>> the markets are fighting the fed as they been doing all year. >> u.s. economy is a lot more resilient than what the fed and economist more broadly were giving it credit for. >> it should have been a clear signal for the chance of cutting this year. >> powell will have to say yes we can get inflation down without a major recession. >> i can see that smooth runway with inflation coming down of its own accord. >> this is bloomberg surveillance. tom: good morning, jonathan

ferro and lisa abramowicz from inflation headquarters in new york. good morning on a united kingdom wednesday. the message from britain is simple -- inflation is sticky. lisa: core inflation is getting to the highest level going back 31 years. it was supposed to stay the same it's mind-boggling when you think about the fact they had been fighting inflation and have been raising rates and we were talking better recession but now we are talking about the possibility that 6% bank of england rates? tom: a really good set of charts off our united kingdom economics desk and we report on the way we rolled over from the agony of the pandemic in the united kingdom just getting it done versus europe and a much better america. lisa: how much does this have to do with brexit? tom: can we go there before

10:00 a.m.? lisa: is it idiosyncratic? how idiosyncratic are the stories of inflation around the world. tom: we will cover this today because this is important and it will move the markets to an extent. i sit here and i look at every country that's different. i have to constantly remind myself that the united kingdom is essentially 1/7 the size of the united states and i have to wonder about skilled dynamics of china and the united states versus an island. i think it's a different story. lisa: perhaps that's the reason why was straley's surprise to the upside in canada surprise the upside and here we are, the fact that around the world, you have a situation where inflation is surprising to the upside so

what does fed chair jay powell say? how does he justify it? tom:ben laidler writing this -- he joined us yesterday. the basic idea is we are back to trussonomics. lisa: the markets are not cooperating in a way that makes sense. if you look at the pound comes substantially weaker and make sense when it comes to inflation but not if you expect the bank of england to respond to it. you are not seeing two-year yields where they are supposed to be and this is the key conundrum. how do central banks hike into recession and slowness and something that needs to happen

to bring inflation to the levels they want? tom: sterling is out to $1.27. this is the difference in yield between the two-year and the 10 year. as yields move up, i've got further inversion out to 97 basis points for the first time. we are on the 100 basis point brought -- watch for a full percentage point higher than the u.s. 10 year. lisa: from may 4 to today, benchmarks have risen by a hundred basis point. you've had a complete repricing of some of the rate hikes people had previously priced out. i'm trying to figure out what this dovetails with respect to the u.k. call. tom: this is a dated check and we struggled yesterday. the date it was pretty quiet

with a fractional move in the stock market. the vix at 13.5 so volatility in the space in a big lift of big players coming into bitcoin. i don't understand it but 26,000-29,000. lisa: a blackrock etf was tied to that. there was some kind of discussion about a number of institutions cutting. at 10:00 a.m., jay powell heading to capitol hill for his today monetary policy report and he will testify in front of the house today. the hawkward pause, how does he justify why they didn't go know if they are looking at inflation that is sticky? core cpi at 5.3% in the u.s.. austin goolsby will also speak around 12:30 p.m. in chicago. also today, fed governors philip

jefferson and lisa cook and adriana kugler all heading to the senate banking committee. they will possibly get their confirmation process underway and we heard from philip jefferson yesterday and he was a little more dovish than some of the other members. he was emphasizing the inflation fight and the dual mandate. tom: he is a first rate eight economists. he's usually qualified to take any drop of the dead but he is also a different economies than others. you don't have the rigorous mathematics the john williams and richard clarida do. it's a different flavor but within that is still first rate. lisa: also today, president biden is hosting the indian prime minister at the white house. this will be interesting given the questions around you rain

and support versus russia as well as the technological outreach of some of the u.s. companies looking to india as a place of growth. tom: is that are brief for today? lisa: yes. tom: the news overnight of china with president biden, i thought that leap out at me. lots of news flow today but we will keep you covered. the two year yield is 4.71%. i think i have the air conditioning plague. margi patel joins us, senior portfolio manager with the courage to look at dividends and dividend growth as a bond proxy. where is the balance right now between capturing yield in the bond market versus capturing dividend growth in the equity market? >> the short-term treasury

yields are very tempting. if you look at u.s. companies, they have never been better position. they are in a position to raise dividends over the next few years. their globally competitive and have great balance sheets. i think you have to look beyond this gasp of short-term rates and look at dividend plays and you will make more money over several years lisa: is ups and fedex tilde bellwethers going forward of the u.s. economic trajectory after fedex reported earnings last night? >> they certainly reflect traffic and a good picture of the economy but whether they themselves are a good indicator by the profitability, i'm not so sure. i think the market has gotten more selective is for is what companies could have sustained profitability and they look like companies that are under pressure. lisa: are we seeing an economy

that is softening substantially as represented by the fact that fedex reported lower revenues than people expected on volumes but not on the pricing power at a time and other companies are having a secular break at the don't necessarily represent the connie? is that the best way to invest in the stock market that's increasingly divorce from an underlying economy? >> i think what it says is the sectors that can have above average growth at a time of low economic growth -- maybe we will see one or 2% or have a recession so that says the amount of growth winners are relatively few and that's why you see a certain group of stocks do well and everything else is left behind. tom: are we starting a second leg of a bull market? you mention may a good place,

american equities are in, can you identify another leg from october? >> i would say that we had two big bursts of the market moving. they were driven by fed liquidity and one was when silicon valley bank failed and you had that fed provide ample liquidity in the market took off and again when we had the debt ceiling talks. we had another burst of liquidity so i think the fed will be torn between stability and their goals of trying to raise short rates and provide liquidity when we have some sort of crisis. that's why powell sometimes seems like he's talking on both sides of the market. tom: let's look at bonds in the raging debate, whether it's an individual investor or someone fancy like all spring on duration. give us your balance of duration right now? >> i think median duration of

say 5-7 years is about the best place to be. you capture most of the yield you get by extending maturity but you're not so far out that you cannot get a huge spike up in rates. lisa: you specialize in bonds but for the past year, you been highlighting your stock investments. how has that shifted over the past year? are you shifting more toward bonds and less toward equities or keeping it more heavily weighted in stocks? >> last year, treasuries and corporate were not a haven at all. the market went down and many sectors of the bond market underperform the equity market so they weren't very defensive. this year, everything except for the group of a dozen names, high cap equity names, everything is low to mid single digit. i still think there is a risk we

could see treasury rates move higher especially on the short end. i think equities because companies have restructured their balance sheets are in a better place to be. i think you will be paid over the next year or two would growth. tom: let's talk about the legendary dan fuss, are we clipping coupons? >> in the high-yield sector, you have a chance to do both and i think that's the most offensive part of the fixed income market ironically. yields are 7-8 .5% in most bonds are trading between $.95 on the dollar so if they fail, you have some capital appreciation. defaults in high yield looks very low, little over 3% right now. the low market has higher default rates so it tells you the construction of the high-yield market is very high quality compared historically.

we haven't seen much of a spike in default. tom: thank you so much for being with us. the takeaway there is that you have to be in the market. lisa: even talking about the fact that short-term bond yields are attractive but also are 5-7 year bonds. this is the tension and you've talked about it. if you were getting yield in cash, what is the incentive to move out other than phone mode? what is the next catalyst for foam a - fomo? this is a i hear underplaying where people are justifying why they like it is much as they do. tom: my basic take is the bulls and the bears are modeling the eu pe earnings. some are looking for a less resilient earnings story and some say earnings may not

deliver but be good. the real issue is that pe expansion. goldman sachs talked about this, the idea of the good feeling we have. forget about big tech, it's also happening in other blue-chip stocks. lisa: to double down on what fedex did yesterday, they gave a 2024 profit outlook that was below expectations not on the amount they are able to charge. they can charge plenty more but volume is lower than that speak to something that's uncomfortable for the fed. increasing inflation in the midst of a slow down. tom: sterling is $1.27 and the headline story is united kingdom core inflation. stay with us, this is bloomberg surveillance. ♪

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our economy. when you look at the enormity of the trade whether it's $500 billion plus per year between the u.s. and china alone, that's a lot of interaction. i'm not sure we will see that. i think we will see insensitive sectors, some concern and some decoupling there. tom: eric cantor is the vice-chairman, former u.s. house member and majority leader. what's important about him is he is the congressman from richmond. that is a good set up for our next guest. we are watching sterling $1.27 in the united kingdom. let's talk china with greg valliere. he is the chief policy strategist.

there is eric counter -- cantor and he was absolutely flattened in republican politics of a good number of years ago. has the republican party changed since eric cantor? maccarthy is in the same place as john boehner and there is an eric cantor trying to help mccarthy and he can't get anything done. >> i think the party has gotten more strident in many respects in the house which makes life very difficult for mccarthy. the other big story is china. a couple of comments quickly on that. the little progress they made and left few days was negated overnight with joe biden inexplicably ripping intoxi. ] i don't know why he did it but the story is out on a military base or spy base or a training base in cuba by the chinese.

it's a serious issue. tom: i agree because you and i lived it. i have the clearest memories of my youth and the cuban missile crisis but i would suggest there is not missiles involved here, it will be x number of soldiers 100 miles from key west. can you really equate it to a cuban missile crisis of john fitzgerald kennedy? >> to their point, it's not as serious as 1962 but at the same time, it will get hotter. the politicians who don't like china and parties whether the chuck schumer or kevin mccarthy, in both parties, china is not popular. i think this will simply add fuel to the fire to speak out against the chinese. lisa: you mentioned joe biden inexplicably going after g.i. jane paying he -- geez jinping.

