in last 48 hours from interest rate analysis over to a credit analysis which is why it is so important to go here in a moment. >> the banking system is sound and resilient according to a statement. they were keen to signal that, but it is from bank to bank. we are going from one bank to the next. >> i know what the former president said. dennis lockhart had to say on bloomberg television. he said i would like to believe that jay powell has information that sick best that the situation is contained or containable. i would like to believe. not a ringing endorsement. that's what this is. we don't have a sense of what they know, especially given the distress that has been baked into these share prices. next he brought up a former fed official. we heard from them, and he really started the conversation you are building on. this is the rate shock we are

discussing. the next phase, potentially, is a credit shock, and we still have not gotten our heads around what that will be like. >> even though it has some economic cried, this is more financially based in economics and that is a critical point in what is a crisis. moments ago, he joined us on set, or was it the moaning or afternoon, and we were sitting next to them with apollo, and he went to the heart of the matter. small and medium-size businesses, linked to small banks like pac west and first horizon. he was next to you. you didn't imagine it. it was the afternoon. we were talking about the federal reserve read in the equity market, we are 0.3% negative. yields are higher by a single basis point. looking at the ecb, little later, about an hour 12 minutes from now, we will get a decision. the euro is unchanged.

>> i am shocked. this is my shocked face. we are getting the ecb decision at a 45 when they take the helm and explain why they are raising rates into intentional week is and what the threshold is for them to stop. today, we are peaking at artificial intelligence and chat gpt. kamala harris is meeting with the ceos of microsoft alphabet and open ai to talk about the potential risk that could emerge. i wonder if there is a policy implication or if this is simply a pr move ahead of what are some major shifts. we are getting a slew of earnings. shopify is cutting jobs and cutting businesses. this is an ongoing grind of names, but this is front and center after the bell, given that this is a major component of the index, and a major component of the gains, 30% after big tech. >> i have sources say we should look for share buyback.

usually we don't say that during overs -- earnings. they say it afterwards, and i really wonder if this is a cast announcement, and then some form of bond offering from apple. >> it was falling 10 minutes ago. you heard what he said. if they don't want the stock, apple pie. that is cheat mode in apple. >> i look here 15 years, and intel did this. they bought back all of that stock, but intel wasn't the office machine. apple's. that's a big difference at the bottom of the income statement. >> those numbers come after the we around the table. global chief investment strategist at black rock red let's talk about what tom is discussing build on it. we have had a rate shock read are you looking for some kind of credit shock to follow? >> we are expecting a tightening in crunch to come through and do some of the output destruction work for the fed. that is why we have entered the

beginning of this phase. the signal pause. we are expecting and getting close to a peak if not at peak area but more importantly, from yesterday, today, we consistently continue reiterate that there are no cuts for this year. that is the market pricing and cuts for the year, and that is going to be a source of further market volatility. >> if i look at three months, spread 293 basis points, i can say have never seen in a textbook and never thought about it 30 years and a standard deviation, it is totally unprecedented. we talk about short-term government paper, and in some form, the differential cracks. >> we expect a short-term government paper to be here, and we haven't had that in fixed income for a very long time. there is notwithstanding the

debt and notwithstanding the dispersion, this discrepancy in terms of yield in three years. if you hold out for maturity, some of that uncertainty also washes away. the curve is extremely inverted. so inverted that we think the next move is for a 10 year yield to come back up rated and to curve and steepen from the inverted levels. that is why we long the front end, but we are less construct on the long end of the curve red >> did this give you confidence under control with a sense of how deep the banking fissures would go? >> can he give anyone confidence at this juncture seeing that it is still early days? what i will say is in terms of what's playing out in the banking center is we don't this is a banking specific systemic

type of crisis. we think this is another expression of cracks appearing in response to the rate hike cycles of the 80's. arguably, what happened in the u.k. is the guilt yield spike of volatility. it was another expression of this financial crack appearing. we noted that as we fight inflation, in a world shaped by supply that the costs of fighting inflation is higher, and cracks will appear and they will carry cost, and that is trying to come. >> what's the next progression in this cascade of cracks that you see? the only policy response that can really address this is rate cuts. >> or provisional liquidity, and they have been swift with that to start with, but the boundaries are getting blurred a little bit through the transmission channel of credit tightening. that is why we are basically at

peak rates, and less inflation surprises on the upside because of this huge uncertainty in how big the credit crunch is likely going to be, and it is still early days to quantify precisely. >> can we turn to the big focus at the moment? we thought we would be bailed out on the growth side by china's reopening. we have had signals in manufacturing and the last week, company earnings, indicating that the reopening and this boom we might get it a little bit of a head fake. where you come down on that now? >> the chinese restart has been likely to be domestically focus. consumer spending and travels during the past bank holiday week has been a very strong consumer, so it will play a big role in this restart which intentionally could limit the magnitude to which they come to the rescue of the market economy

and the recession photo. we are still of the view that chinese growth can claw up 6%, but we are also still of the view that the u.s. will likely head into recession in the second half of the year as consumers continue to run down on their savings buffer and they're spending appetite is stalling. >> you are one of the most important chinese voices in the western world right now with lack rock read with your prodigious abilities and mathematics in the zeitgeist i see among officers is to expand west of china. to not be into cities or three cities including aging, but to move into 5, 6. as an example of this, do you perceive that there will be a five year or 10 year expansion by western companies into other chinese cities or will you always be wed to hong kong and beijing. >> when it comes to managing the

geopolitical risk risks, i think there will be -- it will be important to recognize that the more inter-trying. it will be more intertwined -- intertwined, and it will be straightened, so no longer can we fade to a political premium. we have to think about this as we reconstruct portfolios, and when it comes to china, risks and spreading that out, for investors and corporations, i think there is a certain direction of travel. >> this was wonderful. good to see you here in new york city. take you very much. black rock seems underway in the equity markets. the broader equity market is 0.4%. right now, we are looking at pac west. just to keep on top of that. we are -45% in the premarket. that is the angle to watch. we are not getting this on the first horizon.

right here, we are still looking right in the bed with first horizon at seven point five. i will steal that directional travel. that is the mystery of the pacific rim. the ability to arrest and get away from the stereotype of 10 or 20 years ago. can we expand out in a business enterprise like apple is looking at india as an example. >> for the growth path, it is what is left of your. >> is a margin. we are looking at the reopening, and later, what is next? down to what? this is we are not sure, but significantly lower than worry for. equities are 0.4% in the next hour. a decision from the ecb at 25 or 50. chris turner will join us shortly. >> keeping up-to-date from news from around the world with first word news. jerome powell has opened the door to a june pause for

interest rate hikes. the policymakers raised rates for the 10th time. powell hinted that might be the last one. but he didn't stop by declaring victory in the fight against inflation. meanwhile, the european central bank to slow the pace of interest rate increases. that is after it referred a measure to ease for the first time in 10 months. officials at the central bank are raising the deposit rate by 3.25%. bloomberg has learned that the european union is discussing a new sanctions mechanism that would target countries that are not doing enough from being sanction. the process would focus on those that cannot explain pikes -- spikes of trade or technology. funds from apollo global management affiliates have agreed to by arconic read there is an equity value of $3 billion. the deal represents a 36% premium to the closing price on february 27 at it make space for

other industries. pack west is trying to call markets after a 60% stock plunged which made it the focus of concern over regional banks. it says that core deposits have actually increased. it also says that is talking with investors. chairs plummeted after bloomberg reported that they were considering strategic options. global news, powered by 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. this is bloomberg. (♪♪) this is the lexus variety of electrification... inspired by, created for and powered by you. ♪

