>> i was not surprised by the odds from the fed nor was i surprised they are done you. expected this to heat up her on the need to continue by september. >> they are trying to mesh in recessionary behavior without causing a recession. >> a's was the right thing to do. >> growth drives inflation and inflation drive central banks. practices bloomberg with tom keene, jonathan ferro, lisa abramowicz. >> the morning. welcome back. from york city, and worldwide, the boys have dish me, but you

are in luck because not only do you have me, but i have the head of macro strategies and i have to be honest, talk about the structural banking diverges with the fed and throw in the bank of china. all going in their own ways. ask each country is doing what it has to do, and they are going to be somewhere between five and 5.5 in october, and there is this rate from them and i think other countries have to experience their own thing and they're going through some trouble with a wildcard what is going on, so it is independent and not just gold -- globally coordinated and it will stand on its own two feet. >> this was a fun week. >> fed weeks are always kind of boring. the worst part is 8 a.m. to 2 p.m., you are not sure what you're going to do, and anything is a bad trade and you digest

it, and everyone is excited, but this is not about the huge moves. we have rallied, but the markets have kindly gotten divorced from the fed. we understand what they will do. it is a high hurdle to hike read it is a high hurdle to cut. let's move on. >> the emphasis is moving from the fed, and that's for a couple months. we are focused more on the underlying dynamics of specific companies, of countries. has big tech divorced the market from central banking dominance? >> there is a great ai theme, and we are wondering where that will lay out and where it is not valued. it is a little bit this appointing, and we are looking to see whether those in will russell 2000 catch up. it really lagged, and i'm not sure why we can't get a broader market rally. it is so centric to big tech and other industries and i want to see something broad develop rated x one of the questions

underlying is the small-cap and whether we will go into a recession but also if we are out of the woods when it comes to some of the banking issues. yesterday i was struck by this because i enjoy looking at the fed balance sheet and all of the programs because i've event asset life, but from your vantage point, smaller banks were borrowing more from the emergency lending facility from the fed. does that concern you. >> smaller banks will go through because they are worried about the health and safety of banks, and where can i earn 5%, 4% print but will i do with the money? there is a slow bleed. i think there preparing. we will see some new rules, so banks are forced to issue more data and extend their balance sheet, so they are preparing for that. it is not concerning, and one divergence that concerns me is two things are worried about the

low vix, and on the others of it, the russell 2000 has to be correlated to high yield. it is doing very well, and the russell is still liking, so i think he's divergence have to come together. >> to sum up the week, are you more or less optimistic about this landing. >> i think we will see a hard landing. we are fixated on tight money and we are ultimately away from the jobs data. there are good parts and bad parts, but it is what we are focused on. it is not whether the fed will do this for that. where the economy headed knowing that it is not doing much if we see week data area >> we are seeing a little bit of a pop after yesterday. it is shocking to see the initial softness turn into a robust gain. again, led by the nasdaq. we are basically seeing lap but slightly up. almost against the 4500 level of

the s&p. one of the biggest weekly against going back to march, just give you a sense. continuing the ascent climbing back towards 110. after the ecb, it clearly took a more hawkish tone than the federal reserve, and slightly up. not necessarily over the past few weeks, and over 373 and crude. really hovering around the $70 a barrel index. the fed speak does resume. we are curious to see what that entails, and how much the fed chair is alone in his dovishness. chris waller is speaking at a conference in norway. tom barkin at 9 a.m. eastern in ocean city maryland. this is the french president. not only is he hosting saudi arabia, but he also is planning to speak to elon musk to convince him to build a factory in france. everyone wants elon musk to

build a factory, but -- pretty much everyone. we heard the latest from emmanuel macron. the michigan sentiment survey comes out. we are seeing a creeping higher of inspected test expected inflation in the survey. before we get to a reporter, i want to hear from your perspective, does that concern you? are you starting to see on the margins a sense that wraps people are not getting use to inflation being a bit higher. >> i think it is going to happen. it is three to 5% of inflation for the next three to seven years. we are seeing supply chains change. there's going to be a higher cost to reduce things and you will see that when it comes to building a widget, it is a dollar here in china, and a lot of hidden costs in $.80 that make it more expensive, and we will monetize those costs. we will bring the supply chain closer with redundancies. that is inflationary, but the

good news is that comes with jobs and safety. i think we are going through problems with chemo drugs because of india. we'll see more things made in the u.s.. that is inflationary, but it is good inflation because it comes with national security. >> i did mention that because i am never sure of that. do we care about triple witching day? >> i try not to do anything until it is done because a sense all slides. >> basically, we are taking the summer off. that's what i'm hearing. this is not a time when you will get a ton of signal from the noise. joining us now to touch on this theme we have been hearing about, the big tech dominance and how that will continue, based on that, we would like to get your take on the rally so far and where notes of concern are coming. elon musk? is he doing a world tour -- why

is everyone trying to lure him in it? >> this is partly to do with jobs. if you ring the factory to any given location, they will employ thousands of people, but because the way it is built, there is a high value supply chain that if you bring it back you'll expect there will be ancillary companies setting up shop in the vicinity to supply that thing. it brings cliques and camp -- glamour to the supply store. >> we speak about this rally intact, regardless of the cycle, this is a haven that will continue to take off. are people pushing back in terms of the promise of ai, in terms of what it could actually accomplish in the time? >> i think lots of people are excited about the prospects, and the challenges knowing what is the right place.

there seems to be such a broad consensus around nvidia and microsoft that this will be well positioned over time. there will be a little bit more nuanced as we see the limits of the optimism, but the other players are dealing with startups in the space. not dealing with public companies. there are some surprises to the upside of oracle, but we haven't seen as much positivity around broadcom. around the ai story, inevitably, there is nuance and how big it upside it was. oracle was more than expected. >> do you see over time, companies designing over time. ai producers of ai companies really benefit, we are not seeing much benefit low through two other companies. are we seeing cost-saving? what will he see and how will it

affect employment? >> ai is actually a cloud story. we are seeing leaders in this cloud space, particularly it google leading the charge when it comes to generative ai. it is kind of bait just to get businesses to build on the cloud platform. over time, when companies really appreciate the optimum way, they always say, this will be affecting the number of people we employ to do it smarter. inevitably, that is probably a little bit overly optimistic, and there will be jobs affected by this. but as sophistication increases, we will see a second tier of ai companies carefully targeting solutions for the given industry. one-size-fits-all, and with chatgpt, we tried to summon up as this.

microsoft probably can't give you much for a keyhole solution and way other companies will over the next two years. that is when we will start to get excited about all of this. >> the president has said to be meeting with the ike -- microsoft founder, talking about possibly getting the company to build and -- its establishment in china directly, saying it is the first friend in the business world that they sat down and met with red how much is microsoft alone and continuing to double down in china. >> this thing is that microsoft hasn't been blocked in china. apple, i think that is the other company there in a massive way, with a manufacturing cents print there are number of iphones there, but google is not ready to operate in that direction, so if the cloud business is the only opportunity, it is still a very small amount of revenue.

perhaps only two cents. there is opportunity there, but not as much downside as there would be for a crackdown. >> thank you so much. we really appreciate you taking the time to talk about what is going on over in asia overnight. the bank of japan. we did mention this. no surprise -- it didn't move. but there are hints at the edges that people are pushing back, with a real move in the end that is perhaps a little concerning. >> listen. they've had this curve control for so long that they have to give up over time. you have to go back to free markets and move that way here. other places should. it will be interesting, but i think it will put pressure on the effects. >> this is something we are seeing expressed in the euro japanese yen. what you are seeing is weakness we have not seen going back to 2008. there is a creeping feeling playing out in the dollar store as well. the euro is the big winner

because the ecb has savers. could that change the risk sentiment of the dollar if it continues to weaken and the yen continues to weaken red if funding currencies continue to experience volatility. eckstein focused on the dollar. we will see dollar weakness versus the yen and i think the story behind the scenes right now is still the chinese getting more trading to occur, so that will be the long-term surrey -- story. i think the euro will be strong and the yen will be strong. that is the main story. >> do you think it is driven by growth or differentials. >> i think it will be driven by growth, but there'll be an effort to get more transactions. they will try to sell their goods to not every country will need dollars to purchase goods and services. as china robson the economy, they are trying to sell automobiles or trying to sell airplanes to other countries. it will loosen the grip on this need for dollars, and that is the story, and the long benefit

is the euro. >> i wonder if they will accomplish that if they are not clear about whether they want to participate in the international business world for less. >> i think it takes time, but they will roll up the emerging companies first. that is where they have the most struggle in dealing with the dollar. that is where china fits in with a gradual role and it -- italy will be the teetering point. we are so lucky to have peter here for the entire hour. that is a wonderful thing. coming up, sarah hunt will be joining us. alpine sex. we will set up for a post-central banking week of data and commentary. this is bloomberg. t research. introducing j.p. morgan personal advisors. hey david. connect with an advisor to create your personalized plan. let's find the right investments for your goals okay, great. j.p. morgan wealth management.

>> she has done more work in containing china and affecting china's rise economically than anyone else. everyone else sees china as a constant conflict, and they are working together as allies. china sees that and realizes we have an act of and engaged ally working together, which is why i believe the secretary of state's coming to beijing with a little wind at its back. that is what china respects. >> the u.s. ambassador to japan is speaking within the past few hours on bloomberg television on

-- in a way that there prepared to arrive after they were shot down. we are looking at the securities switches wonderful, and premier vantage point, what about antony blinken who is giving a sense of whether we could soften some of the tensions that have been ratcheting up. >> regardless of anything else going on, what is important is how we are dealing with them, and that is disappointing that we don't have any relationships with them. we have separations, but this is an important step. this is a long way from soft landings. it is the one thing that is relatively an agreement on. there is a friction with china and we have to figure out how we will compete with them. in the current environment, where they are headed on things like ai, this is an important step, but we are a long way from being friendly. >> one thing that is wonderful is are a lot of former military officials who make me curious about what they are looking for that arise from beijing after this meeting area >> one thing

we are cautious on is that china knows we want better relationships with u.s. companies. it will be difficult to's determined what we want to determine if we will see progress and to that, i will look. do companies get more opportunities or what happens with their companies. this is a little more for show, but it is a step in the right direction. >> more for show, but from a political messaging standpoint, we will be looking at a big question here. she polity strategists in investments. from your vantage point, how will this be position politically. how is this reading after people are wondering whether it is a matter of who blinks first. >> good morning. this is against china. there is a great deal of animosity in both artie's, whether chuck schumer or kevin mccarthy. i think there is a feeling china

has not been transparent on covid. they don't treat dissidents well and they spy on countries. they talk aggressively about the south china sea. while there might be a nice photo op, and maybe things will look superficially better, we have a long way to go. >> one thing we are seeing on your take is that in the last year, there has been a global presence, and china has stepped up. they've negotiated deal between the saudi center and. they are able to do things that china did not project before. you see a trend in losing this global position question records you see that? >> i don't see her position getting better. maybe today, it could stop the bleeding, and maybe there will be a positive communique when the meetings are done, but on specific issues, especially espionage, ceiling intellectual property, there are big problems.