he said the chinese leader didn't know it was there and it's a great embarrassment for dictators but they don't know what happened. that's what keyed off some of the concerns of people calling that irresponsible and saying that titan -- that heightens tensions. what you make of this behind president biden's comments? was this a faux pas that will be highlighted as emblematic of his presidency? >> it looked to me that the balloon story had been buried. we put that behind us three or four days ago and joe biden resurrected it. this could be just part of a string of gas we've seen by joe biden. after one speech last week, he said god save the queen. there is are things he says that leaves people scratching his heads. it does plant seeds of doubt among a lot of democrats who are reluctant to vote for him. lisa: putting aside the election

for a second, do you think this could material or worsen relationships with china and the relationship is already so fragile but -- that a gap by the president mentioning the word dictator could undermine everything tony blinken accomplished overseas? >> it doesn't help. it makes things more complicated and just as you have angry lawyers working for donald trump who are shaking their head over his interview, you see a lot of people close to antony blinken shaking their heads over why joe biden would say something that reckless. tom: what do we follow into july? for so much of our audience, we are exhausted by this story or that story glanced at the politics but what is the thing to follow into july? >> we've got today jerome powell but throughout the summer, the number one story is ukraine.

if this war doesn't go well and they got off to fairly slow start come i think it will lead to a lot of anxiety that the west in the u.s. may lighten up on our aid. we are not at that point yet. this is still a winnable war but i think there has to be signs of progress. to me that is that -- that is the story for the rest of the summer. tom: let's swing it back to the pacific rim and one of the clear things we see is an expansion of the united states military across the pacific rim. it seemed to endure. is not only a discussion, is now being budgeted and planned. is that how you see it? >> i think so. there will be controversy in the house and how much we will spend on ukraine in the budget. the number two issue for the next two or three months will be budget. i don't want to sound like the little boy who cried will but i think chances of a government shutdown on october 1 are a little bit above 5050.

that will be a big deal and the defense industry and ukraine will get plenty of money from the u.s.. lisa: with respect to ukraine you think that will be the key worry but are you expecting to hear what the progress is and how ukraine is defending against the russian offense of that is getting perhaps more savvy? how much are you looking for intel from the rebuild ukraine conference? >> the first casualty of war is the truth. hard to discern what is true and what isn't. i think this will be a long slog. people are unrealistic thinking ukrainians would just romp during june. they haven't but we still have a long way to go this summer. tom: thank you so much.

it has not ended for the republican party. i remember the blowup where his career ended and he was upset by conservative voice in richmond, virginia. it was a shocking upset of eric cantor so nothing is really changed not so much republican versus democrat but republican versus republican going out to november next year. lisa: you see that in both parties and the emphasis is more on democrat versus democrat a couple of years ago and now very much in terms of trump supporters, who is backing him and saying who the -- the legal case against him is unfair versus those including the leadership who don't want to go there or undermine the concept of the rank and file

investigating these cases. bramo world which is summing up the corporate in full faith and credit. there was a straight line for 15 years. gross pointed out to me with price up and healed down. that ended with a vengeance with a 15% rollover is a general statement. it looks like the old bounce. we bounced off that bottom. october of last year's where happen and here we are in the raging debate on coupons is which way do we go in aggregate bond investment? do we go price appeal down or do we see yields move higher? lisa: for do we bounce around and people can collect a coupon and be ok? speaking of the credit world, there is a bondholder suit in

credit suisse where they came out we talk about the culture of switzerland and they said credit suisse begin as a conservative swiss private bank in the vast majority of people responsible for its demise were bankers but sharp elbowed new york investment bankers. they basically were blaming new york. tom: you can blame london as well. it's gotta be a huge litigation for ubs. lisa: that the reason why they required a incredible backstop from the government. tom: thanks to our bloomberg team in zürich and london for the great contribution on swiss banking and credit suisse. a flat market, stay with us, this is bloomberg surveillance, good morning. . ♪ ♪

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all of the work that we're doing, all over the world, and looks at the most effective ways, to get resources to them, to get services to them. the idea that we have saved five million people's lives, it's overwhelming. it's everything. tom: bloomberg surveillance, good morning on radio and television with jonathan aro on assignment. a more interesting day than yesterday. we will get to it in a moment and the united kingdom must listen for global wall street. neil shearing will kill it on the state of mr. bailey and the bank of england. futures are up to and the dow jones of 16 and the vix has a lack of volatility, 13.71.

lawrence mcdonald has written a tour de force on the lack of volatility out there with these unspeakable derivative tranches that i cannot keep straight and i don't pretend to understand. the first condition under the derivative that's an speculation is the massive amount of money and passive investments. the wall of money in private equity, the wall of money public equity, the wall of money and bonds, a shortage of bones. the massive wall of money into equity etf's. it just goes on and on. lisa: one thing that is not appreciated his people are piling into indexes to see gains driven by ai. it affects the other stocks of the money starts to trickle out. we are focused on the u.k. story and this idea of a broadening

out of inflation and we will hear that from potentially from austin goolsby who will speak as well as jay powell. before that, neil shearing of capital economics weight in. -- wade in. this is the real tension right now given high inflation which may necessitate some sort of procession down the line to get it under control. tom: it drives me nuts. where is my tang zero? i don't believe the central bank can get out there and force a recession. the evidence on that is pretty sketchy. lisa: if you raise rates high enough, you get credit problem so do they prioritize the idea bring inflation under control or prioritize the idea of furthering growth? tom:tang zero is a calming

influence as well as neil shearing. he writes shorter but dense treatments on what is going on now. how unique is the united kingdom, how discrete is the inflation story or does it have an ability to shock and spread to other nations as well? >> for the moment, it looks like it's a u.k. story. the u.k. inflation picture looks similar to the u.s. and the eurozone six months ago. it was primarily about energy inflation, food inflation and core inflation. over the past six months, headline inflation has come down in the u.s. and eurozone and core inflation has started to fall back but in the u.k., core inflation is going up. it's now at a 31 year high in the u.k..

that will trouble the bank of england. tom: can you tilt toward a 50 basis point rise at the boe as they join other hox -- other hox to get this done? >> it will be finely balanced but i think the balance should 50 to 50 basis points on the back of this inflation data. the bank of england is desperately trying to get back ahead of the curve. the market is pricing in about a 45% chance of a 50 basis point hike. once that gets to 50/50, the risk is if the bank doesn't deliver, things loosen and that's the last thing policymakers in the u.k. want right now. on balance, i would look for a 50 basis point hike tomorrow. lisa: there is a potential for central bankers hiking into this higher-than-expected court and

nation the remain sticky. some don't buy it. there was a concern about the president of the central bank tried to induce recession and that hasn't been done to such a degree at a time when they want to slow things but they have a dual mandate with employment. do you think there is the resolve to go at inflation even if it causes a recession in places like the u.s. at a time of an election cycle and new members? >> the fed is in a slightly different position than the bank of england with respect to its mandate. the bank of england mandate is primarily about inflation so slightly different in respect to that. key is much tightening they need to put into the economy how much will they have to put in demand to get inflation under control.

in the case of the fed, they've got rates well above their neutral rates. they were earlier than the bank of england in hiking in the inflation dynamics in the u.s. look less troubling than they do in the u.k. they are later to tighten in the u.s. but the housing market in the you -- in the u.k. looks like an accident waiting to happen. it's less about whether the bank of england wants to cause a recession or more whether a recession will cause damage and i suspect at this point the economy will suffer collateral damage with a recession. lisa: how much is the u.k. story partly due to brexit or partly due to workers not coming is really into the nation and perhaps because of the investment in the housing market? >> we cannot talk about the u.k. without talking about brexit.

i think it's a factor. it's not the only factor. what's happened in the u.k. is on the supply side, there's been a greater hit to potential gdp than has been the case with other advanced economies in part because of brexit and the way it's held back investment in the u.k. but also it altered the flows of migration in the u.k. would not necessarily have less immigration into the u.k. just a different type of immigration, some european workers went back to europe and it worked -- and they work in different countries with different skills and's manifested itself in labor shortages in some sectors. it contributes to wage growth and that spurs inflation. tom: i know you sought taylor swift and you have tickets for liverpool and london but this is the kind of needle that gets moved. they mention concerts in the inflation story in that united kingdom including edinburgh to

liverpool. it shearing is tonight back to back at wembley stadium with taylor swift. that's an idea of inflation but there has to be a different story what makes the united kingdom unique. is it a good services mix or an overwhelming productivity failure? what is the capital economics distinguish -- distinguishing feature of this inflation? >> it's certainly nothing to do with me or taylor swift. i think it's more about supply-side and productivity in the weakness of productivity and the fact that investment has been rock-bottom. tom: i sat with mark carney a zillion years ago in a small swiss village and talked for hours about this. what is the neil shearing solution to this modern failure

of the united kingdom? how did they jumpstart productivity? >> there are several strands to it. it's not that easy for they would have done it already. a lot of it has to do with rebooting investment and having stable and predictable environment. they will stick with the brexit deal so their future is secure and certain when companies invest. it's about public investment which had been picking up, government investment had been picking up but is now turning back down. we need to get that restarted. it's about sorting out the mess in the labor market with labor shortages, fixing problems in the national health service and making sure sickness doesn't become an issue. there is a host of in can -- interconnecting issues. they feed off of one another and

amplify one another so as not so simple as saying let's boost investment by xyz. it's not that simple. lisa: from the u.k. to the u.s., we will hear from jay powell starting a tenneco a.m. eastern so what are you looking for in terms of rectifying the message that many people thought was muddled last week? >> that's the key point. can get more clarity on the message from last week? are we going to skip? what happens at the july fomc meeting? how are they back to hikes? how did they see the labor market evolve? anything on the labor market and on inflation, what happens beyond july, what happens beyond that? lisa: we've got homebuilders data and economic data and

stronger than expected inflation around the world. all things being equal, does that increase the chance of some more serious recession in the u.s. or decreases the chance because there is this resilience and momentum? >> i think it's important to understand which sectors of the economy across advanced economies are resilient. the manufacturing sector is not resilient. there is a recession and manufacturing across economies. look at pmi and manufacturing data, it's all pretty ugly. the ism is all at recessionary levels. you contrast that with the strength of services and the resilience of consumer spending on services, particularly things like leisure and hospitality. maybe it's the legacy of the pandemic when we still go out to restaurants.