>> no one should assume that the fed could impact -- eject the economy from short and long-term effects of a failure to pay our bills on time. it is essential that the debt ceiling we raise, failure to do that would be unprecedented. we would be in uncharted territory and the consequences to the economy would be highly uncertain and could be quite averse. >> s the warning from the federal chair. yesterday in the news conference following hiking interest rates by 25 basis points, and signaling there was a discussion on the pause, but not a decision on a pause. wait for that. june 14. we have set a few times, who knows where we are onto her team and how many banks will fail

between now and then. >> that's an overlay over the debt ceiling debate. that has a june date on it, and in the zeitgeist. it's a really good point. it's two overlay stories that are calendar items up to june. i don't think that is a small matter. ask it could be a different position that we all hope we are in a better position. >> why should we hope that? >> would you hope we are in a bad position? >> it is bank after bank. what is the bank tomorrow? >> language is important, so allow me to say something and then you listen. that is how conversations work read >> thank. >> it will be a better situation because why would i hope it would be a bad one. >> i'm not saying be a bad one. i'm not saying it would be. >> this goes back. >> this point and when you're not the other. >> quebec to 1980 six. >> it is 1986 this morning. >> this is going off the rails.

>> do we expect this to ours go? what is tomorrow. >> of got no idea. i'm not saying it's going to be good. are we not allowed to hope that it might be better. >> i hope things might be better. i support that and hope we resolve the debt ceiling and we potentially get stability. >> that doesn't mean any of this. next optimism. move on. let's go. >> that was painful. the s&p 500 is -0.4%. anne-marie is up next. takeaway. >> three-month 10 is a hundred basis points for the morning. anne-marie is hoping in washington where she is our bloomberg corp. -- hope correspondent. i am struck by the immediacy of june 1. i guess it is a calendar item, but truly, explain for our global audience what june 1 suddenly means for your washington. >> that is the date that secretary yellen has put out that the u.s. will exhaust the six ordinary measures they've

taken to pay our past bills. some republicans are saying it is too conservative and maybe she is trying to get everyone in a room, but that is the date from the treasury department that they are concerned about. why are you starting to see a lot of angst in washington, project early with some people but not everyone because that leaves only a few working days for this president to be in washington at the same time as speaker mccarthy and at the same time as senate majority leader chuck schumer to hammer out a deal. it is just seven, including a weekend day. plans can change, but we do have foreign travel. obviously the senate and the house have days on recess, and that is why everyone is concerned and all eyes will be on the meeting on tuesday with a congressional leadership at the white house, but if you are listening to. yesterday, the press secretary, it sounds like the president is preparing to give speaker mccarthy more of a lecture than

actually having a negotiation. if we say the least say kick the can down the road translate that into washington speak right now. >> this is what mike mckee said yesterday. we front out of land. no more land. this is potentially one option. the wall street journal actually talks about the wording they have about the white house scrambling to get this option on the table, but many analysts have been saying this to me for weeks. this is a way both sides can claim victory. there would be a short-term extension of the debt ceiling, and they will negotiate. that would come to the other deadline they have of striking a deal on government spending. potentially in the fall, they can link these two together and have a short-term increase in the debt ceiling, discuss spending cuts which he would not have a clean debt ceiling ever. he would have physical spending

attached that, maybe they can do all of that in september read then each side can claim a little bit of victory. the issue is that some house republicans will have to take three votes on raising the debt ceiling. that would be incredibly challenging, and that could be a revolt or the speaker from some of those hard-liners in the conference. >> is anyone talking about using the 14th amendment to go it alone with president biden just simply saying we are not legally allowed to fail and default on our debt? >> it's been dangled out there. there up in singles of attentional white house options including that one to make sure they do not default, i think that these are those hail mary -- mail -- these are those hail mary potentials, and it is not there. it will become clear after this meeting with the congressional

leadership, including speaker mccarthy on tuesday. with all of the debt ceiling discussions, we hear the president has nominated someone to fill lael brainard c. philip jefferson was nominated last year and rose to be one of the fed governors. he also nominated adriana kugler to fill the role on the governor board. i'm wondering, why now? right after a fed meeting is there some sense of timing here? >> why now? why not once ago? when we first heard and reported, about lael brainard moving over to the economic council, i first heard about that the end of january. we are now in may. this isn't even an official yet this is josh wingrove and pete davidson. they skip this yesterday. they will make that on friday, but i think it is fair to say they drag their feet, and they are behind when it comes these nominations again. lael brainard took over the job at the white house in february.

one issue the administration had as they are under immense pressure from an end as another, kratz for the first ever up ointment of an individual and economists from the latino community. that really kind of change the direction that the white house was taking with who they were waned to and how they were going to look at the new makeup of the fed board, and that is why it we see this happening now and not potentially two months ago. >> thank you for the update. down in washington. on the latest on the debt ceiling. the competition of the federal reserve and nick -- a cure nominations to get confirmed for this or coming into the meeting which is in the middle of june. we are looking potentially for them to signal a pause, although i go back to what we said earlier. the people who think this is a pause, and the people who think they are hiking rates,. >> totally agree. hiking interest rates. >> is a good point, and i go to the point where we didn't hear anyone talk about what meanings

a pause which is where someone might suggest they get to that pass, but you are right. the people looking for higher rates in some form did not give way yesterday. >> was interesting is the debate around session in the federal reserve. this whole idea that they are forecasting a recession you have a chairman coming out to say it is more likely we won't have one than we will have one. >> that is what counts as dissent. basically, being really honest, he said this is healthy. this is rate that you can have an opinion i can have mine. mine is right and mine is wrong, and i am not necessarily going to knock it down here, but that is what we will follow, and we can have everyone have their own -- opinion, and it is a different decision even though austin has been pretty vocal about questioning the logic of raising the rates. >> a million years ago, we had a series of interviews from harvard they guy who took us away from a strict interpretation of what is a

recession. the answer is that it is squishy enough that i could disaggregate and say what portion of america is in recession right now. commercial real estate in recession right now. there is no question about that. >> would you say this is a difference in analysis of the federal reserve or just a difference in for an individual making a call because of what they need to signal. >> the answer is both there is a lot of need to signal going on. there is a lot of that. >> i do wonder grid you knew not here fed officials say recession is around the corner. >> they believe it become self-fulfilling. >> neel kashkari is been vocal about that, but not the head of the fed. it's a problem. >> it is.