>> that make sense. things are playing out very geopolitically and globally focus. we are starting to get more questions about what is happening in the election cycle and who will win. what is your sense of what is going on and from the debt ceiling, will there be a scenario overboard with good progress or will there be a mess? >> i think everyone has trump 50, and we may have a few weeks here where there is not -- people are sick of the friction. as far as big issues, there is a national -- nasty fight among remote -- republicans over the budget for the fall, and even though we got a deal a month ago, and we are not going to have to default, there will still be a movement in the house to revisit that deal which is of course angering a lot of people in both parties, so that is still out there. the wild card in my opinion over the next several weeks is a possible strike. this is by the teamsters against

ups. that is a huge union. three to 40,000 workers. if we saw a strike towards the end of the summer, that could get people a little gloomy about the holiday season and once again having to face supply chain disruption. >> there's a lot there. i want to start with the potential for another government shutdown or another debt ceiling debate. that comes up in the next couple of months. not the next couple of years as a result of this skirmish between house republicans. how much is that looking increasingly likely? >> i am old school. i thought once you had a handshake, once you say we have a deal, we have a deal. but as it turns out, mccarthy's under such pressure from the right-wing and the house that he may reopen the deal. we are not real bringing the debt ceiling grid that will be done for two years, but a government shutdown with the fiscal year shutting down, it that is not out of the question. i say the odds are at least 50-50. we could have a shut. >> at least 50-50 at a time when

you can see further supply disruptions. given there is sort of a renewed push from labor, and frankly, the supply demand dynamic has been such that labor has a new power, how much will this administration weigh in on behalf of the teamsters? on behalf of the union members, given there is a very prounion president. >> this is probably the most prounion administration in our lifetime. i don't see that changing. i think the biden administration will come down on the side of the teamsters. they have to know, with a protracted strike, going into the fall, it will be disastrous provide his reelection prospects which look quite a bit better. >> great, thank you so much. as always, wonderful notes and for joining us this morning. i am curious about this sort of supply and demand dynamic in the labor market. the fact that we continue to see a lot of pressure, despite rate

hikes, despite signs that perhaps he and employment rate is coming up at the fastest pace going back to october of 2021. what are you looking for to understand where we are in this sort of gradual slowdown. >> one, i think low income jobs are plentiful. that is one dynamic. then, it is regional. there is data, with nothing san francisco. it is different from florida or tennessee. i think that is affecting homebuilders and jobs. that is the sort of trend, and how hard is high income? this is the recession. there still a lot of debate as to whether we get that are not, or job losses bring the total number of job losses. what income is gone, and how does that get replaced? >> we've seen a number of job cuts, we saw this yesterday from the likes of citigroup. from perella weinberg. today, we have a story talking about how the biggest banks are going to see job cuts that are poised to plate -- past 11,000.

this is the worst environment for this industry, going back to 2008. as a feel like that? >> i am still it might bloomberg terminal. i'm hoping i don't get fired, but this is a tough environment. you see the deals slowdown. you have the ftc tightening on improving deals that get challenge. that is part of the business that is slow, and you have the fed being quiet. you see volatility drops, and it will create revenue and transactions. everyone wants to refi their mortgage. >> people really saw different business developing, and it's also in doubt the same time. it is healthy. you want to see it shrinking,

and is forcing the firm to be better, smarter, more aggressive. how it's deployed, so that securities with all of the broker-deals, it's an opportunity to coming out of the slowdown, i think will be a great time. >> more people going to the office to do it. >> are more people going to the office. that feeling. >> i imagine executives are looking to leverage this. a couple more people being brought back into the seats. coming up, we have the economists economics to weigh in on the market. what we are seeing and how much it is starting to shift or not. from new york. , this is bloomberg. ♪

lisa: it has been the biggest league game for u.s. equities going back to march during the height of the concern with respect to the banking situation. we see perhaps a continuation of that and welcome back. this is bloomberg surveillance on tv and radio and tom and john are both off today. you get peter tchir who is with us for the hour and that's wonderful. right now, we seeing perhaps a shift at a was ahead of what's been a really tumultuous week for the banking situation. >> we so the initial reaction of

ship -- of stocks and yesterday follow-through so i think what does it mean? we are pretty much done with the fed driving markets here for a while. the bad news is unclear what the next narrative is. the ai story has unfolded well and the recession versus soft landing story is what we will focus on for the next few weeks. where is the economy really headed lisa: lisa:? that's the reason why the most interesting area of the market is the currency market because people are trying to figure out rate differentials but also growth differentials. you gain against pre-much everything. it's bumping up against $1.10 for euro-dollar and it's one of the most interesting currency pairs after bank of japan did nothing at their meeting after concerns of inflation and this is leading to a weakness we have not seen in the yen versus the euro going back to 2008.

picking up on your point about the labor market and where we end up in the growth in the waiting kind of picture. do you think the fed sent a conclusive message that it was bad they didn't necessarily have a unified conviction or is it good? >> i think it's good right now. they are saying it's an extremely high hurdle and a height hurdle to cut or hike. want to see how it plays out on the data will come through in one thing that came across dovish is there fixation on inflation and everyone understands the housing data will be deflationary. it is still lag data. it seems insane but they will rely on that and that's why it comes across more dovish than maybe intended. they are little bit behind the scenes now. let's move on and figure this out is what they are saying and know the fed will not move much in either direction for the next few months. lisa: it's a slow-moving grind

in a lot of areas of the economy. it needs to clear to give sums or conviction. give us a sense of the biggest aspect the fed is looking at. the chief u.s. economy is with us. let's start with the fed and their view on unemployment and ask you if they are accurately reflecting the ongoing deterioration we are seeing on the margins versus the overall payrolls number which shows something different. >> good morning. what we see in the labor market is still very tight. there are some adjustments on the margins but if you look at where claims are, we are not really seeing any movement in that suggest the labor market is strong but tight. the interesting part is the lag effect of policy and what point will they see that adjustment?

we don't think the economy can sustain 500 basis points of tightening without response. that's what we are focusing on and that adjustment we have seen is welcome. we want to see labor market move a little bit with supply and demand balance but we are not seeing it to the extent the fed wants to see it. if you look at the claims numbers, that's what they are following closely. the highest level since 2021 for two weeks does not make a trend yet. that is something we are focusing on for signs of an adjustment that will give the fed some comfort in terms of policy actions. lisa: the 11,000 people who are getting laid off from big banks will listen to this and say it feels perhaps softer. the tens of thousands of people who have been laid off from big tech companies may feel similarly. how much do we see in idiosyncratic recession in jobs in white collar sectors that

were perhaps overstepped during the pandemic but it's continuing to pressure the labor market even as lower wage jobs continue to boom and continue to be very much robust? >> it has been very idiosyncratic and it has been central -- center driven. the pandemic has resulted in such distortions that people don't have the level of confidence. they think this is what will persist and are wondering what to cme other side of it. there are adjustments going on. the real hope is that you are just the labor market is strong enough that those people will find other jobs. whether that will happen in the banking sector is not clear right now. it has been idiosyncratic terms of white collar versus low-paying jobs.

>> one of the things i struggle with is the last jobs data in every single he can -- economist missed it. it was above the actual print and yet i look at the data coming in from the government in the survey response rate is low. are we supposed to truly trust the government data or look at what economists thought was the jobs data and go to that? is the government data super accurate or is it fraught with errors? what is your take? >> we probably are seeing some level of distortion from the survey responses. it is the only data we have. it's the only thing we can rely on. that's the difficulty here. also, if you look at a whole range of data, not just the household survey where the establishment survey, were

talking about the jobless claims data. response rates are low but those are the only things we can really rely on in terms of trying to figure out where this labor market is going. what we saw over the last year is that we saw layoffs but the labor market did appear to be strong. i think there might be a little bit of a disconnect but not enough to suggest that the labor market is collapsing and the date is not capturing it. >> you are reasonably optimistic but we will see hi claim? >> yes, and -- until we see sustain claim in gain -- gain in claims. the household survey is what we are watching closely. if that is going to be sustained , the payrolls data will have to catch up with that. lisa: have you seen evidence that we are not in a wage price

spiral? >> people don't seem fixated on it at all anymore. it will not drive this inflation. that remains to be seen. lisa: we were talk about -- we were talking about the potential for strikes on dockworkers which could pressure for more wages. how do you see this activity pressuring wages that's being underappreciated? >> that is something we are watching closely. we don't think we are in a wage price spiral. we are actually seeing wages decelerating in an environment where the labor market is tight that shouldn't be happening. we should see the opposite but you are right, wages are rising at a pace that is not consistent with the 2% target. we are less worried about the

wage price spiral then we are -- we would like to see more of an adjustment to a level were rates have changed and are more consistent with inflation. lisa: we were talking about the layoffs in the banking system and how the pressure in that space has caused executive to say just come back to the office if you want to keep your job. how much of that is because it's more effective and efficient for people to be in the office and how much it is that these banks are concerned about their conversion dish about their commercial real estate holdings? >> i think it is a combination of both. there are arguments to be made in terms of a presence in the office. i'm not sure the effort to bring people back 100% successful. the commercial real estate part of it is a large part of this effort. especially if you look at. like new york city.

the combination of both and it's a valiant effort but i'm not sure we're going to go back to the way things were before the pandemic. >> that makes sense. it seems to be very regional and when do leases come due? you've got this excess space and that would be the question is as they come due, are you able to shrink your footprint with work from home and is that when companies start embracing it? >> that is probably when companies start embracing it. we do hear that there are companies that have already made the adjustment. leases have come up for renewal and they have decided that maybe there footprint doesn't need to be that big area it's very region specific. i think the effort is something that's going to continue. i'm not sure we will go back to

where we were before the pandemic, as i said. i think it's in the banking sector where you're going to see that push come back. in a lot of cases, it's already been successful. i think it will be an uneven outcome. lisa: thank you so much for being with us today. have a wonderful weekend. i was struck yesterday by charles edmund from québec. he was talking about how there will be a bloodbath in some areas when he talked about commercial real estate. he talked about how difficult it was to get loans for some of

these properties and how it really hasn't been felt out. from your vantage point, how closely are you watching this and how are you watching it to understand where it will reveal the most stress? >> i think it will be regional and local. two weeks ago they announce the cms deal that had to san francisco based hotels that did not pay on the cmbs. it will be pockets like that and centered around the big cities and places where you hear the crime stories. that has an impact and you see companies whether it's pharmacies start moving our closing locations. something has to be done to arrest that or it will be the slow slippage. when you see the neighbors move out and people closing down businesses, maybe we move out. i think something has to be done and i think it will be a 3-5 year incident but i'm not seeing the end of it right now. it's just turning to develop momentum. lisa: is it just san francisco,

chicago and a couple of other places? >> i think it's just the big places. you have opportunities on the other end where people do the satellite office things was been great for westchester and fairfield, connecticut. where in new york city so we took advantage we believe heavily in work in the office as much as possible. it's been a huge opportunity so we have a bigger space. the headquarters is in san diego so that's where the smart people in the firm are based. i think we are seeing that but it will give people more flexibility and more ability to move around. companies are setting this up and people are getting more flexibility. . lisa: in europe, they say you can work from anywhere for a month and a half and will that u.s. moved to that model? >> it will be interesting.