perhaps there is a draw down of pandemic euro spending. different sectors of the economy are performing in different ways. i pushback against the idea that economies overall are resilient, it's just some sectors. tom: i hope the leisure is good at wembley stadium, $4000 for taylor swift. this is a disinflationary home from doug who says forget taylor swift at liver will -- i liverpool or cardiff, dead and co $119. you can see jerry garcia on stage. lisa: maybe not the same kind of

growth concert. there is a set group of fans that is not growing exponentially perhaps the weight taylor swift is. tom: the wonderful alan krueger dismissed everyday from princeton university. he actually did a book on the economics of tickets and concerts in rock 'n' roll. it's a somewhat microeconomic exercise for students at princeton. lisa: his of the sentiment or the idea of one song or one spirit? tom: it's what the market will bear. neil shearing is gone twice to see taylor swift. i believe there was a chairman powell sighting at dedham company. lisa: and their twitter post highlighted by day bed chair and by night deadhead and that's perhaps who will be going.

tom: maybe he should wear the garb he wore at the dead and company. lisa: he wore a button down. it wearing tie-dye and i hear ben. tom: we need research on that. dead and company research. we need to do a data check with higher yields. the 30 year on -- bond and we are watching the two-year front and center on further curve inversion, out the 97 basis points. we will dive into that as well. jonathan ferro is on assignment and stay with us on radio and television. this is bloomberg surveillance, good morning. ♪

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shop now only at sleep number >> the markets are fighting the fed as they been doing all year.

i think the market is more aware of the upside risks and is happy to maybe look through maybe one or two more hikes. i think the fed will hang onto the last moment. they don't want market to loosen financial conditions prematurely. tom:ben laidler there and you have to be in the market to participate and he has done it. margie patel was equally constructed. lisa: there is an increasing discussion about stickier inflation, consumer tolerance to price increases, necessitating a bigger response that curtails the growth. this is the tension to me now. tom: it's a huge tension and i totally take that point. this is a huge point of tension. the major tension is the

percentage of people not enjoying spx up 16% plus or minus. lisa: what neil shearing set on capital economics is fast any. the economy has not been so resilient but some pockets have been strong. this is the issue with trying to go top down a clump of these assumptions. how do you understand such a bifurcated economy? tom: well said. there is top down and then there's bottom up. we are flat on the market in the vix under 14 is a shock. i will do a complete data check at some point. there is a thing called star mind. the great fred weigold and there a thing called star mind there

was accurate that change people's lives. and of them was a guy at prudential a long time ago we already surreptitiously. then fedex exploded onto the scene and leak class cow became an expert on logistics across america. he brought that to bloomberg intelligence and we are thrilled. there was a fright before fedex and fright after fedex. what was it about fedex that was shocking when fred smith invented the company? >> we like to think we brought freight back to being sexy but he created a new industry. he invented the airfreight industry. fedex is an interesting network because it's an airfreight network that decided to be a ground network where ups is the opposite. some of the nuances between

fedex and you be is are based on where the roots initially started. fred smith is taking a step away from the company. he is still involved as an executive director but on the day today, he's doing less. i think we're entering a new chapter at fedex which is a good thing. fedex has gotten a little bureaucratic and fat over the years. tom: it was always relying on growth. it's a four cents on the dollar business. the new fedex, what to do learn yesterday in the earnings report about this transaction from the bloated fedex to some new beast that can do better? >> i think they are making incremental progress. they of longer-term costs. they're also reducing their capex from last year that will go down over the next couple of years that's driven by the fact they don't have to buy's many

planes as they once had. they are in the process of modernizing their planes and their the which will improve the overall fuel efficiency in their ability to meet changing demand dynamics but the need to buy the very expensive planes are reducing. the fleet is being reduced in the old planes are being retired. lisa: you started with talking about the dissolution between fedex and ups and the other freight carriers. is fedex representative of the overall economy for goods in the same way it used to be? >> sure, they cover business-to-business stuff and freight for the industrially connie and are one of the largest carriers. it's synonymous with the fact that bringing professional goods to market in addition to e-commerce. lisa: given that has a finger on

the puls in that way, is there a signal from the fact they could raise prices for consumers considerably? that wasn't the issue in the profit forecast.volumes are going down a material way than many people had previously expected. does that tell us something deeper about the economy with respect to goods? >> when you look at the freight market, we been in a freight recession for a couple of years now. that's really across almost so if you look at truck tonnage, truck loads, railroad loads or airfreight, that's because we are getting to a new normal of freight demand. in the pandemic come everyone is buying stuff in there is a huge rush there was a dislocation of the supply chain which created increased demand and people were panicking about needing something tomorrow. now we are getting back to a new normal. when people say volumes are down and the sky is falling, we are

still better than we were prior to the pandemic. lisa: they are still able to raise prices. particularly in the airline industry, maybe in the freight industry, there hasn't been that much consumer pushback to price increases because people have gotten used to them. do you notice there is not the consumer pushback that some people would expect to pay more to send their packages even if they are sending fewer? >> people also have the perception that inflation is real and people need to increase their prices to generate a decentroi. they also are a duopoly so they have that pricing power and they will be more selective in what kind of freight they are taking. if customer a does not want to take a rate in chris, maybe they will not do as much business with them where maybe customer b

took a 3% increase which is something fedex or ups wants. they want predictability of their network. tom: fedex is remarkably on trend for the last 20 years. is this a company that you see like ups where there can be a return to fedex exceptionalism that we were weaned on for will the logistics be admits trend provider? >> the reality is that fedex lost its way in is now finding its way back. tom: are you optimistic? >> i am and i think it will be based on them picking a new cfo who is an outsider and can make tough decisions and make severe cuts to organization that may be had gotten fat over the years.

they are embarking on a restructuring of the ground network is something they were adamant that they would never do and they finally capitulated and said we have to do it to be more competitive to ups. we saw the ceo of ups is not an outsider but she has done transformational things with that company. tom: do you look at dhl as well? sometimes i get a package from france quicker than the one from dallas? >> they are one of the leaders and we cover them at bloomberg intelligence. they are another interesting company because they truly have their hands and a lot of the supply chain whether it's contract logistics or freight forwarding or delivering mail and germany or delivering your packages from france. tom: thank you so much for being with us. i learned a lot there.

fedex is like a layup. we had to put them in their garb. tom: it's an interesting business but i take your point that what lee covers is the foundation of the modern america. it's not trucks out of arkansas moving around chickens. logistics is a big deal. lisa: i think this is like the graduate, what is the future, not plastics but logistics. the idea that people are not pushing back against price increases, this is a bit of a warning lag. tom: here we go. futures are flat and the vix is 13.74.

i'm watching 97 basis points with the elevated to year yield. another hour of bloomberg surveillance coming up and you must listen to chris harvey coming up ♪ ♪ ♪ the vehicles are all-electric. the feeling is all mercedes. the choice is all yours. see your dealer for exceptional offers today.

>> the markets are fighting the fed as they have been doing all year. >> the u.s. economy is more resilient than what the fed and economists were ultimately given credit or. >> it should have been a clear signal. >> powell has a tough job. he will have to sell that yes you can get inflation down but without a major recession

coming. announcer: this is bloomberg surveillance with tom keene jonathan ferro and lisa abramowicz. tom: good morning. jonathan ferro is on assignment. he will be gone for another day or two lisa a:. lisa a:lisa a: a well-deserved vacation. tom: lisa and i have not done this in a while. jonathan ferro does it. the king and queen do it. make a banner. colin farrell is right. bramo and keene are wrong. setting inflation in the u.k. in this hour and in moments, we are going to explain the big tech room.

it overwhelms every conversation in equities. lisa a: and distorts our understanding of whether the economy is slowing down or speeding up. an ai or tech boom a underwhelm it, does this matter or will it keep chugging along because of what we see in terms of the promise of technological advancement. tom: earnings seems distant on tech. we have numbers coming out the third week or second week of july. the equity market continues in the levels are 4434 spx. the dow is not near 16,000. it is up and has been a huge year. the vix says it all. it goes to the volatility conundrum. -- with paul sweeney yesterday. 13.76 is an honor t on the vix to say the least. lisa a: july 6. a later on the -- in the month,

numbers come out. tom: chris harvey. this is just a really important, the conversation right now. lisa a: fed chair jerome powell will be the conversation later today. he has a two day semi annual policy report trying to explain the hawkish's. i keep going back to the hot-ward -- hawk-ward moment. we think we need to do more but why not do it now? he will try -- need to explain this when court -- core inflation is still pretty high. an upward surprise in the u.k. this morning. we also hear from austan goolsbee. tom: he will have a different story. austan goolsbee is different

from bullard, you can say as a generalization. lisa a: he is on the dovish side. philip jefferson and lisa cook and into rana kugler are going ahead of a senate banking committee to discuss their potential nomination and potential confirmation on the board. inflation has started to abate and u.s. banking system is sound and resilient. he is talking about different poles but tilting more on a measure rather than a hawkish approach. today, president biden is hosting the indian prime minister at the white house at a time when people are looking to india as the driver of any em growth. that is where companies, including tesla -- did you see this? elon musk in trip to india. tom: it just goes up, up.