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>> live from your city, this is bloomberg surveillance where we hope things are just really bad, and if you don't understand that joe, i'm not going over that again. run the s&p 500. 0.3% on the nasdaq totally unchanged, and finally, someone said it. lexis the quiet part out loud. let's get to bonds. two-year, 10 year, 30 year. little bit later, fully five and it's from now, we are looking at the two-year at 381, and the euro is shaping up as follows in the fx market. go on. you've got this. >> 110. you can make a story about this. >> the could make a story, but to come up with a story,

congratulations and you are doing it good work. whether it takes up for two basis points or it's in this race for quite a while. next people border on that. >> we've never even gotten to that. the state of the ucb, grinding back to 106. >> fx strategists in the foreign exchange. you know that. >> let's do better with pac west. let's bring up the name. stock down this morning with the winning season. 36% on pack west right now. the latest news out of a serious note on our team work that basically, there is a range of strategic options. it is, with a link the story of deposits and how they stabilize. they say this about our story. it has been approached by several partners. investors as well, and the discussions are ongoing. they will continue to evaluate all options to maximize shareholder value. >> it doesn't look bleak.

it is interesting that shares are down as much as they are, not only for them, but for anyone remotely associated with them. those shares are down. take a look at the western aligned. a bank that is under fire. 14% in premarket trading. they have been lumped in with pack west. there is no other reason, and you can see this through the banking space. first horizon with idiosyncrasies. down 44%, but just because of the story, which is the tv bank having agreed with first horizon to terminate the previously announced merger which had been it upon. with all of the turmoil, we have to suggest they were very excited to get out of this deal at the price they were agreed to pay. quack sprite possibly, and it is right to raise that point, but somehow, it is wing to the broader story because we are talking about the regulatory timetable that wasn't associated with the deal. that implies it is something else, we know what that might be. >> that is a great point. when it raises that, the

question is the regulatory shift that is coming sooner than normal with respect to some of the regional banks. before we move on, i want to bring on the earnings where they are cutting jobs for the second time in less than a year area basically, i don't want to bury the lead. shopify will be smaller by 20%. they are also selling off their logistics business to flex port to try and compete with amazon. this really talks about consolidation at a time when bigger and stronger. >> the stock is up in the market. the other big one is waiting for the s&p 500. apple earnings are coming a little bit later. payroll is reporting after the fed rate hike. we will see the credits hike with this. >> we think this is rehydrated we would need to see significant upside surprise, where july seems more in play to us. >> we have long expected the fed to hike current levels and hold for an extended. , meaning the current rate cuts

price in the market in the second half, drumroll, singing a bit early. >> i would go there on july 26. that is labor day, we are running in the dreaded final meeting at september 13th. this is the conversation of the day for global wall street, and a short term paper market. we see this in liquidity and solvency. thank you so much for coming in and giving us these questions on the distortions we see in the market. folding in the word pause and what it means, looking at these comments as just mentioned, what is the key distortion in what we care about. liquidity, solvency in the market. how threatened is liquidity, how threatened is solvency. >> we think it is a big issue. solvency is challenges and it is more isolated in the triple see universe and in some pockets of real estate.

cash has been king, and liquidity is distorted by rate hikes and on certain distortions in the market as well. >> we waste ago. can we make this a three-hour conversation? kim we bring up the bank board. it is three-story banks with three different stories. when there all folded into the expertise, the idea of beverly hills bank, they have l.a. real estate, they have may be paper, john says the posits are over, and apart from bloomberg on twitter this morning, we are showing commercial real estate exposure. first horizon was sort of a southern feel as well. fold that into the question of solvency. terms of solvency and commercial real estate in particular, one of the benefits is that banks

will work with their clients. they don't want to own distressed real estate or properties. back to the crate financial crisis and what happened with commercial real estate, things are actually working ok. there are defaults. there are workout situations, but it is not a broad-based systemic issue. i realize that the pandemic has changed our looking at office space and valuations in higher yields, but if we are looking at exposure to real estate, we have done a lot of great work on this. we are not super concerned that this is a broad-based domino yet to fall in a line of issues we have seen so far. >> what would concern you? what would you need to see that you are not seeing right now russian mark >> in order to see things get concerning, we need to see capital stop flowing to the market where it should flow. investment-grade bond market closed. we see big freezes on the heels

of a full fraught -- five or six days. zero bonds. that is a little bit unnerving, but that is much more unnerving and related to sitting on the sidelines. we don't need to step into this mess. can waited out, and a lot of that is proactive last year in the market volatility and issuing a lot of bonds, and i think that to waive low is still pretty indicative of credit conditions that have tightened. they have not necessarily become super ruling over at this point. >> less put that together. what would it take to recommend buying bonds from the regional banks? >> we are. our bank team has come out with an overweight allocation to banking in general in the u.s.. they have some significant calls in the regional banking system. they are viewing valuation as much more attractive than they have. they are not buying everything. this is a credit specific -- in the weeds to see what will make

bank stick. and banking is can using. a lot of people don't understand how banks make their debt, so it is very constructive. >> would you push back against people who say that there needs to be a policy response to act as a stopgap measure with some of the distress and the rumors percolating through share prices and sending them lower? you think that is unnecessary, based on the vast majority of the sector? ask i do think this recent situation highlights how much technology, social media, flow, how much it looks, because you can now go on to your app, move the deposit from one bank to another and really easily do that. that is for a small individual, large corporations. there is a much lower bar than there used to be in terms of actually moving around deposits, so i don't necessarily think you need to have widespread regulation, but the information flow still needs to move in terms of why these things are

happening, how banking works, and some of the complications of problems that have been created by social media really going after banks in general. >> thank you. thank you very much for the credit market on the banks as well. some of these were investment-grade. all of a sudden they were junk. >> this was an idea of liquidity and solvency. it is critical. we are making jokes about 2008, but it is the same debate as it was in 1907. liquidity and insolvency are two very different emotions. what has been shattered here quite frankly after the ballet that we witness which was with jerome powell's confidence, and i would suggest there is no discussion of the point of the efficacy of a duration of cause to help heal the system while we wait for them to get the underlying economics. we have to wait for the fed to move, and that takes time. that takes t on the x access, so

you have to pause. i don't hear discussion going on. >> pausing phis a brightpoint. >> i believe we have. you've nailed that. it's right here. his 5%. it's going to be 5% persistently. there will be problems. that doesn't mean more banks will hit the wall. you can make your own call on those kinds of things, but ultimately, you can see the direction it will travel. the tank search struggling to retain deposits because you get for 5% elsewhere, and if they do a load of lending where those assets are yielding two or three, can you pay off the deposit of four or five? it is difficult. >> that is why you are seeing bigger banks to better because there is a critical mass, but it raises an issue with a number of people coming on the show. is it the speed of how much the rate went up or is it the level. this is unknown to me. it is is the speed, people will be shocked to realize it was.

they will get more. if it is the level, this is an existential problem that will become more evident as the economy starts to deteriorate. >> this decision is just around the corner. we will catch up with katrina at franklin mutual, reacting to the decision. i am looking forward to that, and 30 mess after that, and ecb news conference. a lot to get through. after the close, we talked about this a few times. apple earnings, but again, on the u.s. banking system, it equity is pretty resilient. the index supported by these big tech names which have delivered on earnings, and we've not just had a resilient market, but the s&p 500 has rallied through march and it rallied through a will, and is in the face of lenders going under. >> what it is is the level. we work from 20% up to near flat. and you can see that with all of this turmoil that's going on. it is still under 20. we have the emotion here of the

vix at 28. we are nowhere near that. >> i want to go through these headlines. first horizon. they've agreed to terminate this $13 billion merger. this is essentially because they couldn't offer a date for that to close because they don't have time for regulatory approval. the story right now is first horizon at 30%. td is positive at 1.4%. -4%, and this is bloomberg. >> keep you up-to-date with news around the world with the first word. federal chair jerome powell did the latest basis point increase. it could be the last. they are suggesting that officials made because tightening in june, but he

pushback against expectations that the fed will be cutting rates by the end of the year. bloomberg has learned that resident biden has learned that phil jefferson has been promoted to vice chair of the fed. this could be election -- announced as soon as friday. adriana cutler will be nominated to a fed board spot. she will be the first latina policymaker in 109 years. a new poll says that half of adults are worried that bank deposits are not safe. that is a level of concern as high or higher than the 2000 eight financial crisis. the gallup poll was conducted last month following the earlier of silicon valley bank and signature bank. td bank has agreed to terminate its $13.4 billion merger with horizon. in a statement, the two banks said there was uncertainty if and when regulatory approval could be obtained. as part of the termination agreement, they would pay $200 million. shares plunged more than 40%.