i personally love being in the city in the spring and fall but i try to avoid it in the fall and winter. lisa: what's that? you are being called into the office. there will be a discussion about the leadership in this market coming up considering the fact that tech continued to leave -- leave the inflows despite interest rate fears and despite recession fears. those are coming together to support the nasdaq which continues to outperform today on a slow day. not a lot of action here. a little bit of dollar weakness, a little bit of bond weakness, little bit of crude weakness but not a lot to write home about. this is bloomberg. ♪

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as the property sector begins to get revived and their problems with debt is solved, you will see the chinese investors come back and you are already beginning to see that. lisa: the legendary mark mobius at mobius capital at the founding partner of that emerging markets firm and there is a certain tension about what's going on in this week of central banking divergence with china which is starting to potentially restimulated but it's unclear to what extent. peter tchir is with me and tom and john are both off today. they made a 10 basis point cut on the one you're rates of does this indicate an opening salvo for a whole host of other measures? >> the china reopening's story has been a bit of a dud. i think they have to figure out what they will do. they have lost some traction in the spreads and the u.s. are not good for them near term. it would not surprise me to see

stimulus out of china. lisa: people safe they stimulate it will be the domestic economy more than anything else and not necessarily going to feed into inflation, supply chain repairs or anything else on a global scale. i wonder how isolated it is. >> i think it will have an impact on inflation. we are competing for natural resource and that will continue and we are in the early stages of what we've been calling the shift of made in china and made by china and they should push the items they make globally. there semiconductors were probably not as good as our semiconductors and i'm looking for them to do that more across different industries. there are signs that it's happening and that will be real competition especially in the emerging market companies who will gravitate toward the cheap chinese brands rather than expensive american brands. lisa: very clear how to trade

and that's the central bank soup of divergence and the see changes in international religious -- relations. markets are not moving today would mott a lot of action across the board. crude is about $70 per barrel but it's in the fx chain especially versus the yen as people look toward a more hawkish ecb. joining us now is the founder and ceo of danzig data. is this truly a splintering of the biggest global economies at a time of great transition? >> clearly, u.s. has recovered clicker -- quicker and the

stimulus was better so it's more frontloaded and then we have economies like the euro zone where the stimulus was slower and more drawn out. we are having a situation now where inflation is actually having more momentum in the euro zone than the u.s.. the ecb cannot do any pausing in a have to signal that they are hiking in july. this is the first time for a while were losing monetary policy diversions that will support the euro. we saw a big move yesterday. then there are special issues around china. one data point that's very important this year's we have had a china reopening. we've had some recovery in certain sectors in china, but there is no inflation pressure in china. compared to other, -- countries

that have reopened, we are not seeing any inflation pressure in china that assembles what we see in other reopening situations and that's important. this is also evidence there is something structurally different in the chinese economy. one thing i think investors are not paying enough attention to is there has been a massive structural shift in terms of the capital flow coming into china. used to be the case that people just wanted to invest in china and build manufacturing capacity there but that foreign direct investment has slowed dramatically. that has not been covered. that's a structural shift that's important for everything including the chinese currency. >> what you make of the chinese attempts to create more trade? are they going to be a competitive of the u.s. dollar? where you stand on that? >> china is a huge part of global trade in terms of the goods moving around.

they've been attempting to get that stuff in local currency and try to create competition to the dollar. look at how the yuan has been trading this year. over the last two days even. the big trend is been the chinese currency has underperformed dramatically and consistent with monetary policy being one of the easiest in the world. they don't have tightening linked to inflation. we have a situation where from a trade perspective, china is in a strong position and you could argue that we dominate many types of trade and we should have a reserve currency aspect. when you look at the asset side, nobody wants to buy the chinese bonds. there are literally outflows and chinese bonds every single month and even central banks around the world are starting to reduce their holdings. it doesn't have the reserve currency aspect on the asset side. it's only on trade that you can make the argument and that's why

the gold the chinese have is not so easy to achieve. >> how do you see japan playing out. they are getting benefit from people moving away from china and their power in the region. clearly their stock market is done well. how do you see that playing out? >> if you look at the situation were global and nationals are getting more cautious about investing aggressively in china, where will they build capacity? there is a number of countries in asia have manufacturing histories and japan is one of them as well as korea and newark countries like taiwan and obviously thailand. closer to the u.s., mexico is benefiting from that. we have enough in emerging markets that will stand to benefit from that. japan is a special case. they have their own demographic issues but clearly, the nikkei

is moving in a way that's very interesting and it's a very ironic situation. you have inflation in japan that's running around 5% due to the momentum encore and financial conditions are easing. bond yields are pegged at zero effectively and equity indecent is go higher and the end is going weaker. this will eventually create a problem for the bank of japan they have to deal with. lisa: does it make sense that people are looking at the divergence in saying there is only one thing to do, go into big tech? that was the theme of the week, big tech and the euro. do they have lasting power? >> i get that every week. there are certain companies were the valuations look pretty crazy. i have to say, take a step back and think about this technology

and what kind of incredible changes it's going to create in the economy. then we think about how relatively young this excitement about this trend is. it's really only a couple of months and so given how big the structural shift these technologies will create, i don't think we run for very long in terms of investors really getting involved in these traits. i track global capital flows carefully and i track what is the foreign money that's coming into u.s. tech in the last couple of months and is very limited actually. foreign investors have missed the ai rally. i won't real out that they will come in later. due to other themes, emerging markets are a good run. there are other asset classes on the move that perhaps have been forgotten about for years so it's not just tech. the emerging market trends are pretty interesting and something

we been watching. lisa: guy: thank you so much for being with us. he's not alone in talking about how perhaps there is more to run with this rally even if eventually it will cool a bit. bank of america said this looks like 2008 with the big run up and a big run down, do you agree? >> i don't think so, we have not seen this widespread rally. the russell is barely budging and there is a real story behind ai. maybe some companies are getting ahead of themselves but this is as transformative as they say, it will be a surprise. we added a board member who just retired from the marine corps in charge of their artificial intelligence a we've had to get a handle on getting this right and it will drive returns for the next couple of years. lisa: thank you for spending the hour with us.

have a wonderful rest of the day in coming up, sarah hunt from alpine saxon woods. ♪

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>> i wasn't surprised by this pause by the fed nor was i surprised that they are not done yet. >> i would expect things will heat up america around the need to continue in september. >> they are trying to message recessionary-type behavior that -- without actually causing recession. >> i think the pause was probably the right thing to do. >> growth drives inflation and inflation drives central banks. >> this is bloomberg surveillance with tom keene,

lisa abramowicz and jonathan ferro. lisa: all eyes on big tech as it continues to lead. welcome back, this is bloomberg surveillance on television and radio. tom and john are off today but i am please to say we have sarah hunt, chief market strategist at alpine, sachs and woods. we are seeing the biggest gain going back to the march concerns of what happened with the banking sector. so good to see you. it's been quite a week. is this a week of clarity or more model? >> i think it's a week of more muddle. a lot of people called for a pause in the data came in and it was iffy in terms of keeping going so i can see where applause came in. you look at underlying conditions and they are not that tight. the fed says we will tighten and the reason you are seeing conditions not so tight is if you look at the fed balance

sheet and you look at the chart and run it against the s&p and attracts well and the s&p is ahead of that but the fed balance sheet had been rising. that means there is still a lot of liquidity and that's one of the issues about not tightening the market. lisa: people are trying to understand the words and the actions and the noise and the other central banks around the world. they say we will buy nvidia and be fined so that seems to be the theme. are you seeing legs to this? does this give you a sense it could keep going? >> i think it can keep going and if you look at what happened -- it's 1995 or 1999 but i don't know where we are. if you look at when you get these enthusiasms, they can continue. but what will slow that down? whether we see underlying data in the economy that's full -- that pulls that that could be part of it. people look at ai and say it will revolutionize things and i don't disagree but in what

timeframe and for which stocks? you might have a mismatch on that. lisa: we also saw some outflows potentially from cash for the first terminal long time. looks like people are experiencing fomo in full force and taking money out of the high-frequency instruments and putting them into stocks and junk bonds. does this seem like luring people in? >> the adage the market because the maximum amount of pain because last year was such a volatile year and people were happy to sit in cash and get 5% with less volatility, they are looking at the market going up and they are not. i don't know that's necessarily long. if you have a long-term timeframe that's good but short term, this could be one of those rallies that's get -- like it's everybody excited and you see

issues and you wonder if the equity market can hold up or are the bond markets more correct? lisa: we will look at markets and you can see not a lot is going on. i'm wondering whether you have less market conviction after this week. >> the question is lest for more conviction about what? i think the fed will have to continue to raise rates or stay higher for longer. the market is not pricing that in. in march before the banking crisis, they had cuts priced into start in july and september and now we are moving that out. if we stay higher for longer, a lot of the theories of not rolling over debt or i can wait to pick up a mortgage or some of that activity, i think that becomes more of a question if you have a higher rate level for a longer time and that's what they seem to be signaling. lisa: we are seeing stocks sort of suck -- sort of fluctuate between gains and losses. things are basically unchanged.