tesla. it is like a meme stock. i don't own it. we are going to get started. for global wall street, this is the high point of the day. christopher harvey. if you have a buck note, the 10 majors are the nerds at but now. chris harvey was not a chemistry major but it is like the mall -- buck nell. he joins us now. your notes is brilliant about thinking back to 1990 8, 1999 -- 1998, 1999. what is the number one study of this tech bubble versus that tech bubble? chris: the number one issue is tech will not roll over, the major theme will not roll over,

until you crack the economy. i do not think you crack the economy until the fed is more aggressive. i think we will have a pullback in the market and big tech but the overall theme is still in place and not until the economy breaks, do you really think about the trend breaking. tom: is tech a set of individual companies you study at wells fargo or is it more of a sector blob? [laughter] chris: we do study tech and individual companies but we focus a lot on what we call the uber cap or the top 50 names. you can look at one or two names but that does not give you a trend. as you go across capitalization, small-cap, large-cap and mid-cap all have capitalizations. going back to 1999, that is one thing we did see. we saw brick have outperformance

and tech outperformance. before that, we saw the old economy rollover. lisa a: you said you do not crack the economy until the fed gets more aggressive. are you saying the fed has not gotten aggressive? chris: the fed has gotten aggressive but the economy is a lot less interest rate affected then you bought. the way we are characterizing the economy is economic malaise. we thought the economy spiked with the banking crisis but that has come back down. we are looking at economic malaise more or less than an economic session. consumer still have cash on the balance sheet, they are eating through their savings but still have savings. balance sheets are better. we need a shock to get us into recession. this is taking longer than we expected. lisa a: do you think the amount

people are willing to pay for goods will come down? that they will start to -- there will start to be consumer pushback at a time when you just heard fedex say yes, they are seeing volume down, but they are still increasing prices. that is a theme across many industries. chris: i may go off on a tangent. i talk about the consumer a lot. if you think about the u.s. consumer, they have been buying, i will exaggerate a bit, since he or she was five years old. we know when there is utility. the u.s. consumer has been pulling back on goods but they are not finding a lot of utility there. if you look at retail sales, it is not as strong as he would have expected. if you go to walmart and target, you are seeing trade down. the u.s. consumer behavior has changed and it is a lot more

savvy than we give them credit for. lisa a: going forward, do you think you have seen rolling recession in certain areas that offset something deeper than economic malaise? the fed is cracking certain segments of the economy and others continue to move along because of advancements and less interest rate sensitivity. chris: you hit a great point. you cannot paint the economy with one brush. it is a very heterogeneous economy and market. you are seeing certain sectors already rollover. you are seeing sectors that are beginning to roll over for the first time in a while. one thing causing us to be in economic malaise is not de-synchronous. the economy -- if you look into a housing market, the new issue markets or old market is strong. but the old one is three and 30.

i will not leave my house because i have a 30 year rate at 3%. other parts of housing are beginning to roll over. i think you hit on an very -- a very important point. it is hard to disentangle but this economy is not really seem -- synced up and you cannot paint it with one brush which is why it has been more durable. tom: that has been a huge theme. i want to point out one thing that you can do off the bloomberg terminal. jp morgan is owned by institutional 75%. apple is owned 61%. i know you do not want to talk individual securities but woe is me, big tech to the moon, we are all going to die. but can i make the statement that big tech is under owned by institutions? chris: what we have seen for

years is the buy side community is underweight on tech but mainly on apple and microsoft. five years ago, we titled it return of the mac. we saw five years ago is exceptional underweight in apple. that has never closed. one of the things giving us pause and that is pushing the markets is underweight in over cap and apple -- uber caps and apple and microsoft. institutions are much more underweight. tom: bob emails and says get a quote from chris harvey. 4200, lift it up. mix of news. [laughter] no one is watching. go. chris: our start was 4200 as a target at the end of last year.

we also had a soft landing target of 4400. tom: two targets. [laughter] hawk-ward. can you give 4500? chris: i cannot but this is why you go back to the economy. i can make adjustments but do i have a lot of confidence? no. it is really about the economy. tom: chris harvey, wells fargo. we protect the copyright of all of our guests. it's this really interesting analogue study from wells fargo looking back to the late 1990's. down features -20. on the spx, percent. fractional. down half of 1%. good morning. lisa a: we are taking a look at what you expect to hear from fed chair jay powell.

i keep thinking about what chris harvey set about economic malaise until the fed goes all hot. unless they get more aggressive, you will have a bifurcated push along different industries that create a resilience and have to fight along expectation. tom: i think it is a really important idea. i cannot cite who it was yesterday, it may have been mohamed el-erian, but they said the basic idea is this is a fed that has been successful. you see this in the stock market. they moved up lots of criticism including from dr. mohamed el-erian. they are honing the message while they figure out how to go higher. i am not saying i agree with it but that is the zeitgeist. the wide camera does show sometimes the bramo angst out here. lisa a: i just don't know that there is any clarity. tom: you don't treat jonathan

ferro this way. lisa a: i just don't think there is any clarity. tom: there is a single clarity and chris harvey addresses this is still clear. there is no recession. lisa a: there is a recession in certain pockets of the economy. this is the strange asset -- strange aspect of the economy. about all the white-collar workers who got laid off. tom: the last time you were like this, we were at fairway arguing about the carrots. lisa a: you want to the carrots that were terrible. tom: i want to the cheek carrots. she was looking at the carrots, shaker farm carrots at four dollars a pound. stay with us. ♪

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pay for the destruction they have did. we are working with allies to explore routes to use russian assets. on monday, we publish new legislation to allow us to keep sanctions in place until russia pays. tom: the prime minister of the u.k., rishi sunak, focusing on what the bank of england is doing with core inflation surging. it is like 31 years back? lisa a: 31 years it has been so high. that is core inflation, stripping out energy and food. tom: interesting. the prime minister talking on ukraine and the challenges. yields are up and elevated. up three basis points. we need to make note of 3.75%. we are not on 4% watch but 6% watch in the u.k., right? lisa a: some people are pushing

that but what can they do to kill this? given the fact it is almost a certainty they are headed toward a recession. tom: 1.2 714. one of the most painful meetings i have ever gone to with bloomberg over many decades was columbia university a lot of years ago. it was afghanistan reconstruction conference and it was painful in the mist of the horrific war. we are doing this again in london with a ukraine recovery conference. maria tadeo tomorrow has a key interview on this with a leading authority. right now, on the hope of ukraine recovery, i don't get it. we are in ukraine, why are you

recovery in london? maria: this started a year ago and was an idea from the swiss who said it is great to help ukraine when the war is going on but you have to figure out the future and reconstruction efforts. why focus on the future when you still do not have peace bank? but the reason for it is the numbers. they are enormous. today, we have the world bank saying ukraine will need $300 billion over the next 10 years as a result of the war. this is three times the gdp of ukraine. this conference is about making sure they have money, funding, and a constant supply of money. happening as we speak, we have another place from the u.k. who says they will pay $3 billion. another pledge from the u.s. with an extra $1.3 billion. the european union saying they

will provide $50 billion so this shows the magnitude of the task at hand. tom: the day of the invasion in late february, david of deutsche bank was brilliant on the fiscal stimulus the government impulse to come. you more than anyone i know own this. are you seeing a general fiscal stimulus across an austere europe? forget about the recovery. priya: i like it -- maria: i remember this well because leaders in brussels decided they needed to go for big sanctions and cross every line. no one thought they would sanction russian energy but they did. a point is what to do with the russian assets. we talked about this at the security conference. this was a key point, who is going to pay for construction? problem they have is inflation.

headline inflation has gone down but core inflation is sticky so they have to appeal to voters but they also have the imf saying they need to rein in some fiscal space. they are negotiating some new roles that should enter next year. the fiscal stories also -- always very political in europe. lisa a: especially at a time when ukraine will be looking for money. first, they have to win and end the conflict. will we get updates on how they will end the conflict or how the battle changes as the conflict grinds on? maria: when it comes to the counteroffensive, they are secretive and you can understand. when it comes to defending themselves, ukraine has become very efficient. what allies want to see his progress on the battlefield and

to see that ukraine can claim back some land. you want constant support, you need to show that you have the upper hand on the bow field. the other hand support is nato needs to see what is the path when it comes to nato. talk about the future of ukraine and security aaron tees. this is the centerpiece of diplomacy in london. lisa a: what is the nature of the conversations you are having, talking about woods -- about once the conflict is done? lining up reconstruction to try to fuel growth and potentially rebuilding? how much can people double down hypotheticals in a time of so many uncertainties? maria: incredibly difficult. a lot of people remember ukraine joining the european union. they said they want to become a member. ursula von der leyen, who is

very smart, went to ukraine and gave them a servant to become a member state of the eu but that takes years. for companies, they want insurance. how can you do business at a country eight war -- in country at war? this has never been done, to confiscate a central bank. can it be done? tom: i have to digress. my read of the weekend was gideon rockman from the financial times of an essay on how europe is falling behind. his data of relative gdp dynamics to the u.s. was drawn dropping -- jaw-dropping. with a new purview from russell, is europe still around as rockman identified? rhea: i am not sure if panic is the right word but -- maria: i am not sure if panic is the right word but there is a lot of

medium-term damage done to to the european industry. they say if you do not have an industry, you do not have a country or continent. emmanuel macron probably would agree. yesterday, ursula von der leyen focus on many things which is promoting europe, protecting europe, but also fighting trade partners. tom: thank you for all your work on the continent. you join us tomorrow at 8:30 for an important interview. dennis smail -- denys shmyhal. it was so difficult to see well-meaning people talking about recovery in the middle of a war. i just think it was really difficult.

lisa a: six months ago, i was in europe having conversations with business leaders about the road forward and that they are looking for. the unspoken reality they are thinking about behind the scenes is, because the rebuilding of ukraine gave the extra boost of growth to europe? kind of like the postwar reality of the u.s. that is something where people start the fiscal spending. it is an awkward conversation to be having amid an ongoing conflict in many ways. yes, people have a conference to game out how to do this. tom: it is a character of austerity. i don't mean this in a negative way. but a cultural statement of what you want to do on the balance sheet. someone has to put up the money for reconstruction. talking about ukraine and recovery, a pipeline in the

baltic sea is under huge debate. what about a russia recovery? it ever happens to president putin, how do you help russia in a post-putin sense? lisa a: i have not heard anyone discuss it. tom: we look at the market right now with sterling at 1.2720. dollar stasis is what we have had over the last few days. the dxy is 1.0 -- 102.59. coming up next, amanda lineman from blackrock. ♪ you trying to ice me out of the bed? baby, only on game nights. you know you are retired right? am i? ya! the queen sleep number 360 c2 smart bed is now only $899. plus, 48-month financing on all smart beds.