the e-commerce company shopify is selling us just ticked unit to flex port. the transaction includes deliver. shopify bought that last year for $2.1 billion. in return, they will get a stake of 13% in flex port. flex port will come shopify's official logistics partner. global news, powered by 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. this is bloomberg. [office sounds] ♪upbeat music♪ ♪♪ ♪when the day that lies ahead of me♪ ♪♪ ♪seems impossible to face♪ ♪a lovely day (lovely day)♪ ♪(lovely day) (lovely day)♪

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>> we will see if conditions force them to begin to combine

financial stability concerns with monetary policy decisions. as of today, we did not do that, and we don't appear to have to do that. >> is a good summary of the current bed and their position for a former fed official. formally of the atlanta fed. from eric city, good morning. 30 ms. away from the ecb rate decision. 25 or 50. 25 appears to be the consensus. 50 is a call from socgen going into all of that. the fx market is shaping up as follows on the euro. this is lisa's favorite currency pair. 11068 on the euro against the euro. totally unchanged. let's see if we get moves a little later in the equity market. we are 0.3%. we have to go back to the story of the moment. pack weston the cream market trying to stage recovery at 36%. ugly off the bank of our colleague, the brilliant matthew marks. a range of strategic steps with

those familiar with the matter. that has been can firmed with a statement overnight into the morning. saying they have been with several partners and discussions that are ongoing. they will continue to evaluate all options to maximize shareholder value. >> each of these is different, and as mentioned, deposit stability seems to be pretty good. joining us is matthew monk after he moved markets last night. congratulation on your reporting. as simple as i can, with the 25th statement by the leadership of pac west, they say that credit dynamics are steady. i've found that really important. what are the credit metrics they have. is it real estate on rodeo drive ? what do they own away from deposits? >> they have a lot of real estate, so that's multifamily loans. they have loans on credit lines

to businesses. they have venture capital. the important thing to understand is that this is not the credit quality issue. not yet. it is an interest rate issue which means that these loans are no longer worth what they were when they wrote them. the market value is below par. assuming they'll get paid back, it will be worth whole eventually, but is driving the interest rate and the credit quality is holding steady which is different than the last crisis. >> us talk about the strategic option. look at them one by one. what is on the table and what do you think the problem is that this bank? >> the ideal solution is some kind of rescue merger with another larger institution. it is a great ranch eisen california. there are a lot of people interested in expanding it but the issue is going back to this interest rate loans. they are not worth what they used to be. any potential buyer is going to

have to take a substantial hit right out of the gate, and go down the loans which create a loss. it will be hard to buy them. that would be the first priority. to get someone to take a hit. that is an issue. >> we just saw a playbook. we saw an idea that they will just wait for the fdic to come in and take a loan-loss agreement. then all of a sudden, it is a feasible purchase. why is this not just going to end up in the same place. >> i don't know. if you can -- i'm try to get my head wrapped around this. there is one possibility this is a smaller institution, it is much smaller than the silicon valley bank did potentially, this could step up and make it wild. it is hard to argue with getting a sweetheart deal from the fbi see, but that is predetermined. >> i don't want you to tip your hand, but you speak with a lot

of people in the world of dealmaking. how much work is additional tieups over less distress kind of circumstances to get ahead of that #>> i think everything is dead for the reasons i mentioned. long-term, you will see consolidation, but it's off the table, especially with a tv deal unraveling. if you have a large institution, how will you take the risk that will get shot down? that will take nine months to begin with now you are doing a deal. it will be open-ended. there is a net capital negative

right now. is mapquest seeing the zero capital? >> i don't think so. they are not insolvent. as was indicated their selling down banks with all of the institutional investors. getting into the stock, it is just investor sentiment. it is a really nice franchise with these in shape, getting pummeled by investors. >> it is so different compared to the seb, and it was a little earlier. from a reporter's perspective for you, are you focused on that? i focus on the right thing we say it is stabilized which is something.

>> absolutely. i'm going back to this point. 80 percent of these depositors are not sure that liquidity won't run off. in a heartbeat. and these are insured. i don't think we are seeing a run on that. i keep putting a message out there. >> one of our listeners of the program had an amazing question which is essentially, what are you saying and how does it cut rates to get consolidation to take place. is it what people are waiting for? the opportunity to have a balance sheet make a little more sense? >> people are waiting for the government to raise the insurance cap. that is being stabilized, and it is being increased. the federal reserve is slowing its role. and at this point, the market is waiting for guidance to

stabilize things and consolidate. >> tremendous report. let's talk again soon before the week is out. thank you. the latest on pac west. when you have this number at fincher deposits totaling 75% at pac west, if that is the case, does the shift in the fdic's seem to mean anything to our profile? >> is not about that. it's about, as he was talking about, the commercial real estate. the best chart out there is from chris whalen. i can't remember where it was, but it shows the market has a loss summed across the banking industry, and that is not why -- i am gloomy and without hope, but the answer is, i look at this conversation, and a guy hasn't slept in three weeks. let's start with that. the answer is, people like him are trying to sort out things,

what the banks don't want to talk about or don't want to avail you. that is the key thing. >> one target to the next. it is brutal stuff. we need to talk about the bond vigilantes. going into banks right now, one to the other. in the first republic we go to pac west. and the problem i see is there is not a resolution unless yield comes in. >> actually correct. >> yields were too low for too long. i am not saying this but i am reflecting a consensus that a lot of people would say, and all of a sudden, you have a loan portfolio pegged at a different era. to this point, there were terminal rate, how much are we looking at waiting for a rate cut to solve a problem that will only get worse. >> in the way i put this, you are correct. you'll have to come in, but if you go pause pause pause, that is a net present value rate cut

while you wait for the fed to show data and finally cut rates. that is not in the zeitgeist of the morning. multiple pauses but may be from goolsby. >> this is if you believe this is about deposits and rights. >> i agree. it is not. you don't think it is. >> i would hope that is the mention i was hoping for earlier. >> i am done. chris turner is coming up on this ecb decision. that will drop. >> i think he's going to. the equity market, think. >> i hope. we are negative 0.2 percent on the s&p 500. pac west is down about 14%. ecb next. 13 minutes after that, press conference with ecb president christine lagarde who will say, financial system is sound and resilient. strong. and all that stuff. from new york, this is bloomberg.