crude oil is down just a touch, regaining some of the losses it had experienced earlier in the day. the real move has come from what we saw in the euro particularly versus the yen with euro strength. that is the greatest strength going back to 2008 versus the yen as the bank of japan remained on hold. we are watching fed speak today including chris waller at 7:45 a.m. from a conference in norway. the richmond fed president is at 9:00 a.m. eastern in ocean city, maryland. interesting to see if they disagree with chair powell about not moving or how he signaled the actions going forward by the u.s. central bank. french president met emmanuel roman macron is hosting the saudi prince but spoke with elon musk and said we are not a huge fan of twitter but we love your factories and would love a tesla factory in france. he is going to speak later this

morning with him. university of michigan consumer sentiment comes at a 10 a.m. and i'm curious to see the forward-looking reflections of inflation which has crept up well past the fed's goal of 2% at 3.1%. if that continues, what is the fear? before we get to this issue of tech and elon musk in his role because he has had a role in the tech rally so far, from your vantage point, is that something we are seeing? is there an idea of long-term inflation expectations causing you to shift your belief and how long the fed will perhaps remain in a restrictive stance? >> that's part of why the fed -- the dot plot changed. that's why they are emphasizing higher for longer. i went back and looked at expectations on the michigan sentiment. over the last decade or two,

they used to be higher and they were three and dropped into two and are now back up to three. when they were at three, inflation wasn't there. we didn't get to 2 for a long time and chair powell said when we couldn't get to 2 that we could stay higher for longer because we were lower for longer prior to that. there is a lot of tension in that but where does that end up driving policy and expectations? if people think inflation is more sticky, you will have more issues with wages with so far have not been as bad as people have worried about. lisa: to build on the fear that rates will remain high around the world for longer one ecb members at rate hikes will have to continue in that region beyond september. joining us to talk about the rates and to get tesla to build factories and european cities, maria taddeo in brussels. why is it so interesting and a

bigger story that emmanuel macron is trying to woo elon musk today? maria: it speaks to the fascination when it comes to elon musk but also the difficulty for europeans to deal with the man. you alluded to this and there is this idea of elon musk, the man that will tweet and owns twitter and at times is controversial and the europeans have repeated there is a code of conduct when you operate in the european union. if they have to fine you or take you to court, they will do that. then you have tesla and the jobs they provide in one of the future. europeans find themselves in a situation where they want to keep an eye on twitter and maybe regulate further but if you ask any country if you want a tesla site, they will say absolutely yes. that's way emmanuel macron is meeting with elon musk today. he met with the italian prime

minister yesterday and we know the spanish are also interested. remember, there is already a tesla site on the outskirts of berlin. it was quite a show when it was there -- when i was there. lisa: people are looking to elon musk is a car builder but also to this believe he will create the electric vehicle charging network for the world. how much is that underpinning some of the renewed enthusiasm european leaders have to elon musk? maria: there is a realization beyond that and the idea that tesla could be one of those key industries but could provide some of the key infrastructure for the european union at a time in which there is a massive push to look to those alternative ways of driving a car and build

a network across the european union. there is also the idea of the influence he carries for emmanuel macron a particular. he had a lot of pushback over the pension reform. he wants to move away from all the negative press and he gave himself two months to present a new, more vibrant french republic and maybe that's what it is. he said by the time we get to july 14, he would have a plan to show the french republic has turned the page on the pension reform which is controversial and look to a bright future. maybe elon musk is in that bright future. lisa: thank you so much. the bright future that people have been hoping for when they been piling into europe and avoiding the u.s. and saying europe would have the new dominant leadership over the next year or so. has that been dashed by the u.s. tech story? >> every year has been europe's

year for the last decade. because the ecb was raising rates and because people were thinking the u.s. had a decade of along market run, it was time to be somewhere else but the war in ukraine has been a problem for them. energy prices will continue to be a serious problem for them on the industrial side and on the personal side. on the spending side, natural gas prices in europe have doubled again in a short span of time because people went from getting through the winter but there is another winter coming. there will be some issues that europe is dealing with and that's tougher than some of the issue the united states is dealing with as of right now. lisa: you are perhaps overweighting the u.s. versus europe still? >> yes. lisa: we are seeing that shift back even if the dollar continues to weaken. some people are saying if you have the likes of tesla gaining 108% so far this year, perhaps this is something that's more secular. are you bullish on tesla? >> it was a huge win on the

charging standard. that made the fact that the stock had been rallying which was curious to us. it was something that had some realty behind it so i think that is a positive situation for them. whether or not the stock is well priced is another day. lisa: how do you even price out the hope and promise of becoming a dominant player in an industry that is nascent but that has promise. apple and meta are getting in on the game. my 14-year-old son said he got -- he wants and augmented reality headset which is $3400. no way. we are seeing stasis in the markets with the s&p below 4500. it's after the biggest weekly game going back to march. we've been seeing this ongoing

bleed higher in the tech space. today is triple witching as to what that means, i woke up and saw that every time i see triple witching, things could happen. how do you interpret this? >> you've had such a shift in the options market. you used to look at the volatility of markets and we know what people are doing with options and then you have zero data options so how do i get a gauge what's going on? there is so many more types of hedging and so many more types of looking at different instruments to use that i don't think it's the same as it was five years ago. it's hard to say what that actually means. it could mean more volatility and that's the easiest thing to say about that. lisa: that's what everybody is discussing. do you feel like this rally is real? >> that's a tough question. i think it's a little bit of trying to get everybody into move faster.

ai started making it move higher. as people figure out what to do with her options positions whether they are rolling them over into more calls or puts to add to volatility, i think it is tough to see at 20 times earnings on the s&p 500 with the expectation of higher earnings next year. that's a tough read. lisa: that's probably the reason why you still have people on the sidelines wondering when is the good time versus being lured in. coming up at 8:00 a.m., neil richardson will join us focusing on the labor market. this is a week of split central banking decisions. ♪ get help with j.p morgan personal advisors. hey, david! ready to get started? work with advisors who create a plan with you, and help you find the right investments.

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>> it is very likely the case that we will continue to increase rates in july which probably doesn't come as a big surprise to you. but that's what i'm telling you. this is so because we are determined to reach our target in a timely manner. lisa: a very consistent message from the president of the ecb yesterday saying inflation is running too hot for too long and it will continue to rise and they will fight it and this is one of the reasons why the only decisive move other than a rally

in u.s. equities and global equities is the euro gaining steam versus all other currencies. welcome back, this is bloomberg surveillance. tom and john are off today and i'm happy to say that sarah hunt is alongside me as we try to parse through a confusing week of central-bank divergence. i think the one takeaway has been a stronger euro and it seems people have conviction about that at least in the short term. do you buy into that? >> the stronger euros coming from the fact that christine lagarde says we will continue to raise rates and the bed says we will pause for a second -- and the fed is saying they will pause. there is strange thing yesterday that set up the fed is going to stop here and the ecb keeps raising rates, that's attractive for the euro. what does the fed do in july and does that start competing? it seems that's where the euro was strengthening and when the fed raised rates, it looked back and forth. lisa: people don't believe the

fed will hike rates in july. the fact that there is no guidance. if you thought it was important to tighten further, why not just go now? there was a feeling among people to stop saying something and do something else and response? >> if you are going to do something, do something that was tempered by the other people saying raised so fast that you need to step back and see what will happen now that you have raised so fast. i think they could go either way here but i'm not sure we are clear exactly which way they are going which i did -- which is why i think the euro is more attracted. lisa: if you haven't been following all the festivities in the week, wednesday we get the federal reserve putting on hold their policy for the first time in 15 months, then the ecb came out yesterday and raise rates by the expected quarter of a percentage point to 3.5% of the increase their inflation forecast materially going out three years. they ratcheted down their

expectation for growth. we saw the bank of china stimulate a touch so a question about moving in the exact opposite direction and then the bank of japan doing what they do which is remaining on hold. to understand the diverges since this the divergences and crosswind, our bloomberg global economy reported joins us. it seems the take away from these split decisions is that each economy is in a different place and the one that's still fighting inflation the most is your. do you concur? >> a very different space. as you mentioned in the u.s. and europe going in one direction and china heading in a completely opposite direction and looking at more stimulus. and japan, even though inflation is well above the target, they are sticking with the viewpoint that it's not demand driven inflation. they are more worried about the fragile economy and triggering market volatility so they are

sticking with a massive support of the economy with some debate as to whether they tweak it. they are talked about a tweak but unlike the ecb and the fed. japan and china are in a different space. >> it seemed there was a question about whether or not the boj would change policy and change it quickly or more strongly. do you think that is a timing issue door do you think they are fine where they are and that's because their inflation has been quieter than it has been in the u.s. and europe? >> there is some talk that might have to lift their inflation forecasts when it comes to july. since he took office, the prime minister of japan seems keen not to want to trigger broader market volatility. he is not a buyer of inflation story in japan. he said overnight it's not being demand driven. at the least, even if tweaks do

come with japanese policy and there are reasons why they should given distortions in international markets, it doesn't sound like it will be major. if they were to move, that would be a significant surprise. lisa: one of the big takeaways as there is a question around the credibility of the fed about why they didn't go if they believed there was further tightening that was necessary. based on market positioning and based on the reviews from economist you have been speaking with, how much do people think the fed did the right thing in pausing and messaging some sort of hawkishness that left people scratching their heads? >> people can understand why they are trying to signal a hawkish viewpoint. the market would go to town on the idea that the fed hiking would be over and that would undo some fed work so there is some logic to it but no one is buying the idea that maybe they

are serious about stopping. the reaction i heard is that the fed are on a fingers crossed, month by month basis. if there is a significant upside surprise, they could change course. they had that option but the mood music seems to be that they are doing the heavy lifting and they want to see what the rate hikes are doing from here. lisa: there is a focus in terms of central bankers speaking in oslo about financial conditions and the concern about the ongoing crisis in banks that the market has moved on from. people are not talking about this anymore. is there something the fed is worried about were seeing that perhaps underpinned their decision in a way that's under appreciated? >> at the press conference at the fed, most of it avoided talk of the banking shock a few

months ago. policymakers are sure there are still cracks under the system. look what happened in the u.k. last year and the shock with u.s. banks. rates can rise at a clip without -- rates can't rise at a clip without leaving some sort of impact. there is definitely a sense of nervousness. nobody is sure where it will turn out. residential housing was the obvious one but that's not playing out the way that was expected. they are concerned about where the pain from the rate hikes will surface. lisa: thank you so much for being with us. i think the banking issue is underpinning in some ways the fear. is it off the table? was that part of the decision the fed made to wait for a bit? >> that's an interesting observation. to the extent that housing is constrained by the fact that people don't want to get rid of their cheap mortgages to get more expensive ones but whether or not the banking crisis was

visibly solved, so far seems to be the case. there are many people holding assets that are underwater relative to the fast-moving interest rates so maybe that's part of it. if that's true, they will have to keep them higher for longer and that will be the issue. lisa: do you know anyone who has a mortgage rate above 7%? >> no. lisa: how much are we seeing transmission of rates where they are at? >> that is the issue. couple of weeks ago, somebody was on blurb are talking about the fact that the homebuilders have the ability making that less painful for homebuyers and the need -- in the near term. she does big move on the homebuyers and use the activity which picks up unemployment on that side because existing home sales are lower than they would normally be. if they can be subsidized by the homebuilders, then the transition is not going through yet. if they will hold about 5% for six months, it's not as much of

an issue. if they say we will keep rates like this for a year or two, that's a different story. lisa: we spoke with the cfo of ford yesterday and they talked about heather credit arm is having its own proprietary data that shows the edit lu asians -- they can lower the rates on some of these auto loans they can continue to sell at a rapid pace. how quickly is this transmission mechanism of higher yields adding out into the u.s. economy? the 10 year yield is that 3.72%, only up marginally. a little bit of dollar weakness, $1.09 for the euro-dollar and s&p futures are going nowhere. this is bloomberg. ♪

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lisa a: this is bloomberg surveillance on bloomberg tv and radio. tom and john are off today. i have sarah hunt with me. i am lisa abramowicz as you look at weekly digestion day. are poised to have the biggest weekly rally going back to march. opinions as well as a question of how much the ai boom can really fuel the tech dominance. snp futures up about 0.1%. climbing to the 4500 mark. euro strength has been consistent.