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tom: bloomberg surveillance on the radio and television. jonathan ferro, lisa abramowicz and tom keene. jonathan ferro is on assignment. at least through the end of this week? maybe back on friday, i don't know. lisa a: no, through the end of the week. tom: the vix is at 13.74. i get this. there are all these oddities going on.

i don't get it. i talked to dean kearney yesterday and even when he spoke, i was confused. lisa a: people talking about the earnings market and people not wanting to add to the exposure or take back but they are playing in the earnings market. they are really at stasis this morning. tom: there is lots of kurtosis. [laughter] we are looking at curve inversion. the twos-tens spread all up. 97 basis points, ever so much wider. a revisit to 100 basis points would be a big deal. i learned a lot about fedex. lisa a: the big takeaway is they are able to raise prices on consumers but there volumes are dropping. you are seeing this across the board from all shipping companies. they are across the board with a below estimates and expected.

yesterday, they were at one point down 7% after their reported earnings. they benefit from higher revenue per package. if this represents the economy, they are able to raise prices and cut jobs. a stagflationary environment you are seeing. he keene cam is skepticism. tom: my skepticism is there is a place i go that has a greek salad. i don't get any add-ons. all i know is in the last three years, the selling has gotten smaller. lisa a: shrink inflation is something that keeps going. i also want to bring up tesla. shares are rallying after 35% gains on tesla just in june that builds on the advance in may. today, the catalyst is elon musk

meeting with mod of india -- modhi of india. tom: is it 80 times earnings? [laughter] lisa a: barclays came out and said shares rally too much too quickly. it is essentially becoming a thematic stock due to artificial intelligence. tom: who said this? lisa a: barclays. grumble. why grumbling? tom: i don't know what to make of it? i don't buy the all in ai story. lisa a: the bigger story with tesla for me is if they create the charging networks for gm and ford, that is a game changer. suddenly this is not just an auto manufacturer but something else. revenue from even other automakers.

tom: it is a $4 billion transaction with intel set to sell. this goes out to bain. it is imf and nano. the last ai was nano. we are going nano. lisa a: the nano versus the macro. this has been the real tension on the day. the stock market and the economy even as you see sharing downturn in other sectors. amanda lyman of black rock calling the pause a hawkish skip. saying last week's fomc meeting solidified our expectation for a higher for longer interest rate environment but for corporate credit investors, the pace of additional rate is less important than the length of time is higher cost of capital environment persists. chris harvey says, unless the fed goes full hawk, you will not

see anything except economic malaise. amanda lyman joining us. how much more restrictive do you see the fed as time goes on? amanda: it is a challenging environment for a large subsector of the credit universe, specifically the section that has a large -- to debt. the all cost of debt -- the all in cost of debt has more than doubled since the first quarter of 2022. the signaling you have received from central banks, the fed and ecb, shows there is more room to run there. president lagarde was clear on that. as you noted at the start, whether you get an extra 25 or 50 basis points from here, it is less relevant than the amount of

time that you a in this higher cost of capital environment. because corporate's are looking at these upcoming maturity levels. they are mostly in 2025 but that will need to be addressed sooner than later. for the corporates, you are not expecting relief in the form of rate cuts. if you look at the all in yields , the risk-free rate has done a lot of the heavy lifting and spreads are fairly contained. there is probably room for spreads to move higher. tom: let me cut to the chase. finally, we have a risk-free rate. we have a risk-free rate and you have spreads up. lisa pointed out how to narrow spreads are. what are the ramifications if

the actual yield in the aggregate corporate space widens out? what happens for our listeners and viewers? amanda: the first implication is an uptick in financial stress. we are already seeing that in the default rate for the leverage market. the leverage loan default rate is outpacing the higher default rate by the largest magnitude since the data began in 1996. over the past two decades, there has been very few instances where the loan default rate is outpacing the higher bond default rate. this speaks to the point you are raising that the real-time market to market of the higher cost of capital as the policy rate has moved higher, borrowing costs for floating-rate debt have moved higher in tandem which is causing stress for a subset smaller issuers that do not have the pricing power or

financial responsibility. perhaps they do not have the financial options and are at a disadvantage. it is not a common aspect. tom:'s commercial real estate either actual or -- is commercial real estate, actual or securitized, --? amanda: it is a more than $5.5 trillion market. banks, small and large, owned roughly half of that. it will take time for the does every process to play through. it is reasonable to think metrics we used in past cycles like ltd may not be significant given the changes in prices we have seen and interest rate volatility.

it will take time for investors to get clarity on the macro which determines cash flows of the outlets, and to figure out the bottom price of the discovery which will take longer to play out then the stresses we might see in the credit markets among the smaller issuers. it is something we are definitely watching. the real point is that just like commercial real estate cannot be painted with a broad brush, all cre is not equal. similarly in the corporate credit market, quality needs more than ratings. it is nuanced and means pricing power and more options, business model resilience. those are things that will be increasingly important in the second half of the year because we did not make as much progress on taming inflation as you would have liked. there is a higher cost of capital environment so we need to tread carefully when we think

about what companies and sectors and asset classes are best position for that environment. lisa a: the upside risk to policy rates is what people are focused on when they listen to jerome powell as he takes capitol hill in about two hours. when does it start to bite the most? when are the majority walls the most painful and you start to see interest rate sensitivity amanda: really come to the floor? amanda:amanda: you have really seen signs for that. there is probably upside arrested this. when the 2025 2025 maturity walls become an issue is when 12 months prior to the bond maturities, because for a host of reasons, high yield corporates in particular do not like to let this mature because it has implications for the year in audit. even though 2025 is far off, it

is not that far off if you think corporate will start to edge -- corporates will start to address this in 2024. the magnitude of high-yield supply and the purpose of high-yield supply has been incredibly bond friendly. we have not had a high -- a lot of high-yield supply and what we have had has been used for refinancing and debt repayment. as we get closer to maturity walls, the volume lightly picks up and it will be a anchor -- be an anchor that will ease up a bit. to your point, the length of time and the willingness as you alluded to earlier in the program, for the fed to stay the course and keep rates in restricted territory or move them higher is the key

consideration for corporate credit quality. tom: thank you. amanda lyman from black rock. lisa, what did you learn? my head is spinning. prices up, yelled down. she is suggesting that may reverse. lisa a: chris harvey was saying this of wells fargo. then you say, if you hold rates this high-priced -- this high for a year or two years, companies have hunkered down and not borrowed money and are suddenly borrowing money at higher coupons they have to pay. this changes the dynamic it is not just how high rates go but also for how long and how much that pressures. tom: we have seen this with the fed. the s&p fractional, -0.10%. lisa a: i have to say that the

ceo of softbank is making a -- tom: we will step lightly. lisa a: basically all in on their novelty fund in all the tech darlings. it got absolutely decimated. tom: i will give it to robert smith at the financial times. he said there was a tongue-in-cheek thing. the headline on softbank and the disaster, with bloomberg reporting, i can say it has been a disaster. mayor yoshi's son says softbank ready to go on quote counteroffensive. talks of ai. he question his achievements as an entrepreneur. is this history reduxing? lisa a:'s son saying you have done enough on the defense said.

the timing on the counteroffensive is soon. is this an ai driven jump on the boat enthusiasm? is this an opportunity to invest in startups that may not get financing from other avenues due to a more restrictive financial or monetary policy? we have seen this before. tom: it goes back to ai and we are trying crazy not to put our input in that but it is something you cannot afford. in july, we have to talk about to lie more. lisa a: i got a chatgpt message from my brother yesterday. it was touching. tom: coming up, the former ceo of ibm. she has a wonderful book out. ♪

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>> the opportunity for

productivity improvement across the s&p 500 and broader equity on economic landscape in the u.s., we it will get really interesting. longer-term, we are comfortable the markets can hold higher valuation area first the mega cap growth in text but also because -- in tech but also because the market has proved it is less cyclical than historically perceived. tom: scott kroner -- chronert. i thought chris harvey earlier of wells fargo was something. i forget about the 1990's analog. lisa a: that until the economy cracks, we could see the same melt up. that is what we have seen so far. tom: futures flat. if the fix is 13.72. there is a movie called northside 777 of a chicago long

ago. jimmy stewart takes the lens and is fabulous in the movie until halfway through, you realize there is an old navy on her knees at the wrigley movie -- wrigley building stealing the movie from jimmy. that is the iconic grandmother and mother. it is an insured and mary book. i don't know what to say. ginni rometty. the most mispronounced name in the corporate world. ginni rometty with us this morning with a hugely courageous book. i want to start with the blistering first 50 pages of your childhood. who is baba? ginni: my great-grandmother. you speak of the wrigley building and i was raised by really strong women who all suffered tragedies. that was my great brother --

great-grandmother who came from belarus and worked in the wrigley building cleaning bathrooms. she never spoke a stitch of english and saved every dime that would one day allow us to have a car. tom: what was the first day like at northwestern? fancy debutantes. ginni: you know that area. there i was by the grace of god, just lucky enough to get a scholarship. i remember is having gone to the store and bought one pair of jeans and top ciders to try to fit in. tom: let's go to the woman from chicago who would not know a slide rule. lisa a: it is an appropriate kind of pathway at a time when tech is at the epicenter of how to get from the slide rule to the graphing calculator and beyond. how much can you see the lessons you learned at the home of ibm