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>> the stresses in the banking sector are likely still there and still coming and still tightening financial conditions ahead. >> you cannot say it's completely separate from the

banking sector. >> the main thing in the june meeting is we cannot rule out further policy rate hikes. >> the goal coming into the meeting was to give themselves the option to pause. >> i think they continue to tighten if the data continues to support that. >> this is bloomberg surveillance. tom: good morning, on radio and television, commercial free in this half-hour with a meeting of the european central bank. we are looking at banking crisis in america, looking at apple coming out this afternoon. none of it matters right now, what matters is christine lagarde and her carefully mentioned words in the press conference. jonathan: they are set to go 25 as inflation is still hot. something they might go 50. we are starting to see things happen in the banking sector. the euro zone bank lending survey showed a real tightening lending standards.

i wonder if we see the same thing in the united states in the next week when we get the survey loan officer opinion. tom: a nice chart here, inflation is elevated in europe but even in the angst part of it, it's rolling over so slightly. given the politics of europe, different from the fed, how exposed does christine lagarde have to be? jonathan: they don't want to see double figures of inflation. the key difference for the ecb is they will make the point their banking system compared to what's transpiring in the united states is different. they will say we haven't seen banks fail in the same way they will make the point of keeping policy where it is in the ecb might have the option of making people believe in the way chairman powell did not. tom: this is your wheelhouse and the basic idea is the bank in

germany and equivalent. their banks are not as entrepreneurial. they are not as equity and growth driven as the growth that got us into this trouble in america. jonathan: there are loads of different stories and the banking system but you've done a great job of looking at what's happened with silicon valley and all the lending in the massive growth in deposits through the pandemic in this happened so quickly and then 05 from the federal reserve just like that. so many management teams are caught off guard by that and those banks have gone under. tom: so much to focus on but in this half-hour, we will focus on what's going on in europe area it's a much more fixed income mindset over there area jamie dimon talks about fortress jp morgan but all of europe is a fortress compared to the leverage we see within the u.s. system. lisa: this idea that in the u.s. the problem was how quickly the

rates were raised and it challenged business models growing up in a different environment. i wonder if christine lagarde will hint at that and opt for 25 basis point increase rather than 50 and a more moderate pace of increasing simply because the lesson from the united states might suggest that perhaps you can have more breathing room to raise more gradually. tom: if we get hawkish-hawkish instead of hawkish, pause, does the euro pop to $1.12. jonathan: i will not make an fx call this morning. if you can encourage people to believe you will know again and again at the time when the fed is almost mitigating a pause, rate differentials open up in a different way. tom: american oil is $68 50 six cents per barrel gets my attention. jonathan: bond yields are higher

and rising by two basis points on the 10 year. much lower yesterday and the day before on the back of this banking stress. equity futures are -0.4% on the s&p 500. we get into apple earnings a little bit later on. we will look for that coverage in the 4:00 hour. joining is now is the ing bank's christopher turner. i look at the ballet and we are focused on a jay powell ballet of yesterday but the christine lagarde ballet is so different. how different is the challenge christine lagarde has given the turmoil? >> i think she will very much focus on delivering what we think will be the 25 basis point hike you been discussing.

i think the message will probably be more hawkish than what we saw from jay powell last night. inflation seems to be more sticky in the euro zone even if they won't pre-commit for another 25 basis points in june but we think they will hike in june. they were probably be enough in the press conference and the tone of the language, that they are hoping for further just further hikes. jonathan: the job is not over for the ecb. they are a central mandate bank and they are falling short with inflation at 7% in the euro zone. what we are starting to see in the u.s. is a struggle in some parts of the financial system with 5% interest rates at the regional banking level specifically. when you look across the euro zone, any sign of that developing from your perspective? >> the point you raised earlier,

the differentiation at a moment between the u.s. and european banking sectors, that something the imf has in its stability report, looking at the stock of debt securities in the u.s. bank balance sheets relative to europe with those being much higher in the states. the focus at the moment is the stress in the system and how pac west and what it's meant for interest rate differentials with the u.s. rates crumbling at the moment. lisa: the issues in the united states, are they analogous not to the banks of your to the real estate of europe? it could be more interest rate sensitive in a more immediate way than the united states. >> we haven't really been seeing that. it has been mentioned in places like scandinavia with the leverage particularly in the

commercial real estate area but on the residential side, that has not crept up as an issue for markets at the moment. the focus very much is front and center of the u.s. regional crisis. lisa: why not just be really bullish on the european region because it means you could have an ecb this fighting inflation but a resiliently, me but that data is coming in hotter than expected. >> i think there is a pace for euro-dollar to be trading a lot higher as the differentials go to the narrowest spread this year and about 65 basis points in the two-year part of the curve and that makes a strong case for a high euro-dollar and that will be the core story this year. the challenge we see in the fx market is what's happening with u.s. money markets and across

currency basis which is starting to show some signs of nervousness again. that is not good for the risk environment and with investors pretty long in euro-dollar already, particular asset managers, they are probably taking twice about adding to positions at these relatively high levels. jonathan: how do you expect the u.s. dollar to behave or how would investors behave toward the dollar as we went into risk aversion and that risk aversion was dominated by the united states? at the epicenter of that risk was the uso how with the u.s. dollar react to that? >> the u.s. is kind of the source of the problem but we have seen particularly conditions in money markets. we are closely looking at things like the three month euro cross country swaps to see if there are signs of stress in terms of

investors and banks wanting to secure dollar funding and paying to get that dollar funding but it's widening. also looking at the spread but if they spike out as they do on occasion, the dollar could perform quite well. we've been recommending defensive currencies and we think things like the yen and the swiss franc have low correlations to the s&p 500 and those are probably the currencies that you should be overweight at the moment. we could see some dollar strength against activity currencies like the canadian dollar which could be exposed of the risk environment deteriorated. jonathan: thank you, sir. that's the fx market and what would happen if we get risk aversion in the u.s. was the source of that risk aversion. lisa: it's something many people are trying to understand if we are in a new regime where there is less preeminence of the

dollar in terms of the global currency. many people have tried to do punk that and say is that just tried to debunk that and say it is still the main currency. even with all of that, there is a different kind of environment if the u.s. is the source of the weakness as you highlighted. tom: they are so wedded to the tensions of europe in germany and the netherlands and you mentioned austria as well. how will the bundesbank react to this? away from that is given the shock where the ecb rates are, i still cannot raiment. jonathan: i'm with you. tom: i asked at the imf meeting in italy, where is the nominal gdp and the animal spirit to support this interest rate structure. i'm waiting to get an answer. that's my first question to christine lagarde today. are we really beyond it? jonathan: there was a time in

the depths of the pandemic when i spoke to asset management and i asked if the ecb will go through another cycle without hiking interest rates. mario draghi was in eight years and never hiked ones. i thought perhaps christine lagarde would repeat but now we're looking at 4% which is quite amazing. lisa: it shows how much we underestimated inflation and how nobody imagined this type of inflationary impulse which we have not seen for 40 years. jonathan: that plus i don't think many thought the bond market would tolerate it on the periphery. lisa: tolerating it so far. jonathan: yes. lisa: we hope it is tolerating it. jonathan: chris turner, just brilliant, thank you. equities are slightly negative and it europe -- the ecb decision is coming up. lisa: keeping up-to-date with news from around the world -- federal reserve chaired jerome powell has open the door to a

june pause for interest rate hikes. policymakers raise rates for the 10th time since early last year. he hinted that might be the last one but he stopped short of declaring victory in the fight against inflation. the european union is discussing a new sanctions mechanism. it would target third countries that it believes are not doing enough to prevent russia from evading sanctions. the process would focus on those that can explain spikes and trades of key products or technologies. apollo global management has agreed to buy arkonic. the all-cash transaction has an equity value of about $3 billion and it represents a 36% premium to the closing price on february 27. pac west is trying to call markets after a 60% stock surge that made the new focus of concern over regional banks. the bank says core deposits have actually increased since march.