1.0958 versus the dollar. as you see the hawkish ecb. a real whipsaw as people assess how far the fed is willing to go and how long they are willing to hold rates. 3.72 on the 10 year yield. new york crude $70.52. it went as low as $67 a barrel. perhaps slower demand from china and technical moves people talk about. just to give sense of single name movers, adobe really weighed in on the ai craze. they reported earnings yesterday that had better than expected second-quarter results. they raise their full-year forecast. all fine. the shares are up almost 4.5 percent because of ai. how much will this be a catch all to get gains? sarah: i don't want to make

parallels by will make parallels anyway. it is like putting.com after the name and all of a sudden you are internet stock. if you can make a credible story for this, why wouldn't you? it is currently the flavor of the month and could be the flavor of the decade. everyone is going to go into this and the question becomes, when are you monetizing this? lisa a: how do you parse out reality from fiction? sarah: if you can show better earnings, you can show better revenue and say this was generated because of this. or maybe it was a coincidence and you through ai in there. you have to wait until you get through a company's couple of releases. lisa a: i wanted to look at for lawful balls and other middle eastern market spice. it doubled on thursday's debut and yesterday, it continued to gains.

a 3.2 4% gain there. and virgin galactic is up 40% after saying it is planning its first commercial passenger spaceflight later this month from june 27 until june 30. i have to wonder how this will sell. i hear it is going for quite a bit. are you going to be among the first passengers? sarah: i am not. even if i were interested, i am fairly certain the price tag is not going to be a small one. but i can imagine there will be a lot of early adopters to make that a good thing to do. lisa a: it really strikes me. to me, this is a time of the moment issue where people are piling into the next best thing in tech, and perhaps asking questions later. have things started to feel frothy in the sense that people are caught up in the promise of

new technologies and secular growth that they are perhaps not able to focus on the balance sheet? sarah: i think that is exactly what happened which caught the rally and allow the s&p to break out of its range. once the s&p broke out, then you need a hook and it was ai. i am not here to say it will not transform things. i know a technology analyst that said this is as exciting as getting an iphone in my hand. but how much time it takes to develop the ecosphere. people can say i can hang my hat on ai and do not have to worry about annoying insight valuations and fundamentals. lisa a: my calling joe weisenthal wrote that kroger, the grocery store chain, mentioned ai eight times on earnings story calls talking about home chef options and other ways they could potentially leverage ai.

everyone is a tech company. let's take a look at what is going on with central banking divergence. how much is the lack of drama allowing people to get caught up in other stories? or perhaps the focus on reality and the hope of other stories. it has been a long time. deal obama -- do you believe the fed when they say they will hike more? perhaps even twice more before the end of the year? >> it has been too long. thank you for having me back. i find it unlikely though nothing is certain given the awesomeness to a lot of short-term. i find the federal reserve will raise interest rates again. there are extremely few historic old examples of the fed hiking, pausing and to make. i suspect with the federal reserve wants to avoid is a stealth easing through which

they announce they are finished and the markets begin to pull forward rate cuts. by saying, you might do it again -- we might do it again, the fed avoids the accidental easing. lisa a: how much is this questioning the fence -- the fed's credibility? you are saying they are done, morgan stanley is saying they are likely done. the market we give you a 60% chance of hiking in july but i there, you are done. does this question their ability to use rhetoric to drive the market into suspicion? -- submission? guy: they have been using it a lot over the last year. but it failed prior to that. the fed can make whatever decision they deem necessary and the market will snap to that

decision if it does happen. that is the essence of fed credibility. it is not if the forecasts are right or wrong but if they commit to what they have said they are committed to doing. the last couple days or so, they interpret it as interest rate cuts later in 2023 have been priced out of the markets. that is the market saying they are perfectly credible. sarah: if you look at the other tools the fed has, because the question has been what are they doing with rates but also are they doing with the balance sheet? the balance sheet drives liquidity which drives risk assets and basically what we had with the financial big city with -- financial bank situation recently. even if they pause and leave rates higher, will the market start pricing in cuts in the middle of 2024? or they think they will leave rates higher here? guy: with regard to the size of

the balance sheet, it is important to separate the emergency or semi-emergency measures. with the dtfp that was announced back in march, separate this from the economics civics tool for easing which is designed to be more systemic in nature. in terms of the economic stimulus tools, i fully expect the balance sheet will be if our take on autopilot we run into evidence of scarce reserve. our best guess is the middle of 2024. granted, there is a lot of uncertainty about that number. i would expect ct to function on autopilot until that period. i do not the great cuts will be a high probability until that happens -- not think rate cuts

will be a high probability until that happens. jerome powell said very publicly that he does not want to repeat what he and his colleagues see as a mistake of the 1970's by easing off too early. i think it will take a relatively large economic out-earn to cause -- economic outcome to stop. the mid 2024 rate cuts period is a good base case for fundamental reasons even though the markets are not pricing it in at this point. sarah: how far will the balance sheet be wound down in that area? to the extent that, if cuts really do come in, where do you expect inflation to be? that is fairly sticky. it has come down from the highs by it is not as benign as people are hoping for.

we end up in a period where people allow for higher inflation? guy: the economic outlook is unusually uncertain at this point. this has largely to do with the facts, in our view, that different components of economic activity are moving at very different paces and in very different directions. you can imagine the stresses that are likely to come in construction as the regional bank provides less capital to that. that is a good source of possible economic downturn later this year. at the same time, jobs are strong, income is strong. different areas of the economy are diverging which makes it hard to have a top-down macro or cast. it appears inflation is slowing. i do not have good evidence one way or another of where it is likely to descend. a hunch that it may be slightly higher than where it has been

from 2000 to 2020. i suspect that should be enough for the fed to accomplish, metaphorically of course, relatively soon. lisa a: guy lebas of janney montgomery scott. enjoy the long weekend. we appreciate you being on. i think this had to do with people imagining the worst. intel and macron are planning to spend outside the u.s.. we keep hearing about this. whether it is tesla building outside of europe. they are all trying to woo him. and microsoft conversations with president xi jinping. who can sell it the most internationally and then that will drive people with certainty rather than the mumbo-jumbo. sarah: there have been a lot of announcements about people building in the u.s. when they talk of doing this in europe, are they going to do it

or are they just talking? the supply chain issue has been obviously something that is a problem for a lot of people and they want security of supply. i think there is a real need to do building in areas that are not traditional at are you really going to do that because it is going to be expensive and consumers do not like to pay for things. lisa a: this is definitely a question of how much is noise versus signal? all these question marks on a week that is perhaps ending with a whipsaw after a lot of central banks giving the crosscurrents of different economies and different phases of fighting inflation. u.s. going one way, pausing. the ecb going another by hiking rates. the euro is rising. the s&p is higher by 0.1%, gaining steam as the session goes on. we have been looking at this

rally. i want to talk to you, sarah, about whether you are seeing a broadening out in how you are shifting your mentality heading into the second half of this year. sarah: i think you are seeing a broadening out. there is an ancillary effect to ai. if you think about data centers and computer chip equipment makers, there are places that have not had a massive ai move. they have had some moves but not as much as the darlings of the ai world. there is an argument to be made that this could be something people can use to boost productivity which has been on the wane lately. there are reasons to be positive about it. the question becomes, do the evaluations run so far that you think, are they going to into that, or do they have to come back? right now there is the fomo that you mentioned earlier. that seems to be driving thing

so much when people are pulling money out of cash. i think this is where the excitement about the new technology is perhaps overstepping with the -- what the new technology can deliver in the near term. we are not sure yet. lisa a: are you just holding back? sarah: i think we are adding things in areas that you like. lisa a: that is something we can talk about. we will also be speaking with congressman french hill from arkansas and perhaps, you can get a sense of the petroleum reserve talking of oil. we are also going to speak internationally and domestically. you enter another situation with another potential default. this is bloomberg. ♪

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everybody else sees china in constant conflict. therefore they are working as allies. china sees this and realizes we have an active engaged outlines -- engaged alliance working together. therefore i think president xi jinping has a wind at his back and that is what china respects. lisa a: antony blinken, secretary of state, heads over to beijing. he will probably get there around sunday for talks that had been delayed after these bible in incident. lisa abramowicz and sarah hunt. not here are tom or john. they have a well-deserved day off. i will not call it assigned as tom would or say there on sabbatical. a day off can be a beautiful ring. we are getting heads from fed governor waller. he is talking that the u.s.

financial system is resilient enough to handle large shocks, speaking to the potential fear of a banking crisis. a row question goes back to whether bank turmoil intensified -- a real question goes back to whether the bank turmoil intensified credit crisis but they do not know yet. we saw tools in cold relief last night when they came out with the latest of their immersion -- their emerging facility exceeding $1 billion. there is a question of where we are in the economy and how the government will respond with respect to cuts and fiscal tightening. writing us now at a moments of huge debate is congressman french hill, public and from arkansas. i want to start their especially because there is an increasing right among house republicans right now about whether to cut spending much more substantially

. maybe raising a question of if we have to discuss defaulting again in a couple months. how concerned are you? rep. hill: we have our fiscal restraint deal that you struck between congress and president biden. now they are working to pass the bills and that will tee up the spending fight this all, potentially, as we attempt to pass all 12 of the bills at the agreed-upon level of the fiscal restraint measure or below. that is the issue. but to be clear, discretionary spending is 40% higher than it was before the pandemic. we are spending $2 trillion more per year on spending in the country them before the -- them before the pandemic. there is an effort that you should lower the spending rate

and growth. lisa a: greg of atf was saying he has been in this business a long time it is never seen anything on -- like this. to agree to spend a certain amount but essentially retract it. rep. hill: that is not with the deal is. i think this has gotten exaggerated in the press. these are spending caps. now the appropriators take the bills and write in the appropriate cabinet. now you set the goal. if you are going to bring the spending curve down, we do not want to do supplemental appropriations. lisa a: do you think it is worth threatening another default? rep. hill: i do not think anybody threatening another default. i think what you see is if you do not pass the appropriation bills, you are confronted with a continuing fy 24 appropriation. no one wants this because you

free spending at the current level but get all policies frozen too. members of congress like to debate the levels but the spending policies go with them and you cannot do any new starts when you have a continuing resolution. you cannot start construction on a new nuclear submarine when you are still under continuing resolution. that is why i do not see this as a default. it is more of a typical government shutdown debate on whether you are going to have appropriated funds approved across both houses of congress. lisa a: have you ever seen the republican party as split as it is now? we have been talking about this for a while now. perhaps the prosecution of donald trump has brought this into stark relief because you have some people lining up behind him and others saying let's wait for money -- wait for more information.