of how to bring a company up to speed with technology that moves more quickly than anyone could imagine? ginni: it is timely. even though the book took two years to write, "good power", there is a whole section on ai. here we -- to me, the things i learned. everyone want to talk about the technology but this will be a people and trust problem. that is what i learned from all these years. with something like ai, i see it as two sides of one claim. if you do not manage the good and bad, we are going to have trouble. lisa a: if you think about the legacy of ibm and think of something's shrugged off like cloud computing, what would you do differently or how do you understand what to identify as something that holds promise versus the next false hope? ginni: this is difficult because

many of the best we place were correct. sometimes he was not correct but everything we did around ai and his hybrid cloud is what the company is growing from. ibm is the oldest tech company and i had to lead it through its most tumultuous reinvention. you have to make the decisions for the long-term, even if you do not see them playing out during your tenure. tom: "good power". i cannot say enough. it is summer read then but very great -- thin but very great. have had critics like a piñata on the transformation. i want to get to gerstner in a minute. to read this statement as you look at the free cash flow of page two of the report, you set ibm to the moon. what happened? ginni: what we had done, we had

done well to a certain point, but then the world changed. there was not just one tech trend. there was cloud, ai, social media, mobility. tom: in the meetings, due to blaine mckenzie or bring in consultants who screw this up? why did you have such an inertial force you cannot change fast? ginni: you have to protect customers who serve but also moved to the future at the same time. everyone of us had a challenge and mine was to prepare a whole new technology portfolio for the future. i had a double challenge in that i also had to re-skill the workforce. when i began, full were not prepared for future skills. tom: in the book, you are phenomenal. you go, what is the fed going to do? he is a bank animal and knows

the deposit flows in kansas city and talks about hiring her skill. does that mean you only hire engineers? ginni: this is something i am passionate about now. the idea to hire people for their skills, not just their degrees. i was abandoned as a kid and my mother had no education. she had after two but no to education. she got a little bit and could get a better job to get us all things like food stamps. fast forward, i would be searching for people like sieber and they are not in the marketplace in 2012. we would work in community colleges and say, why aren't you hiring these people that can do the job? a section of our requirements was four degrees. it is a place in democracy that we revisit, having found 50% of our jobs were over-credentialed.

this idea that where you start should not determine where you and day -- you end. lisa a: you jointly show up at an important point where we talk so much about tech and how this is an virgin story from the rest of the economy -- a divergent story from the rest of the economy. managing to train people in the appropriate ways and creating a path for a longer trajectory? ginni: there is a whole chapter five call stewart good tech that is not just tech companies but now all of us -- whole chapter called stewarding good tech that is not just tech companies but now all of us. as you go forward, this is about re-skilling not just recurrent workers -- not just your current

workers. this idea that this side of the coin about preparing the workforce is not paid attention to right now. to me, that is the biggest thing. second is getting people to trust the technology. i had a experience with a big company and a big brand. when you introduce ai, there is little tolerance for it to be wrong when you are a big company. when you start using it for health in financial services, you are in a different ballgame with how people react to it. tom: i am out of time i need to squeeze this in. what was the best practice of owen gerstner? ginni: i have immense respect for him and he is a good friend of mine. i think he was a brilliant strategist and execution leader. tom: he got his hands dirty. ginni: absolutely.

you and i share this. we share this admiration. he is able to solidify the complex in an amazing way. tom: this is a good book. "good power: leading positive change in our lives, work, and world". the first 50 pages is blistering. there is no other way to put it. i will not pronounce her last name. [laughter] lisa a: does pronounce it four different ways of what is correct. tom: down futures are -19. lisa, you look at how she got to northwestern and that is just part of it. lisa a: the classic american dream. tom: then there was the nightmare of ibm. we will save this for the next interview. stay with us on radio and

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>> this is the sweet spot of people capitulating beginning to

change the rally higher. >> the market has confidence the fed is going to be see inflation down to 2% in a year. >> the high rates are going to start impact. >> central banks are catching up but they have work to do. >> this is "bloomberg surveillance." lisa: it is countdown to chair powell. good morning. welcome back. jonathan ferro is on vacation today. he will be on vacation, a well-deserved one, for the next couple of weeks. we are waiting for chair powell to take the helm in front of the house in washington dc at a time when people are saying we are probably going to need something more from them to curtail the enthusiasm we are seeing in u.s. economy. tom: it used to be they did not

talk and only thing that matter is what the chairman said. huge anticipation and now you have been great about, we got the speech by presidents, governors, vice chairs, the chairman, but it is not the same given the over communication we have today. lisa: what has been the take away? we do not know. this -- lack of certainty around the data has been highlighted. citigroup publishing about the surprise surge in housing biggest going back to 2016. homebuilder sentiment rising going back a year. how much does a change narrative went last week chair powell talking about housing market getting decimated by high rates?

tom: a carbon version we see 97 basis points. the tension is still there. i guess we are waiting for economic data as we wait for humphrey hawkins this morning. lisa: we get economic data. at this point, how much are we hearing from a number of strategists earnings are going to make it or break it? particularly with big tech. tom: that is true all the time. do you see multiple expansion? the basic idea of a multi-expansion is maybe the key dispersion right now. lisa: let's say nvidia comes out and do not pull it out of the water. this is the real question. if you do not see the profitability from ai driven names, do you and with the biggest market moving event that puts the fed to betty? -- two

bed? tom: it is a value stock compared to tesla. lisa: i was trying to bring gloom because yesterday -- yesterday we did see a decline .2% on the nasdaq in s&p lower by half a percent. nothing to write home about but the direction is interesting and how it shifted. tom: we have seen a pause for two days in a row. sterlings off horrific inflation is united kingdom 1.27. lisa: 10 year yield up marginally. two year yield higher 100 basis points since early march. crude a touch softer as we look at the potential for slowing growth. joining us is someone who is an

amazing, clear voice to look through the noise and understand how to parse out what the next trajectory is alicia levine. are you expecting anything from fed chair powell today? alicia: i do not think there is a lot he can say that will change the market. it was clear we are moving higher at the peak fed funds rate guy: the fed's been trying to talk this market down and in the end equity market has ignored it to your point the two-year has moved 100 basis points in about 2.5-3 months and through that the market power higher. the equity market says we do not believe the fed. they're not going to get there. they cannot because the pain and they do not believe it . i think that is what you are seeing. yet the bond market screaming recession. equity market saying the fed

would not be able to do what they want. tom: you say in this dispersion over earnings is extraordinary. the dots for 2025 make it up as you go but it is not talk about the dynamic on the p site which the multiple expansion . walk us through where we are now in multiple expansion and what the dynamic will be over the next 12 months. alicia: we are at 19 times forward 12 months. that sounds high but i will say when you are coming off of trough earnings, the multiple can go higher, much higher because the multiple expands as you see before the earnings do. for a while it can look like signs are expensive . the earnings catch up. the earning dispersion is enormous because if we do have this long project of recession this year, earnings can be as low as 195 for the year but if we get the soft landing you can

be to 30-235 which is where estimates were one year ago. we priced in a slowdown. if there is no recession, you get to do 35 then you go from there -- you get 235 and then you go from there. that is a story here. the multiple is not crazy if we did not get the recession. tom: do you put a number on it? alicia: the range for this year is 4500. next year is 4800 block we are going -- we are likely to go higher. tom: 5000? i cannot get anybody this week to save 5000. alicia: where is the recession? if there is no recession, your probability change, your earnings change, multiples go

higher you get the high multiple that is not make sense in steady state but does we are going -- growing up the trough. lisa: haven't we are really gotten a recession in certain sectors? how does that factor into this call? alicia: let's talk q2 earnings expected to be down 6% for the second quarter. if it comes in negative, we know we had that beginning q1, but still there was an earnings recession two quarters of negative earnings. this would be the third so we have that earnings recession . we have a recession according to gdi. and we have had this rolling recession that people are talking about but does describe what is happening and what was week first where the sectors that exploded in the beginning of covid. tech and goat rolled over first, took earnings with it the you see the catch up -- you cannot

get a gdp recession yet because the services are the economy and that is what is holding up the economy. lisa: do we get to 4800 that the fed keeps rates at 5% for prolonged period of time? alicia: you can. the think is where is the credit contraction. would it like is the housing market which should be the first trajectory which higher rates filtered through the economy has not fully cracked. the demand is so strong, supply is low, prices holding up it we saw what happened with housing yesterday. there was a slow down and in a sense a rate of change. if mortgage rates they were they are and not go higher, people say this is where mortgages are but we need a home so we will pay it. if the housing market is not cracking, where else are you going to see the credit contraction?

the banks have contracted lending but there has not been an inflection in trajectory since march. it is the study so doubt we have seen since last september. -- study slowdown we have seen since last september. it looks to be well defined right now. right now you have to say credit is contraction. it is not everywhere. the markets are open for bond issue is. tom: we are to 5000 and he says what is a dull equal event, the doubt -- dow equivalent is 38,000. lisa: everybody knows you are making this up. tom: i'm trying to get alicia to

5000. lisa: if nothing is cracking, does that mean you go all in? do you buy this or do you remain cautious and say something does not feel right? alicia: we manage our portfolios based on risk growth. i don't think you go all in. the move has been edged extraordinary -- has been ordinary and in face of secure inflation and services with fed saying we are still going to be there. you cannot fully ignore it but i think we are fairly valued here. the summer could be a bit difficult summer or pricing in consolidation but to the point of what is let the market, you have to see the broadening out to the deeper cyclicals to keep this going. you need to see the financials. you need to see energy.