it also confirmed it is talking with potential investors. shares plummeted yesterday after we reported pac west was considering strategic options. president biden has picked the fed governor philip jefferson to be promoted to vice chair and this could be announced as soon as friday. an economist elainekugler would be the central bank's first policymaker in its 109 year history. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪ jonathan: we are about 50 seconds away from the ecb rate decision. on the s&p 500, slightly negative through most of this

morning, negatives zero .3% on the s&p 500. yields are a little higher at the front and. treasuries are one basis point higher but look at foreign exchange, the euro against the dollar is $1.10, close two-year to date highs in a single currency and it came close to $1.11 last week. lisa: i've been mocking that we've been around this level for a week that it has broken out and it is at higher levels of there is a question whether it can break out further given the conversation we just had. jonathan: we anticipate the ecb rate decision. we are looking at -- looking for a 25 central basis point move in last time, a conversation about 50 or 25. it could be 825 point hike.

that is a 25 basis point hike from the ecb and the inflation outlook continues to be too high for too long. the ecb hike in interest rates by 25 basis points, the euro in around $1.10. the underlying price pressures remain strong in the inflation outlook is too high. on the asset purchase program, they expect to stop reinvestments as of july. increases are being transmitted forcefully. those are the headlines coming through. lisa: i'm watching the euro but i'm -- but it's feeling the pressure upward as we have a very clear sense that inflation is a preeminent concern. what is interesting is how little response we are getting in markets as you have this feeling the press conference will be key to indicate how much

further they think they need to go how much they will backstop peripheral bonds and try to create some issues to mitigate some of the potential pressures from the market response. jonathan: working through the initial headlines of the price action -- from the european central bank, the assessment of the medium-term inflation outlook from the previous meeting and headline inflation has declined of recent month but underlying price pressures remain strong and they say the past rate increases have been transmitted forcefully to eurozone financing while the legs and strength of transition to the real economy remain shaky. they say future decisions will be bought two levels to be restrictive to return a tiny level of inflation to of the medium-term target and we kept of those targets for as long as necessary.

tom: i wonder about the causing of all of this and i hear the bundesbank saying inflation is what it is. there is a vigilance here i did not hear yesterday. jonathan: it implies they are a few steps behind the federal reserve and future decisions that policy rates will be brought to return inflation to 2%. lisa: that was the large expectation. taking a look at the market response, it's interesting to year yields in italy are rising not incredibly well two-year yields in germany are coming down a little. this is the divergence to watch as the peripheral region really starts to come under pressure. tom: it's important to understand nominal gdp in europe is where was in 2008.

granted, it's up off the bottom of the middle of the last decade at 3% per year but it's a shadow of what you see in terms of the animal spirit of the united states. other countries are better at this but i don't think it's apples and apples, the fed and the ecb. i think they are different stories. jonathan: let's catch up with maria todeo on this, what comes out for you? maria: it was 25 basis points, we had a lot of data this week which pointed to core inflation cooling in april and that was seen as a key factor going into this decision and that was show the transmission is working. we know it's not the target but it's a number they focus on which played a part in this decision and you had the survey that came out two days ago which showed credit conditions were tightened in the euro area.

this is providing the basis for a downshift of 25 basis points. they say inflation is still unacceptably high and that points to more to cover is interesting to see whether there is a sequence for the timing. they will probably say they are data-dependent and to me, the weston was would they go 50 or go for a downshift and they've gone for the most cautious approach. jonathan: we will catch up with you after the news conference that will begin in about 25 minutes or so. i was reading this line the statement about the past increases being changed forcefully. it might look like a pause but the future decisions will ensure policy rates will be brought to levels that are essentially restrictive and that tees up another move down the line. lisa: one more and holds? jonathan: who knows? lisa: how lucky is christine

lagarde that she goes after jay powell? she listens to all of his comments and they can be like don't do that and she can come out and nuance the statement. jonathan: they happen to be behind in the process. it's not just the calendar but they are behind in the process as well. tom: it's a different political mix. the inflation numbers and witnessing which you and your family are living in the united kingdom and europe, they are nowhere comparable to the united states. take the worst anecdote in the united states and it's a walk in the park compared to what citizens are feeling in greece or the u.k. or finland. jonathan: we can have this conversation with our next guest. katrina dudley joins us now. the difference in the inflation

the euro zone is experiencing than the united states, is there a big difference? >> we need to think about was generating the inflation in the eurozone region and what has been generating it. the war in ukraine is really not come to light for a long time. that is really what is reflected in the european inflation numbers. it's a fact that someone cut off the gas supply and we needed to replace that gas. that is the inflation the people are dealing with. we keep talking about it and i think it's important. it's the reaction of the government's we been positive upon in terms of that incremental help they provide to their citizens. that is where the disconnect is, the population is quite happy because they are getting support and getting help so they are not protesting in the streets. tom: this came up at the imf meetings, when is christine

lagarde? jonathan: 8:45 a.m. tom: she is speaking a different language to a different culture and fabric. within your study and all the work you've done in equities, are we at a point where we could say we've gone beyond euro sclerosis and have a financial structure more like us, more anglo-saxon than what we normally study? >> it's transitioning. i think the bond market in the euro zone is still not as robust as the bond market we have in the united states. that means that companies don't go into bankruptcy driven by the bondholders and the breaching of those covenants because the debt is held in banks and the banks tend to be wanting to work with their customers on a long-term basis. even though you had the transition, it has not been noticeable. they are data dependent. who does not want to hear the fact that the people running the ecb are looking at the data and

being informed by it and they say core inflation number is still high. it's at 5.6% on a core basis. that is significantly above 2. we are not talking the difference of two and three, multiple points higher and i think they need to really push that number down. lisa: data dependency is a key phrase on the show where you will have an alarm go off and we will say what do you mean by that. it means thing different for everybody. for the ecb, it means the senior loan officer survey. in europe, is adjust core inflation, the preeminent data dependency? >> they are looking at multiple factors, looking at what's happening in spreads in the periphery we so that about a year ago when you saw the low out in spreads in italy and the ecb reacted. that's one area of data and they are looking at inflation and

they are looking at eurozone employment metrics. one of the mechanisms for inflation is it needs to be wage adjustment because people need to get that to cope with it. they are looking at whether or not the higher wages affect the employees being laid off. they are looking at many factors. jonathan: thank you for jumping into the studio. a 25 basis point hike for the ecb. the euro is $1.10. lisa will not get the move she is hoping for. lisa: i wanted to stay there for another two weeks. it makes it easy. jonathan: in the next hour, following the news conference from the ecb, invesco and megan greene of the kroll institute selected to join the mpc at the

bank of england on a three year term beginning later this summer so cool to catch up with her ahead of that. she is a transatlantic reach in policy that i'm sure will be a benefit. the bank of england does it better than the fed. jonathan: you have said that. tom: they have megan now. jonathan: you said that, not me. we are negative 0.4%. live from new york, this is bloomberg. ♪