rep. hill: i think he made the situation a lot worse about how he handled his interactions with the government. he made the situation a lot more challenging. i do believe we need complete reform on how we handle classified information. we just saw the news this morning that i national guardsmen on cape cod is facing 60 years in prison for releasing and distributing classified information. i think this says a lot of confusing messages to the american people. we need to make sure the rules are fair, clear and everybody abides by them. sarah: if i think about that issue specifically, it is clear there have been more than several people having issues with documents. rather -- whether or not that is more just for him or other people, is yet to be determined, but you clearly need to do something with that. is that because we are so far behind with paper versus

digital? is that because we do not have a clear view on what is classified? rep. hill: that is a fair question. we declassify the other day the instances of this. it was reported in a hearing that they found classified material in over 80 different former members of congress at their local university or whatever they are stored. they found classified information in unclassified file boxes from everybody from president reagan on. i can remember vigorously the process of leaving the administration in january 1983 of what was in classified box and what was not. we have rules by think we need to raise training. you raise a point of, do you classified too much information? the difference between digital as in the case of ms. clinton and paper. there is work to be done here but it does not excuse anyone's

behavior. lisa a: are you concerned about the rhetoric around this that this is an issue of prosecuting the people and going after someone in terms of political interference? are you concerned about how this is raising questions about the deep state and reigniting those discussions, rather than the discussion on how to keep classified city documents clear. rep. hill: when you indicted a former president by officials of the doj of his opposition party, you will invite political speculation that it is a political activity. it will take us off the substance and back to that. i think everybody ought to have clear understanding about how to analysts and do it right. the weaponize station of the federal government -- the weaponization of the federal government is a subject of a hearing this year.

the doj has disappointed a lot of people in congress and is under tremendous scrutiny. we have fired the people who you think did wrong in the whole issue around misses clinton or mr. trump and we are trying to clean up our act and do the right thing but there is skepticism among the citizens and people of congress. it is a heavy lift. as heavy a lift as the church commission in the 1970's and that is the hyperbole. director wray has to make the reputation of the fbi the one we all know and love over history. lisa a: you see the onus on the fbi rather than on the former president? rep. hill: the onus, under point about the deep state creating mischief is clear in the russia investigation that they were involved. it was very political at the top

of the fbi which hurt their reputation. it is up to director wray to help rebuild the reputation which then builds trust through the american people. lisa a: thank you so much. i appreciate you taking time with us. i do wonder, to sum up how much you focus on domestic issues versus international? sarah: domestic issues affect the economy so they are very important. because we are fundamental analysts, we want to know what is going to happen with our economy. it is hard to figure out how the politics will go. the whole country is exhausted by the idea of two people who already had the fight fighting it out again by do not see what will change that. lisa a: thank you so much for being with us. i cannot tell you how wonderful i was -- it was to have you. you will part through the

neighbor that slavery, with nila richardson -- through the economy with nila richardson. this is bloomberg. ♪ do you ever worry we'll live forever? no, it's literally never crossed my mind. what if we live to like 100? that's 35 years of being retired. i don't want to outlive our money. and i have been eating all these stupid chia seeds! i could totally live to be 100! why do i keep taking such good care of my- since we started working with empower, we're able to get all our financial questions answered, so we don't have to worry. so you never- no. never. join 17 million people and take control of your financial future to empower what's next.

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no longer becomes this rotation from small to large. >> the market moves so fast and the data does not move that fast. >> we are experiencing the inflation of last year. >> every major economy has had success. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. lisa: perhaps people are sick of worrying. good morning this is bloomberg surveillance. tom and john both off lisa abramowicz here and i'm happy to say i'm here with nila richardson for the hour. she is chief economist at adp. that seems to be the field today everyone is taking a breather after getting it wrong. we are seeing rally for the week going back to march when everybody was worried about the banking crisis. is there reason to feel optimistic for no reason to feel optimistic?

nila: the sun is shining it's friday. i didn't realize it was going to be on air so i'm thrilled to be with you. we are seeing some good economic news is just when you look too closely the glare of that can be very as long as you don't look wrigley act data and what's underneath it. you find you can enjoy the weekend. lisa: incredibly not encouraging. we will dig into the data. what did you call it? nela: it's a pessimism pause. lisa: i think that is where were at. it raises the question of let's get blinded a little bit and dig under the data. do you think the people are missing the forest for the trees of little bit. nela: if you're focused on the short term you are focused on the fed action. if you are focused on the long-term you realize the economy has changed structurally. this current bout of inflation

is not one and done even if it takes longer to get to where the 2% target is. it doesn't mean it stays there. it doesn't mean everyone goes back to a happy day where we were before the pandemic when it came to inflation. i think the fed has to sleep with one eye open well into the future because the economy has changed. lisa: one of the reasons i was thrilled to have you and, yes, surprise it's going to be on air. the labor market is the key to all of this mystery. how much are we seeing ongoing momentum with respect to wage increases? is there a wage price spiral? are we seeing evidence of that beyond what the ventas indicating? what is your data showing you? nela: wage growth peaked last year and i say that on the basis of 20 million workers that we provide payroll services for. the double digit momentum that we saw that moves sideways towards the end of the year that never decelerated despite all

the fed interest rate hikes, is it starting now to decelerate. that is good news. there is no sense that there is a transpiring brewing right now. inflation is still too high. still higher than consistent with the comfortable level of inflation. we have seen progress and that's good news in terms of being a wage price spiral issue. lisa: i am going to be speaking with nela and we will get into that. i'm sure your throat for that. right now just to give you a state of play after a pretty big week. we are seeing stasis on the s&p. we were talking 4300. can we get above that? now we are talking 4500 and beyond. the euro is stronger versus the dollar versus the yen. this is the one theme of the week.

the euro is gaining because the ecb is hawkish. their fight is not done. their increase in inflation is concerning to them. 10-year gilts, basically stasis. crude $70.60. the real question around where we are in terms of the rally and whether it has likes and joining as to get into that is head of equity. before we get into and welcome this question of do we end up with just a stockpicking market, can you pile in and get some sort of sense of relief from the rally that seems to only be gaining steam? >> it's a great question, lisa. i think the hardest part for investors is do i stay on the sidelines are not in we were talking earlier is the market really bold and drum by emotion? and it is it always has been. investors have to fight that emotion every step of the way.

and remain disciplined. i think despite all of the kind of chaos is happening around us and outside of us within the economy, within the fed with global, global unrest i think it's brought a lot of focus to our investment teams and what they're looking at is the narrow focus on which stocks you want to own. i think investors when you're out of the market you have to be really careful about when you get in. what i tell people is regardless if, overall, there's negativity or positivity, you want to have some allocation in equities. lisa: so let's pick some stocks, nvidia, tesla. how do you basically understand what valuation even means at a time when things are going to the moon based on the promise of future invention? >> i think with interesting is one the flow of equity is going

into index funds. when that happens investors are buying more of the big names and paying a lot more for those names. it's just the way it works. in a way, active managers are trying to not fight that trend, we own some of those names too. but we are also trying to find the names that haven't been recognized. we are like mining for gold right now. there are opportunities that exist out there. nela: in an emotional market, where devalue stocks come in? >> that's a great question. as you saw in the beginning part, actually last year when the markets started to pay attention to value their were good reasons for it. multiples were compressing and that's when investors went to value. i like to think about it, like, don't discriminate between value and growth. you can buy high-quality goods at a good price. i kind of like to say i like to

shop at sex or name is just don't like to pay full price. --sacs or name and sigh just don't like to pay full price. they want to pay a good price for them and there's real opportunity to do that now so i will say don't discriminate between value and growth. lisa: i just wonder what does value even mean? i was talking to some people and they're saying basically conservative stocks, value stocks, everything is tech. that is what everyone is saying so at one point do you say we are falling behind. at least you will catch the stories that might come out of nowhere and blow up the index. >> it's a great point. over the years, people have categorized value and growth separately but as you know we've had big industries change. energy would be a growth industry. i think investors have to grow that out.

any category, any company can move from value growth at any time which is why we face the individual stocks, individual companies and look at what we are paying for that. lisa: going into the second half, we have gotten a lot of reassessments. seems to be the thing pretty much across the board. i'm wondering from your vantage point, how your shifting either the names or your thesis heading into december. >> it's a great question, lisa. i think the last time we were on the show i expected the rally to either spread down or get cap which we are starting to see a little bit. we would expect that to continue if the rally is going to continue. investors are going to flow more broadly into the market. i think our investment teams focus is looking for those unique opportunities trimming names where the valuation just doesn't make sense because what

we do is all about risk versus reward. really trying to set up our investors to protect them against big risk and focus on reward over time. again, the future is pretty foggy. lisa: thank you so much. after the fog has luckily passed for us in new york city. thank you so much. nela, it is that time. i want to get your take on how artificial intelligence is going to put a set of a job. nela: i have a singular source on that. my 15-year-old. we do and automation check. i don't think that's going to happen, though. maybe we will have more vacation time. maybe we get out of work two hours early may be you can do surveillance in 45 minutes instead of three hours but with the promise of ai is is to automate certain tasks. more variable the job, the harder it is to automate.

the ideas that ai, we are still at this precipice of choice. whether it's laborsaving or labor enhancing. if ai increases the productivity of the worker and we know that we are in a productivity font that we haven't seen since we've been tracking productivity in official government statistics. five consecutive quarters of productivity declines ai has the promise to not only reverse that trend but to accelerate the productivity growth. i'm excited about it. also, i'm excited about more vacation time but primarily i'm excited by the promise of an increased standard of living for the u.s. worker. lisa: i was speaking with a friend yesterday who's a doctor and he was talking about some of his online calls. he said there's no reason this couldn't be done by a chatbot. this is going to be taken over and his concern was what's the

point of humans? you quickly get to my bottle talk to your bod and we will put together your chart. what's the distinction between layoffs and something that is more of a productivity boost. nela: if you look at the recent spout of layoffs and let's be clear when we look at initial jobless claims, they are still relatively low. they're flashing a little bit of yellow but they are not flashing red yet. but when you look at that kind of rightsizing of your headcounts, especially for large firms that hired aggressively last year, that's very different than the long-term investment. ai needs people, unfortunately. otherwise it would be mass adoption very quickly. you need people to adopt the technology which means for companies you need to scale up

your workforce. it's not just this innovation happens in a vacuum. people have to use it. they have to be trained to prompt properly and make the right decisions. you still need people for that. lisa: if you are just joining the program the s&p is basically flat on the day. probably will rise all the more. we are here with nela richardson talking about artificial intelligence and how it will transform the labor market. i have a 14-year-old who similarly is my early dr. and uses chatgpt for a lot of schoolwork. that's how i found out about this and i do wonder the parameters of invention how that's going to transform the way that younger people do work. universities as well do you have the same conversations? nela: all the time. my son, my expert. he thinks about it as a

calculator, as a tool. just a tool and you know that companies around the world are trying to figure out how to innovate alongside the pace of progress. not just to save labor costs, but also to really accelerate growth. i think that is where the rubber meets the road in terms of what our technology can do for the economy. it can level out some existing fragmentation in the market. it can help the u.s. more productive. i'm still on the optimistic side and i'm excited. lisa: in the next half hour we will be talking about science fiction. just kidding. we will be speaking with gregory daco. this is bloomberg.