you have to see some broadening of participation. cyclicals went to their recession a year ago. bmi below 40, 54 a well. -- 50 four a wild. it feels like the recipe is there for that but you have to look for the next trade is. we had come part really fast and to see the small caps work. at the see the dividend stocks work. tom: alicia levine thank you so much. futures negative. the vix 13.75. it is down .2% of a percent. lisa: this comes as we await fed chair powell to take the helm on capitol hill in about an hour 45 minutes. whether it matters is another

question where people are looking at the underlying dynamism. we have not talked about the think i have focused on the most but i been looking at the submersible, have been tracking it and trying to understand -- tom: will difficult story. lisa: but it must be like to be trapped 13,000 feet under the ocean waiting for someone to find you. tom: it is been a mystery and reports by the boston coast guard through them of research on the noises from the water. the conventional think is banging on mezzo and it is hugely difficult solar technology that we are guessing against the timeline of oxygen. lisa: the technological discussion over the idea people are banking on the side saying we are here and how do you find

them in a rates with oxygen pleat running out. less than 40 hours. the global effort to find this vessel and bring it back has been tremendous and will keep watching it and hoping it has a happy ending. tom: it looks to be very difficult. bloomberg is following this from new york and london and from our boston offices as well. futures negative. single point. powell sterling one point 27 flat sterling with an absolute shop of core inflation across the united kingdom. coming up, henrietta treyz. on radio and television this is "bloomberg surveillance." ♪

it can happen to the people who teach us and rescue us, the people on our team and in our family. it can happen to the people who serve us and the people who served.

the people we work late with and stay out late with. it can even happen to the person in the mirror. opioid use disorder is a disease that can happen to any of us. it's possible recovery can happen to any of us, too. >> the relationship and communication between the two

leaders, president biden xi jinping is the most important of all and it is why they had a number of medications and meetings to date and it is why i expect you to see more that in time ahead. tom: secretary of state of united states. as he has traveled the last number of days has been extraordinary from china to other points. blinken on ukraine. maria tadeo tomorrow with an important interview in "bloomberg surveillance." with leadership from ukraine. looking forward to that. part of the joy we have is we get to bring our guests and to read henrietta treyz açai poetry. she writes different about washington and what you see in newspaper. economic policy and research

director, henrietta treyz has a directness and correctness and a stunning about your note is your directness about about outward delusional about cutting spending. you go to the pentagon budget and you are basically saying you are out of your mind if you think there is any austerity on capitol hill. how did we get here? henrietta: that is kind of you. i will be really honest about it. we had a big fight about deficit spending over the debt ceiling negotiations as we all covered. at the end of the day, the reality is we do not have the votes or the will to reduce this federal spending in any meaningful way. as the federal reserve is making decisions on whether to hike interest rates, pause or anything else we have to be

clear eyed about whether or not the federal government continues to provide increased federal spending or reduce federal spending as macroeconomists, hedge fund is trying to price in what is going to be coming to the economy the next couple of months. as we hear from blinken later today, there's going to be additional calls for funding for ukraine as we have had since the start of the war and assume that is meant to be somewhere in 30 billion to $60 billion range. you have a public is calling for increased aid to the border. yet increase calls for flooding or storms or tornadoes -- you have increase calls for flooding or storms or tornadoes. that is what is coming our way. tom: how do you perceive people like the peterson institute or

cbo, how do you perceive how close we are to a fiscal panic as people spend? henrietta: you can get stuff from the cfpb that says we need to rein in deficit and you will hear that from certain members on the hill but there is no likelihood of materially reduce federal spending. there is an effort may be -- that is a drop in the bucket. there is no material efforts underway. cbo effectively prices in near but not long-term. they are blunt about it. if you read their scores and the

footnotes, they do not assume savings where there are not going to be any. the prep example calling back covid relief aid during the pandemic. they do not factor in savings because they assume the money would not go out. they are clear eyed. i love the peterson institute work. you have to nail -- he had to get them to hear what they are saying about these realities it is often overlooked. lisa: it is often overlooked because nobody cares. the focus is on hunter biden and former president trump legal troubles. how much is that going to dominate the election cycle more than anything of the economy? henrietta: it is such an incredible question because there is a huge tax bill that is hanging in limbo coming on the next election. all the 2017 individual tax cuts expire.

all those components have -- he had his opportunity for huge conversation about this course possibility, -- fiscal responsibility but none of that is taking front and center decision because we are talking about hunter biden. because were talking about how many indictments there are against president trump. bob gibbs and fighting -- republicans fighting. no one is concentrating on the tax policy stuff which is a shame because it is a winning argument for voters who care more about the economy than any other issue. lisa: it is coming at a time where there is not just window dressing topics. i think about the case against former president donald trump and the core date that was set -- court date that was set. how much does that shift landscape heading into an election cycle where this is the proposed front-runner for the

republican party? henrietta: this is what i tell to clients, in order to combat president trump, he needs to either go to jail, be indicted or bow out of the rates because right now no other candidate has a shot. if he is plus 33 against the second closest competitor, they had to make humongous strides in fundraising, voter outreach -- he still only halfway there and still down even if he cuts his lead in have. as all of their opportunity for a candidate. you have this, haley and they pulled the live -- poll below 5%. fighting against that is a fools errand. as we have seen since does 18 when trump was in the top of the ticket, democrats win, republicans lose.

tom: we had eric cantor, how is kevin mccarthy doing? henrietta: i think he's fine for now. he will be in for a time in mid-september. all he's doing is staving off the inevitable. we could have a shut down. the rise -- the odds are rising. it is going to get uglier. tom: henrietta treyz with us. lisa: some people are talking about that giving the fact that there is still some debate over what has been approved. there is the additional spending which she is right to point that out, how much spending will be increasing despite the noise. tom: the recent history on the budget angst but really the budget angst back half a century

on the expansion of our federal america is suspended this one cry wolf of potential panic. it is that way until it is not. you wonder when it breaks, when it snaps. lisa: mohamed el-erian it just got a column headlining persistent u.k. inflation should worry everyone talking about yes, it is a u.k. story, but it points to a trend that is ongoing with central banks fighting a situation that exacerbating inequality, creating greater risk of stagflation, and hiring your -- higher bargaining calls for all and it is the concern as it grinds onward for a longer time. tom: the idea we aggregate our microeconomics and a ticket back to 1947 and in modern day, i do not buy it. john edwards, two america's come

maybe it is three britain's, but this is a huge societal story about the cost of inflation. lisa: it is apropos to talk about this in tandem with policy discussion. mohamed el-erian goes on to say it reinforces the point the urgent goal of bringing out inflation in orderly fashion cannot be met just through interest rate increases also has to improve the supply chains, productivity, and other policy considerations. tom: a british look for is coming up. frances donald as well. frances donald on the american economy. stay with us. it is "bloomberg surveillance." ♪ the queen sleep number 360 c2 smart bed is now only $899. plus, 48-month financing on all smart beds. shop now only at sleep number

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markets have power through. there's a disconnect that we have seen a sea change from ai intake or something else is afoot. tom: news now and it is on the humphrey hawkins, michael mckee out with a wonderful tweet today on the history of all this. coming out of the wharton little did they see the horrific distillation of 48 coming was the employment act of 1946 and two people, humphreys of minnesota and hawkins of california decided to amend it in 77 and 78. i had the clearest memory of this being controversial but mike mckee it was done at a time when the chairman of the fed rarely spoke. today we have massive communication. what is the value this morning of humphrey hawkins testimony?

michael: the prepared testimony of jay powell is out. nothing new in this statement. cut and paste from his opening statement at the press conference last wednesday. if you pick a line out of it you might say inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go. he repeats the phrase we use is our key quote last week, nearly all fomc participants. expect it is appropriate to raise interest rates by the end of the year but at last week's meeting considering how far and how fast we have moved, which i should prudent to hold the target range study -- steady. his diagnosis of the economy the same, labor market remains tight and inflation numbers are well above their long-term 2% goal. they are seen tightening in richest rate sensitive sectors

but extent of that is uncertain -- interest rate sensitive sectors but extent of that is uncertain. they look at human subtyping monetary policy -- building to be cumulative tightening of monetary policy. if you like what jay powell said last wednesday, you will like it today. tom: it sounds like over communication. can he move the markets today? michael: he could. the question had to be asked of what do you mean of additional farming. do you think you want to go 50 basis points as new dot plot suggests and if so, when you do that? you said delight was live, do you anticipate raising rates in july? would you go 25 basis points? will there be every other meeting kind of move? those were the questions that could move markets today. powell likely going to talk about bank reform, new

regulations after the march issues. that is not going to move anybody's needle. tom: improvement would be if you could be the congressman from new york and you could ask a question at the testimony. that will be a big improvement i think this morning. michael mckee thank you so much as we look towards the support and testimony by the chairman. frances donald global chief economist and strategist. she is good at writing listerine bullet points that right -- writing bullet points that cut right to the chase. we know the u.s. is way out front on inflation versus what we saw in united kingdom and even europe. japan being the oddity. look at the not merely -- core inflation is coming down. you say the up to 2% is going to be brutal. frances: the path to 3% is going to be quite easy. then a lot of people will claim

victory. tom: i do not see it appreciate -- i do not see it. frances: a huge element is basic facts. you point out if we talk year-over-year inflation is healing but for most americans and global citizens of the world, their price pressures are not coming down. they are still paying more than they did several years ago and are still going to have that embedded view that prices are substantially higher. that is why central banks, the fed, bank of canada, ble cannot -- ble cannot imply plight rate cuts are not coming. if they do that, you will see the inflation of expectations. lisa: they said that a socio-group of people say inflation is going to be hotter for longer -- and you still have a group of people saying inflation is going to be higher for longer. they do not raise rates longer,