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tom: good morning, everyone, bloomberg surveillance. preparing for the next dashing our of what we do here. we've got lots coming up including important claims data onto the jobs report tomorrow and i will look at unit of labor costs. did you notice once again this made the chairman pause? lisa: and didn't answer. what about the cuts? tom: there is a hawkish pause and then there is a michael mckee pause. without further pause, michael mckee. mike: jobless claims front and

center because the fed is worried about inflation from wages in the tightness of the labor market. 242,000, major rise from last week's 230,000 drop. the forecast was for 240 so it isn't hugely out of line but it shows a little bit higher baseline for jobless claims. you want to know about unit labor costs, 6.3 percent in the first quarter. nonfarm productivity overall was down 2.7% so not good news on the productivity and cost front. it shows inflation pressures remain. the trade balance comes in at -$64 billion. that is down from -70.6 so it's one of the reasons that the first quarter growth came in a little bit higher than we had thought. tom: stephenrashudo will help

us in a moment but i know productivity is moldy. our unit labor costs, a proxy for inflation? mike: they are a proxy or contributor to inflation. it's a backward looking number because its quarterly so it incorporate january, february and march and it's telling you there were labor cost pressures, that were higher in the first quarter than the fourth quarter. that is something we already knew. now, what do we see in the second quarter? does that go down because according to the data on wages and salaries, they have eased a little bit as the quarter went on. jonathan: lisa: jay powell himself spoke to an says he doesn't believe this is the main driver from the wage picture. i want to get your sense about what jay powell said about why the market is consistently pricing in rate cuts before the

end of the year even though the federal reserve is insisting upon holding rates where they are for the foreseeable future. mike: the market seems to be betting that we will see inflation fall faster than the fed anticipates. the fed thinks it will be a slow process. the market things either the fed will be very successful and what it's doing or we will go into recession. either way, inflation goes down in the fed will be forced to cut rates. i don't think jay powell wanted to spark the market reaction he did in answering mike session by leaving open the possibility it could happen but it is possible if the inflation data break the right way. tom: michael mckee, thank you so much. he had important questions for the chairman yesterday. we are commercial free in the next hour. we will go to the christine lagarde press conference and

right now to get us there, stephen rashudo joins us. i've got to start with the eu and the challenges madam lagarde faces. the idea is the animal spirit of the united states, our technical superiority is one example. it gives us dynamism. did europe have the dynamism to have a higher interest rate regime? >> part of the problem they face is the conditions you just laid out. there is a wage subsidy issue which certainly as to the concept of the whole euro sclerosis discussion we've been having for years about europe. i think europe is aging rapidly there finding a way not to keep

their best educated people on the sidelines and a comfortable way. lisa: this is what i'm watching, this is the chart. do you think europe has played -- overplayed the strength story to withstand higher rates and consistent growth that was the consensus heading into this meeting and then they took the lesser of the two options and the date is still strong in the u.s.. does this underscore anything more important? >> when you look at the oil numbers, people talk about a fed mistake in terms of the decline in oil but you are not seeing the kind of resilience coming

out of the chinese opening for out of europe. greatest attention is resistance. europe has a much closer connection environment relative rate environment in the united states. the net result is they have a bigger economic impact from what's going on. lisa: i was wondering whether their mortgage situation is akin to the regional banking situation in the u.s. with stress that the merging our stinks -- are distinct. do you think the mortgage issue in europe could become the new regional banking crisis into terms of people unable to pay for the monthly bills? >> without getting into the specifics, this juncture ok. there is a social safety net that is rated. in addition, you are in an environment for people of

spending. you are looking at offensive downturn in the economy relative to the strength everyone is looking for. will it be a deep down trend? i can't make that call. as the regional bank adds to the recession for you look at the data this week, a lot of it is march and some of it is april. 242 but between 200 and 250, you are not in a recession. you've gotta get into that 250-300 to say is shallow and you keep going up from there. continuing claims dropped again. we don't have that labor market issue that i think a lot of people are concerned about. tom: if you are just joining us on radio and television, stephen riccudo is with us.

let's turn to america's dovetailing with your colleagues idea of a fed with monetary policy but with other stuff including the banking crisis becoming restricted. how close are we to super restrictive? >> i think the federal reserve has a way out of this that would be very simple. one of the things they should do immediately is and quantitative tightening. part of the problem in the overall scenario for the outlook of the u.s. economy is the fact that the federal reserve is taking down its balance sheet. the fed seems to believe taking that down will not lead to taking down reserves but it is taking down reserves and the net result is that's amplifying the problems. this is the second time they've attempted to do an interest rate increase and a quantitative tightening and they blown it both times. tom: is this like british austerity?

united kingdom buried itself with philosophical austerity a number of weeks ago so do we have an austere jerome powell? i think the federal reserve is overplaying his hand by using quantitative tightening and is just rate policies. they should separate the two and use one at a time and recognize that when you go into quantitative easing, you do it and you assume it is permanent. you did it because you are afraid of deflation. the concept that is equivalent to an interest rate reduction is wrong. we are in a freight reserve environment. lisa: christine lagarde from the ecb will have a press conference after her speech. the most key point for the press conference will be that they are ending reinvestment of the app one of their main bond purchasing programs. this was sort of a not to the hawks to say that we are going

to get rid of this program work quickly even though we will not raise rates by 50 basis points. what are you looking to as what she has to say about this? >> they will go down the same path we went down. there is a misconception that what you put in you can take out. when you look at the reserves in the system, the banks balance sheet expanse of the level of reserves provided. it's harder to shrink the balance sheet than it is to expand. this is why the fed things if we put it on automatic pilot and let it run in the background everything is fine. you are also raising interest rates. the reality is to separate the two and leave them as separate policies because they are distinctly separate policies guided from distinctly different things. i think what the fed in the ecb should do is leave one along -- one alone and come back and do the other. the fed was doing both of the same time and with gotten into a problem with less taken out of

the system than we did in 2018. tom: don't be a stranger, terrific outlook. we got to look at the data in my head is spinning on the two year yield. i think it was four pointxx 4.xx a cup of coffee ago and now it's up. lisa: coming in at six point 3% versus the expected 5.5%. the issue is that inflation remains hot and the labor market is cracking to the extent it might. initial jobless claims coming in at 242 but revised lower the week before so this is pointing to ongoing strength. tom: from deutsche bank yesterday, they talked about the

idea that if you pause, is it asymmetric or can it be symmetric? bill dudley was heated that you can have a pause and go either way. this inflation data gives his room to move in june and july. stay with us on radio and television. we will go to first word news and then a conversation of the european press in frankfurt with christine lagarde. we will bring you that in about three minutes. stay with us, this is bloomberg surveillance. lisa: keeping you up-to-date with news from around the world. federal reserve chair jerome powell handed the u.s. central bank's latest 25 basis point interest rate increase could be the last's, suggesting that officials may pause their tightening in june but he pushed

back against any expectation the fed will cut rates by the end of the year. can you pause is almost half of adults in the u.s. worry their bank deposits are not safe. that's a level of concern as high or higher than during the 2008 financial crisis. the gallup poll was conducted last month following the failures of silicon valley bank and signature bank. a judge has dismissed donald trump's $100 million lawsuit against the new york times over an award-winning report on his taxes. the judge also ordered the former president to pay the papers attorneys fees and costs. the times reports of the trump real estate business claimed suspiciously low valuations on properties to minimize tax liability. in atlanta, police have arrested the suspect in a fatal shooting at a medical building after a manhunt that lasted several hours. they say he stole a vehicle after the attack and later fled on foot. one person was killed and four others wounded. the suspects sister says her

brother was not mentally stable. the canadian e-commerce company shopify is taking more steps to recover from last year's slump. the company is cutting jobs for the second time in less than one year. it's also selling the majority of its logistics business to flex port. the ceo says after today, shopify will be smaller by about 20%. at the end of last year, the company had 10,000 employees. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪ tom: good morning, a particular good morning in europe to you with pristine lagarde momentarily with european central bank. we are on radio and television and we welcome all of you around