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>> it's not a market that has been helpful to anyone in macro space. you can't ignore growth. growth drives inflation. inflation drives central banks. we are experiencing the lag effects of last year. lisa: basically trying to understand the macro mush we are involved in right now. as they try to parse through the macro marsh the one aspect that stands out is the euro. we are seeing a gain of two tense of a percent after a pretty big whipsaw of word.

the ecb more hawkish. we are seeing, excuse me, the cross 10968. he seeing a lift in crude after a hit a low of $71. imax, much lower than that. lower than that in the week. joining me today nela richardson, chief economist at adp. tom and jon both off today. nela: they are staying put in terms of the inflation story i think there's something to be said for that because remember they were the first driver of inflation right after the start of the invasion of the ukraine that expanded throughout the country. they are giving as that in terms of the overall cpi index. there was a risk at that time

that the energy increases would spill over to the greater economy and make the inflation story much worse, make it more than just about the supply chain bottlenecks in the goods sector. where we are seeing the inflation is really on the labor side. if were heading into the summer driving season, were heading into high temperatures again in terms of energy consumption. something to watch for sure in terms of the consumer budget. lisa: this is the question mark of why there hasn't been more commodity price inflation. that something we keep hearing about with oil. julia lee joining us from london. from your vantage point do you understand why there has been such a substantial drop off in pricing even with additional cuts? >> i think there are a number of factors playing into this. there ar clearly worries

about the economy in the americas. there are certainly suggestions that supply from a number of countries as held up much better than people anticipated and indeed in some places it is unexpectedly growing. if you look at the volumes of oil coming out of a ron onto the world market and indeed still coming out of russia. despite sanctions in those three countries their production has held up better than people have anticipated. even as the forecasters are tainted to flee increasing -- tentatively increasing their demand in the second half of the year. there are still big questions around the chinese growth. lisa: how much is oil losing its clout as a macro play? how much are people focusing on

the supply, the demand, the holding of oil and the costs incurred, using it as a way to slow potential growth? >> i certainly think that with the cost of financing oil trades and financing oil storage rising as interest rates increase, you no longer have this, you know, this almost free storage of oil or this sort of free carry of oil and i think that does have an impact. when we had these ultra low interest rates, there was a lot of money virtually cost free that could be invested in oil. i think that has an impact. i think the huge global macro is playing into this too. nela: i'd like to follow up with that on energy demand.

we are still seeing a lot of uncertainty after the second half for the u.s.. there's a? about the u.s. as well how do you square that demand when the supply story that telling right now. >> i think if you look at the supply forecast the two big sort of forecasting agencies, a consumer focus group and the organization of petroleum exporting countries have both dated their short-term forecasts within the last week. both of those have slightly increased their chinese oil demand in the second half of the year. both of them and despite differences in the details of these figures, both of them show the world short of supply in the fourth quarter of 2023 by about 2.5 million barrels a

day. that suggests an oil market set to tighten considerably. the problem is i think is many people out there simply don't quite believe that combination of supply and demand and the size of the deficit that these organizations are forecasting at the moment. lisa: julian lee, thank you for taking the time as always. i do think about the fact that we have gotten some signs that there is a little bit of disinflation going on with respect to airplane tickets. we saw that in the recent cpi. also with respect to rental cars. we are starting to see a bit of a cold on the edges in the yellow trends, let's go travel around the world is that something that has staying power? nela: it could. we saw this big first of energy of people traveling after they were cooped up in their houses. maybe some of that energy and enthusiasm for travel is

starting to reseed. we are starting to see some good news on the food front too. that was really draining for a lot of consumers. this is sniffling around the edges when you are talking about the bread-and-butter spending of the u.s. consumer the prices have accelerated a lot and they are not going down. they are eating into the budget every single month. lisa: i keep going back to the airline executives, every time i buy a ticket i'm shocked at how much the price has gone up but there really isn't a lot of pushback in terms of pricing from consumerist. are we starting to see it though? airline tickets were the ones that were coming down quite significantly. yesterday we were talking to the ford cfo. he said the amount they can increase prices has changed in the big increases are over. how much is this shifting back tomorrow even goods and services types of spending?

nela: we have seen the transformation of the u.s. consumer we saw it going from services to goods and heading back into services we are also seeing them more independent people are feeling better about public transportation now that the health care crisis has receded there's more options now. business travel is starting to pick up again so that's good news. i haven't been on an empty plane in quite some time. every plane ride i have had has been jampacked but where do the consumers show up? it's hard for the consumer to weigh in with their demand expectations right now. they are not making headway in any market. lisa: does it surprise you people say demand isn't picking up for fossil fuels? you see people traveling in cars does and it raised a question in your mind? nela: there is a lot of

questions raised in my mind. lisa: not a lot of coherence here i'm trying to put it together. nela: structure has change the consumer has changed what you're saying is a consumer trying to hold the line on their budgets. if you look at the savings rate we know there's a lot of cushion there but we also know that debt levels know that the you may not have it coming for october for example so there are a lot of things without good wage growth that is going to kind of push the demand story of little bit more. lisa: let's continue this conversation with greg daco coming up. this is bloomberg.

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lisa: the great recent after a week of divergence central bank decisions the fed holds. ecb went 25 basis points. the bank of and the bank of japan does what the bank of japan does, nothing. stasis after a really tumultuous week. indicating a little bit higher for the s&p building on a rally that is the biggest since march, since before the banking concerns really came to a four. the euro stronger versus the dollar consistent throughout the

day, throughout the week. 1.0966. 10 year yield, 3.7 three and crude a little bit of stasis after getting as low as just north of $66. i'm here with nela richardson both jon and tom off. nela, wonderful to have you and as we parse through the data and understanding how things are working and looking ahead to next week, housing market. the fed characterize this as a market that was slowing down. do you agree? nela: no, i don't. this is one place where i see a lot of diversions. the housing market would slow down in the second half of the year and that would necessarily bring the cpi numbers down because shelter costs being such a big part of the cpi. if you look at housing from a long-term perspective and i have

doing so for a very long time, you will see that the supply shortages we are seeing in housing are structural. they are long-lasting they didn't start with the pandemic. the labor shortages are intense, we see it in our own data at adp. even though we look at it as a cyclical indicator it has structural holes right now and i think was underappreciated is the fact that, one, the u.s. is chronically undersupplied especially with affordable housing and, two, there's a lot of new households formed over the last two years. we are at a run rate of a million households being formed then before the pandemic. i remember talking to you about millennials living in their parents basements. they have gotten out of the basements. they are 40 years old now. so you're seeing an increase in

household formation. it's going to put pressure on demand, millennials are reaching peak homebuying years and rental prices, i think, are going to kind of hold trend. not decelerate in a meaningful way. lisa: it is time for your 40-year-old son or daughter to move out of the basement. governor chris waller who is speaking in oslo was saying everything seems to be, in the banking system. the u.s. economy is still ripping along for the most part. housing perhaps in the forefront even though the that it seemed to characterize it as slowing down. joining us now, a buddy of nela's greg daco do you agree the fed was not accurate in their characterization of a cooling-off housing market that appears to be on certain data points turning a corner?

greg: i think she made a great point. i think we have seen a negative effect of tighter monetary policy via higher mortgage rates and reduced affordability in terms of demand. we did see home sales plunged significantly over the past few months. we haven't seen starts and construction activity and i think that goes to nela's point and the need to continue to build more housing to support population growth. but i think if you look at the broad set of interest rate sensitive sectors, they have shown the leading edge of this slowdown when it comes to economic activity whether it's the tech sector the housing sector even the sector those are all signs to a higher capital environment and that is really with the fed is aiming for i do think there will be disinflationary pressures coming from the housing sector but they may not be deflationary as we

had seen over the early months of this year. nela: so you mentioned different interest rate sectors, housing being one of the ones, what is your view on manufacturing and the role it's going to be playing in the slowdown in terms of an interest rates incident sector? greg: i think that's one of the key areas where we are seeing synchronized slowdowns across most of the economies across the world. you are seeing a slowdown in the u.s.. we had data showing the sector is slowing down. we are not seeing the type of massive retrenching we are seeing in a recession but we are seeing sluggish activity. really declining on a year-to-year basis and that's the same type of situation you are seeing globally. we are seeing germany being weighed down by its global sector. china, manufacturing sector is also struggling. it's not just about domestic policy and domestic meant to him it's also about the global

economic activity and i think globally we are seeing this slowdown in terms of the industrial sector. also gradually starting to see it filtered through in terms of service sector activity with the bit of a line. lisa: just to walk you through what we are expecting next week. we are going to be getting building permits, housing starts, and existing home sales. that is sort of the 1, 2, 3 punch leading into the pmi we get on thursday. and services pmi. the question here how much you start to see a rollover or convergence of the services and the manufacturing. from your vantage point do you see a convergence there even as manufacturing has been in a recession and continues to slowdown? services starting to slowdown and a way that is not being factored for. the ism's are on friday my days are getting confused with the holiday. greg: i think we will see a

slowdown in sever -- service sector activity. i think multiple types of tumors depending on the where they stand on the income spectrum and we are seeing more caution being exercised at the lower end of the income spectrum. the bottom three are exercising more caution. have less of the savings for they are experiencing more cracks in terms of their credit foundation when it comes to household finances and the top income quintiles are not immune to higher prices, higher interest rates. we as economists talk about inflation coming back down to 2%. 2% inflation is still an environment where prices are rising. prices for services have become too high to allow people to travel and nela was making a great point. there are going to be some trade-offs that need to be made with student loan relief ending and that should allow for people to make decisions in terms of

what they spend their money on. overall that should lead to overspending. lisa:nela, you are sitting in tom's seat. he says he would say you are overseeing all these stories the tale of two america's. some people can afford it some people can't. how do you aggregate this? the spending power of some people is diminished while others will sue been in takeover because you still have a recovery on the upper can tiles. nela: the core of a rotten onion is still onion and that's why it's important that the main street view of the economy stays strong. where we have seen growth and where we have seen frankly increases and workers coming into the labor market has been in low-paid sectors. leisure and hospitality has been this tolerant of this u.s. recovery. without restaurants and bars we wouldn't be talking about a soft landing right now. i think that's underappreciated