will they lose the battle with inflation? frances: no. some portion of it is but we are in a new paradigm in which inflation is being driven. more by global, supply-side factors. this year's interesting. what keeps me up at night as 2024 and onwards. we are heading into an environment where two inflation will become the norm . they continue to launch us into recessions or lower growth in two put us towards 2% or do they emit the nature of inflation is changing and 2% to 3% is mobile we are looking at. lisa: there's a lot to unpack into this. how do they make sure he stays into a certain range and keep their credibility? i say it is a mistake for the fed to go to 6% in a fed funds rate to bring inflation down faster? all

they would do is to torpedo the economic growth without changing that paradigm. frances: it is a mistake to ask central banks to solve inflation all by themselves. we have to have hard conversations about what we are asking global central bankers to do. the fed has an out because it is a dual mandate. if you look towards the on employment -- unemployment side of the picture. there are other central banks that have single mandate that are only targeting inflation. those central banks are going to have to say what is the cost of 2% now that the nature of inflation is changing. tom: if you see disinflationary trajectory were outlining -- soon to be serious disinflation, what is the labor component do? we have people come on suggest we could see an abrupt decline in nonfarm payrolls. do you buy it? frances: in the past we will

look at nonfarm payrolls as a good indicator, we will look at the unemployment rate. i'm looking at weekly hours worked among other indicators. we have companies very clear they are still scarred labor shortages persisted over the past several years. they will attempt to cut costs in ways that are not laying people off. we are likely to see you stay employed, get to check the box but the amount i was your asked to work klein -- declines. weekly hours are back to covid labels -- pre-pandemic covid levels. then implement rate still going to be probably rising -- the unemployment rates still going to be rising. it is where metrics have to broaden. tom: it's the solution is patience and expansion of the x

axis where they stay higher for longer. to me that is a move to worry about 20 basis points up and down. frances: the solution to most things is patience. we have penciled in one more rate hike for july but we spend much more time thinking about the response to the next recession. we are looking at central banks do cut, the federal reserve does cut but only towards with a view as neutral. they do not going to easing territory they say restrictive. that brings a question, what is neutral? we do not know for sure. lisa: when you talk about resilience in face of rate hikes , what do you make of the fact that markets have continued to rally? we have a rates the losses since the beginning of the rate hikes and we have seen two-year yields rise by want to basis points in the past month and a half.

frances: we have historically believed in place a recession, central banks respond. my job is to input our forecast to see what different asset classes are going to do. in recession we say this meant to be an opportunity for equities, fixed income throughout but will restart modeling recessions without material rate cuts or less rate cuts we see a different asset class return. it is not a standard recession playbook. what is happening now is a market coming to that realization recession or bank failures does not equal rate cuts. it is a paradigm change. lisa: why is there resiliency? if they are not rate cuts to the rescue, is that reckoning when be lower or may be this economy is not interest rate sensitive many expected? frances: there is no shortage of soft landing. the issue i have with that and why i think it is a disconnect

between equities, which are being destroyed by a i story, and fundamentals as every single indicator of recession is flashing red, deplete red. -- flashing red. if i say half indicators come is there still a recession? the answer is yes. to make a point there is a soft landing at the discredit the indicators that signal recession. some savages have made good points about excess savings and labor shortages but am not there yet. tom: is a stock market disassociated from your cautious economic view? frances: yes but that is ok. macro is not everything all the time. as much as i would like macro to be the driver, sometimes you have to trade off of technical sentiment, tactical portfolio manager that is the moment and recession may still be a couple

months away. sometimes there's a disconnect think on the timeframe it is also an opportunity -- and depending on the timeframe it is also an opportunity. tom: i look at this. as we know, that is what make surveillance go, there is different opinions. lisa: i love what frances was saying about every indicator flashing red. how when people have said indicators are broken? how many are saying it is a different time? more and more people are saying soft landing, no recession because we are seeing the pandemic distortion we have not seen since 1918. tom: 210 spread of 297 basis points. lisa: i will say i'm going to be feeling in for jon ferro in the next hour and coming up we got incredible guess.

we speak with as we bring you into the open. brian weinstein. it will be talking about this dissonance we have been seeing about the forecast for recession that people are ignoring more and more even as the fed is getting uncomfortable. tom: the opinions are all over the place. it is extraordinary to meet the difference. somebody message -- dispersion -- somebody mentioned dispersion. there's a theory dispersion going on right now. i can do nsa on that. -- nsa on that. lisa: when it comes to how long phrase have to go high and if were going to a higher rate environment, or whether we are talking about something going back to what we used to know with respect to low rates and low inflation. that in dispersion. we have different views on that. tom: looking at the 210 spread

pledging here -- plunging here. we are at 97 basis points. a difference between the two year and 10 year is almost one full percentage point. two year higher. it is moving with real strength. lisa: it is within distance of the lowest going back to 1981, the last time the fed was on this type of hiking cycle. tom: we saw that it is united kingdom this morning. futures -11. the vix stunning. 13.80. this is "bloomberg surveillance." ♪ ♪ ♪

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>> i think we can agree that the economy is less interest rate sensitive than we thought.

there will be characterize the economy -- we thought the profitability of recession despite with the banking crisis been i would think that is come down. we are looking at an economic malaise than a recession on the horizon. tom: chris harvey with a bullish construction on the market and study back to the late 1990's into 2000s on the tech boom we are all living. i urge you to find the report from wells fargo. i want to take a pause here and i understand it is midmorning is united states of america. what is going on in united kingdom is extraordinary. lisa mentioned the writings of mohamed el-erian moments ago. we will look at all the different economists. i thought we needed someone

grizzled and ancient who understands the value and dynamic of foreign sterling dynamics is a tell the story of the united kingdom. it is a fear about core inflation. it is a fear we will hear from capitol hill types talking to chairman powell this morning. a brief now. to chairman powell this morning. thank you on short notice for joining us. i thought your note was brilliant. the regression on cable, sterling u.s. dollar is just simply weaker sterling since 2016 and brexit. is that slight modest measure depreciation in place? is there a structurally weaker sterling? >> thank you for the introduction. i think in context, we have to

remember this week marks the seventh anniversary of u.k. population deciding to exit european union. then we did revised down, we would assume there was a lower threshold for equilibrium sterling that would otherwise be the case. bresky longer trajectory because microeconomic activity will be less robust and estimates data in recent inflation print, structure inflation dynamics somewhat higher. we have inflation differential which is in favor of u.k. relative to elsewhere but implies results in currency which needs to appreciate and underperform. we have seen sterling recovery. back when there was no immediate fear of parity but i think we

are not in a situation where we are back into a larger 20-one to 40 range -- back into a 120-440 range . tom: will be looking at euro sterling but because it is 8:40 night wall street time, i'm going to stay on cable here which is sterling dollar. i look at this and the idea how much can sterling reach out given the challenges of the greater united kingdom, dare i say we get back to wonder 40 like 2018 -- wonder -- 140 like to thousand ac? >> if we have that it is basic broader principles for sterling range. it is tough to see how we get to the upper extremities of that

range over the course of the future because clearly as u.k. terminal rates have been pushed higher over the course last month as inflation pressures, if we do see terminal rates being price roughly 6% threshold which we have done periodically, about fisa recession risk into 2024. we can talk about a hard landing in u.s., i think u.k. is weaker in fundamental story relative to where u.s. is. it is difficult to see how we can see material appreciation of sterling beyond the 31 extremes the next 12-18 months. the 140 threshold is on the agenda let you take a weaker narrative than we would be prepared to accept. tom: i want to get to dollar

discussion but after look at devaluation tear. the high was 7.1 not yuan. with all of its asian heritage, is this an orchestrated depreciation or devaluation by beijing or is this a free and flowing currency? frances: it is not fully free imploding but looking at the micro dynamics of china and particularly re-orientating expectations of reopening narrative and coming back to the conclusion that macroeconomic -- are not as constructive and robust as we have for an anticipated so we are seeing the currency depreciating reflecting the weaker economic performance.

investors are a little nervous or disappointed in context of the reduction in five-year rate earlier in the week because there has been hope there will be a rate reduction to assimilate the real estate sector. it is more a case of disappointment regarding the reopening narrative. i do not think it is a massive depreciation but i think we do see anything north of 720, i think that does feel as if the downtrend is relative valued and ultimately i would expect by the end of the year we trade towards the seven threshold or below it. tom: let me get back to the center of tennessee which are make an audience is most focus on, dollar durability as well. i have been worn out by people calling for weak dollar. it just does not happen. give us an update on the view of

the full faith and credit of the dollar. frances: i think there are still some value to be had in the dollar. in context of the fed, think the market is still perhaps underpricing the possibility of the fed pushing through not just one july high, but possibly september 1. think that is underpriced for the market. should see got -- dollar gain traction on the back of that. in the conversation you had with frances donald earlier, we would agree that the fed will hold rates at a restrictive level for somewhat longer. that is also supported for the dollar valuation however having said i think the risk localized demand for that diversification away from the dollar is over time. in the next three months we can see the dollar making gains and robustly supported but i think over the medium six months and

beyond i think we can see a graduated but modest degree of reduction in dollar valuations. tom: john e most in, thank you for listening to us. john as capri wants to know what is a tradable pair right now? where is opportunity among the pairs you look at? frances: in context of the pairs, you need to look at those that are becoming most dislocated from market rate expectations. i think there is valuations in dollars story as we reprice the fed over the next two months. i think the yen, the canon should be opportunities in and because markets are given back their expectations but i think we should not downgrade that. in terms of scandinavian

currencies we have seen those beaten up over the recent months and i think there is potential there for a snap back if we start to see that downside risk in global story starting to find base. i think that would be more constructive to some of those currencies as well. tom: thank you so much. see bic. i cannot say more about the shock we saw in united kingdom of course cpi. the duration 31 years back to see that kind of persistent core inflation. the societal effect of that is really something. jerome powell to speak this morning. that will be important. michael mckee with us this afternoon look for the president

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lisa: super jonathan ferro. the longer the session goes the more the losses built. the countdown to the opens starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. ♪ lisa: investors are cautio