the world to an extraordinary day, american banking crisis, apple will be later but the focus now is on christine lagarde. she is a pandemic head of the ecb joining just before the end of the pandemic. lisa: it highlights how unique her moment was and how different it was then mario draghi when he didn't have to deal with inflation and some of these issues and was able to manage through crisis without raising rates. tom: eight years at the international and getting high marks for the verbiage in the last press conference. what is in store for her today? lisa: what is the significance of the ending to the reinvestment of the app, one of the key asset purchasing programs ecb started. i'm sure is about the threshold to hike versus the threshold to hold. how concerned are they about

credit tightening in their system? the reaction so far to this has been yields lower not only in germany but italy as well as well as a weaker euro versus the dollar. tom: the three podium set up is on the stage and the obligatory photo op done differently than the united states. our bloomberg reporters are assembled with the others in frankfurt today. they want to summit up through the morning and these will be extremely important comments of the political divisions that christine lagarde happily says is a french minister. she's familiar with the fractious this of europe. lisa: the fractious mess of this but in this case, there is more unity because the inflation is more widespread. tom: or more pernicious. lisa: and more of a significant

concern so as not as heated an issue to raise rates at a time when you have such pernicious inflation. tom: there is a war in ukraine which is an overlay. futures are -10 and yields are higher of american productivity data. an important moment, euro is weaker so $1.10 in the euro is on the move would beginning comments as we go to christine lagarde. let's jump in right now. >> as always, this is a hybrid press conference so for the online participants, would ask them to turn on their cameron microphones if they wish to ask questions and with that, i turned it over to christine lagarde. >> thank you very much and good afternoon. the vice president and i welcome

you to our press conference. the inflation outlook continues to be too high for too long. in light of the ongoing high inflation pressures, the governing council today decided to raise the three key ecb interest rates by 25 basis points. overall, the incoming information broadly supports the assessment of the medium inflation outlook we formed at our previous meeting. headline inflation has declined over recent months. but underlying price pressures remain strong. at the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions with lag ands strength of transmission to the real economy remaining uncertain. our future decisions will ensure

that the policy rates will be brought up to two levels restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary. we will continue to follow a data-dependent approach to determining the appropriate level and duration of restrictions. in particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. the key ecb interest rates remain our primary tool for setting the monetary policy stance. in parallel, we will keep reducing the euro systems asset

purchase program portfolio at a measured and predictable pace. in line with these principles, the governing council expects to discontinue the reinvestments under the app as of july, 2023. the decisions taken today are set out in a press release that is available on our website. i will now outline more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. looking at the economic activity, euro area economy grew by 0.1% in the first quarter of 2023 according to the estimates. lower energy prices, the easing of supply bottlenecks and fiscal policy support for firms and

households have contributed to the resilience of the economy. at the same time, private to mystic demand, especially consumption, is likely to have remained weak. business and consumer confidence have recovered steadily in recent months, but remain weaker than before russia's unjustified war against ukraine and its people. we see a divergence across sectors of the economy. the manufacturing sector is working through a backlog of orders but its prospects are worsening. the services sector is growing more strongly, especially owing to the reopening of the economy. household incomes are benefiting from the strength of the labor market with the unemployment rate at a new historical low of

6.5% in march. employment has continued to grow and total hours worked exceed pre-pandemic levels. at the same time, the average number of hours worked remains somewhat below its pre-pandemic level and its recovery has stalled since mid 2022. as the energy crisis fades, governments should rollback the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures. that would call for a stronger monetary policy response. fiscal policies should be oriented toward making our economy more productive and gradually bringing down high public debt. policies to enhance the euro area supply capacity especially

in the energy sector can also help reduce price pressures in the medium-term. in this regard, we welcome the publication of the european commission's legislative proposals for the reform of the eu economy governments -- governance framework we should be concluded soon. turning now to inflation, according to the flash estimate, inflation was at 7% in april after having dropped from 8.5% in february, down to 6.9% in march. the effect led to some increase in energy price inflation from -0.9% in march 2 plus 2.5% in april, the rate stands far below those recorded after the start of russia's war against ukraine.

food price inflation remains elevated. however, standing at 13.6% in april after 15.5% in march. price pressures remain strong. inflation, excluding energy and food, was 5.6% in april, having edged down slightly compared with march to return to its february level. non-energy industrial goods inflation fell to 6.2% in april from 6.6% in march when it declined for the first time in several months. services inflation increase to 5.2% in april from 5.1% in march. inflation is still being pushed up by the gradual pass-through of past energy cost increases and supply bottlenecks.

in services especially, it is still being pushed higher end by pent-up demand from the reopening of the economy and but rising wages. the information available suggests that indicators of underlying inflation remain high. wage pressures are strengthened further as employees in the context of a robust labor market recoup some of the purchasing power they have lost as a result of high inflation. moreover, in some sectors, firms have been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and vile -- and volatile invasion. most measures of longer-term inflation expectations currently stand at around 2%, some indicators have edged up in warrant continued monitoring.

let us now look at our risk assessment. renewed financial market tensions, if persistent, would cause -- because a downside look to the risk for growth as they could tighten broader credit conditions more strongly than expected and dampen confidence. russia's war against ukraine also continues to be a significant downside risk to the economy. however, the recent reversal of past adverse supply shocks, if sustained, could spur confidence and support higher growth than currently expected. the continued resilience of the labor market by bolstering household confidence and spending could also lead to higher growth than anticipated. there are still significant

upside risks to the inflation outlook. these include existing pipeline pressures that could send retail prices higher than expected in the near term. moreover, russia's war against ukraine could again push up the cost of energy and food. a lasting rise in inflation expectations above their target were higher than anticipated increases in wages or profit margins could also drive inflation higher including over the medium-term. recent negotiated wage agreements have added to the upside risks to inflation especially if profit margins remain high. the downside risks include renewed financial market tensions which could bring inflation down faster than projected. weaker demand due to a more

slowing of bank lending or a stronger transmission of monetary policy would also lead to lower price pressures than currently anticipated especially over the medium-term. let's look at the financial and monetary conditions. the euro area banking sector has proved resilient in the face of the financial market tensions that arose ahead of our last meeting. our policy rate increases are being transmitted strongly to risk-free interest rates and to the financing conditions of firms, households and banks. for firms and households, loan growth has weakened, owing to hire -- to higher borrowing rates, tighter conditions and lower demand. our latest bank lending survey reported a tightening of overall

credit standards which was stronger than banks had expected in the previous round and suggest that lending may weaken further. week lending has meant that money growth is also continued to decline. summing up, the inflation outlook continues to be too high for too long in light of the ongoing high inflation pressures, the governing council decided to raise the three key ecb interest rates by 25 basis points. overall, the incoming information broadly supports the assessment of the medium-term inflation outlook we formed in our previous meeting. headline inflation has declined over recent months but underlying price pressures remain strong. at the same time, our past rate increases are being transmitted forcefully to euro area financing in modern -- and

monetary conditions while the lag of transmission to the economy remain uncertain. our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to have a timely return of inflation to 2% and will be kept at those levels for as long as necessary. we will continue to follow a data-dependent approach to determining the appropriate level and duration of restrictions. in particular, our policy rate decisions, we continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. in any case, we stand ready to adjust all of our