in terms of this going to be high income workers are consumers that kind of save the day for the u.s. economy. it's a bottom up economy right now. that is where we are seeing the highest pay growth. that is where we saw the real demand for workers to recoup the lost headcount and that spending is important if we are seeing a slowdown because of the end of covid release -- relief measures. the student loan deferments, we have to be really cautious about consumer spending and the context of higher interest rates. lisa: greg, way you nonfat. are there lower quintiles or you see the lower and struggle and pressing -- passing along price increases. is this a leading indicator as potentially that cohort ends up running out of their savings sooner possibly in the next few months. greg: and just to make a point,

i think nela is much better looking than tom. you are punch too nice to tom there. we have the 60/40 split. the bottom 60% of income earners do about 40% of consumer spending and the top 42 about 60% of consumer spending activity. that top is doing more than their fair share in this environment. i think we have to be very cautious about how the outlook is going to play out. we have an environment where we are seeing slower appetite for growth, slower appetite for investment and higher interest rate environment that will first and foremost apply to smaller businesses and that will lead to less employment growth. we are not expecting the type of retrenchment that we have seen in the past when it comes to the labor market. i think one of the reasons is that the value of talent has shifted post-pandemic with employers having spent so much time hiring, training, and

retaining their talent. they are very much a renaissance to let go of the valuable source of employment. so you're not seeing the type of massive layoffs that we have seen in the past. you are seeing hiring freezes or strategic layoffs and that is the main reason, i believe, that why what we are seeing today is the gradual cooling of the labor market and the gradual cooling of consumer spending growth and overall demand. nela: i think you make such an excellent point about small business and job creation. we know they have been the engine of growth. we are seeing it as so in the adp data. small businesses are filling in the gap for larger firms. my question is, given what we now about the strength of small businesses and their hiring right now we know what's to come in terms of higher interest rates possibly in the future. can the fed engineer a return to 2% target with unemployment less

than 4%? in your opinion? greg: i think it might be difficult but i don't know that we necessarily need to go to 5, 6, 7, 8% as we have been. i think there has been a near-term bias any terms of our expectation of any type of slowdown. i think we will likely see inflation with the 3% handle on the cpi next month. we are not going to be too far from that. we know part of that is coming from energy and food prices. inflation is going to be a little bit stickier. i wouldn't be surprised that what we have is really a sluggish economy without necessarily having a deep recession and inflation gradually falling back in line with the 2% target. we know the fed is going to tighten monetary policy on an ongoing basis. it's very important in this context of a sheathing 2% inflation. lisa: greg dayco, thank you so much.

the s&p is at. up about a quarter of a percent. we are here with nela richardson and i would love for you to weigh in on that. this idea that you can see a sluggishness, not necessarily a recession but definitely a little bit of softness but with inflation coming lower. this is what the fed wants. nela: i think the sluggishness is my best case of the economy with inflation going down slowly i mean there's been a lot of talk about the soft landing, hard landing. i feel like and this is a little controversial, the economy has already they did. we are seeing inflation decelerate and we are seeing the job market hold up. but we are still on the tarmac. we are waiting on the plane for exit because we are waiting for the 2% target. we landed but we are not off the plane. that's how i see the u.s. economy right now.

anyone who's flown out of a new york area airport is exactly what i'm talking about. lisa: you might be on the tarmac for selling they send you back to the gate. we have a situation where if we have landed, then we are coming up to jackson hole where it's been a whole year. there is unemployment rate is going to come up and here we are the unemployment rate near record lows and we will talk about that coming up as we force potentially some sort of slowdown but not a recession. does that create more eight -- a more positive scenario. john the vallow -- this is bloomberg. . i just could not hear. i was hesitant to get the hearing aids because of my short hair. but nobody even sees them. our nearly invisible hearing aids are just one reason we've been the brand leader for over 75 years.

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you got this. let's go. gobble gobble. i've seen bigger legs on a turkey! rude. who are you? i'm an investor in a fund that helps advance innovative sports tech like this smart fitness mirror. i'm also mr. leg day...1989! anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. i go through a lot of pants. before investing carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com. >> those that have the 3%, 4% mortgage are going to be very reluctant to give up that interest-rate. they have equity in their home.

they have equity in their mortgage. this is a lot of the unraveling of doubling up. people that have lived at home with their parents for an extended period of time. lisa:lenar chief executive talking about millennials moving out of their parents homes and basements. nela richardson with me today. we were talking about homebuilders and let's put this into perspective. the etf, i'm looking at this is up 27% so far this year. surging into with the fed said was weakness. surging into a downturn that was going to distance like this economy. right now joining us to answer why and who is wrong u.s. homebuilders at ubs. a question i keep asking people is anybody, are these homebuilders selling to anybody paying a 7% mortgage rate for that home? >> simple answer is no.

if you are buying a home from one of these public holders you're paying 6% or 5%. lisa: as we look forward about whether that demand can continue, do you see this momentum or do you think it's been overplayed? that perhaps people are not seeing what the fed is seeing which is people aren't going to be able to afford it. all of the cash buyers moved in and know it's getting too expensive. >> it's a fascinating dynamic going on in the market right now. there is zero existing home supply out there and the homes out there are old and not at the right rice point. so there is no competition go outside of the market, they can get land, they can get labor, they can't get financing now. demand out there, it's all being channeled toward this group of public homebuilders and that is where we see this massive market share.

nela: the aging of the housing stock, the number of units it takes just to replace deteriorated homes, underappreciated story for sure. i think the real question to me is there is so much about how interest rates are crimping demand but no one talks about how interest-rates affect supply. homeowners have about a 3% mortgage rate so how do you deal with those supply shortages as a homebuilder? where do you target? is it the affordable priced homes is that the expensive high end homes? how do you do with such a big demand in such a short supply? >> the fact that most folks have mortgages at a much lower rate, making the swapout into another home, the math gets tricky. that supply is not going to loosen up. as a public homebuilder what we believe is the main place to target is the entry-level

first-time buyer where it's a need-based purchase. they're getting married, having children. life events that necessitate more space. that is where the demand currently isn't that is where we believe the kind of tail is about as well. lisa: not to push back, but to push back. i think about the people i know having babies and paying off student on said dealing with jobs where they haven't graduated into more senior bubbles and they cannot afford any of these houses. i don't understand where the demand is going to come from unless prices come down. john: the public builders are making the math work for people. they are also building smaller footprints, building a little further away from city centers, offering fewer skews for a lack of a better term. they can incentivize folks to get into homes. lisa: does anyone want to extend

credit to a homebuilder at a time when people are worried about city centers having a complete, you know, change it with office space not being used and given the fact that prices are so high? john: they are offering their own incentives. in house. they have access to the capital market rated nela: let's kind of turn to the labor market of little bit. also what we are seeing in terms of changes. my first question is has remote work changed the geographical footprint of homebuilders right now? john: it's really played into the geographical footprint. they are all sort of in the sunshine states over the golden horseshoe however you want to refer to it. that's where the job growth is. that's been the case for a number of years. i think working remotely has exacerbated that shift. we are seeing more folks having

into the sunbelt. it's really sort of playing into the hands of public mobility. nela: just the labor shortages that, you know, finding people to do all this building. how extreme is that right now? what would you like to see in that industry to help get more workers on to the worksites? john: it's tough. getting labor is one of the biggest challenges out there. i think that is where size and skill become increasingly important. public homebuilders are well positioned for that. i think what is needed, this is an industry that hasn't changed in 100 years. we are still building houses the same way we did. nela: no ai here. [laughter] lisa: good point. this is true. the point is that some jobs you cannot replace with artificial intelligence. millennials went from living at

home with parents to paying for highly overvalued homes. there is this element of are you choking me that this is what's going to continue fueling demand ? especially at a time insurance companies not covering the housing insurance anymore simply because different weather threats and other things. and people are starting to migrate back. at what point do you see a real softening? john: maybe to take the last part of the question first. i think we will see interest rates come in and that's anyone's guess. if you are a homeowner that has a 4.5% gauge making this up to 7% is tough. i think your question on the millennials is a good one what i would say is millennials are again reaching the prime homeownership age, 30-35 years old. and they are having life events.

i know the math is tough but to the extent they can make things work and the public homebuilders on their side trying to make it work, i think we are still in for a good market. lisa: i love that, having life events. to follow-up on what you said to get supply to come online, you have to see interest rates come meaningfully. if does that mean you expect prices to fall when interest rates come in? john: there is just no supply out there. that is what has been booming the home prices. if you talk to the public homebuilders their average selling price has come in about 10%. the peak was high. if you look nationally, home prices are pretty flat. we don't see a big change in that. it is a tricky scenario to make that affordability equation work. that's why it's good to be a public homebuilder today. lisa: john lovallo thank you for

being with us. do you agree with that that we will not see a material shift at least on average? nela: not nationally. what you are seeing is fewer sales. you are seeing a market that is shrinking because there's no supply and that's pushing up the house prices. just because prices are rising does that mean everybody is spying. we need more supply, or affordable housing. i think that's the most beautiful thing we heard is that the entry point is more affordable than it was at different parts of the last 10 years, where of a lot of builders were building at the high end. housing is the must-have data tool of the summer. the u.s. economy, it is the bedrock. lisa: do you think it is going to slow down or do you think we are at a tipping point where it is heating up and homebuilders are figuring out tools to bring down rates? nela: i think it's lumpy. i think it causes a pause and a

step back for homebuyers and they kind of swallow it and step back and because there's no alternative. you have two kids and two dogs and you need a house. that's for most people the reality. they make the math work. the problem is the finances are becoming more and more constricted. it's a real issue. the housing bottleneck, we talk a lot about bottlenecks. it's not just a bottleneck to the homeowner or the homebuyer it's a bottleneck to the labor market. you can't get people to move to where the jobs are, especially as more firms go in office. it's an issue supply can help solve. lisa: so the data points of the summer will be houses. i know tom would probably pick the dogs. i'm sure a lot of people would make the right decision. nela richardson, a pleasure to have you with us. managing director, that conversation coming up at 10:30 a.m. as they parse through

fiscal versus monetary. something they have been focused on. from new york, this is bloomberg. use it to set and track your goals, big and small... and see how changes you make today... could help put them within reach. from your first big move to retiring poolside and the other goals along the way wealth plan can help get you there. j.p. morgan wealth management.

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and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> from new york city for our viewers worldwide, imm miller in for jonathan ferro. we are looking at features that continue to rise. if we close today out with a gain on the s&p, it will be the seventh consecutive day of gains. the longest streak since at least november 2021. account onto the open starts right now. announcer: everything you need to get set for the start of u.s. trading. this is bloomberg be open with jonathan ferro.